Dewsnup Strikes Again: Lien-Stripping of Junior Mortgages in Chapter 7 and Chapter 13

Most individuals entering bankruptcy must choose to file under either chapter 7 (liquidation) or chapter 13 (reorganization)—with some wealthier filers only having the option of filing chapter 11. Individuals make their chapter choice based on the relative costs and benefits of each option. This Note explores one of the issues that may encourage debtors to opt for chapter 13 bankruptcy: lien-stripping of wholly valueless junior home mortgages. Based on the reasoning of two U.S. Supreme Court cases, Nobelman v. American Savings Bank and Dewsnup v. Timm, courts have generally allowed this type of lien-stripping in chapter 13 but not in chapter 7. This Note examines the application of these Supreme Court cases to the issues of whether strip off of valueless junior mortgages should be allowed in both chapter 7 and chapter 13. I argue that courts should harmonize these cases to allow strip off in both chapters because such an approach is more faithful to the language of the Bankruptcy Code and would implement better public policy.

Note | View PDF | Appears in Volume 53, Issue 4

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