Supreme Court rules in bankruptcy case

Supreme Court rules in bankruptcy case

The US Supreme Court [official website] ruled [opinion, PDF] Monday in Bank of America, N.A. v. Caulkett [SCOTUSblog materials] that a debtor in a Chapter 7 bankruptcy proceeding may not void a junior mortgage lien under §506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both secured by a lien and allowed under §502 of the Bankruptcy Code. The case involved Florida homeowners who took out a second mortgage with Bank of America. When respondents filed for bankruptcy under 11 USC § 506(d), the laws allowed the homeowners to “strip off” a junior mortgage lien in its entirety, i.e. the second mortgage with BOA, because the outstanding debt owed to a senior lienholder exceeded the current value of the collateral. Monday’s ruling resolves a circuit spit on the issue.

The case was consolidated with Bank of America, NA v. Toledo-Cardona [SCOTUSblog materials]. The court heard arguments in March after granting certiorari [JURIST reports] in November.