Last week, the U.S. Supreme Court heard oral argument in companion cases arising under Section 506 of the Bankruptcy Code.
The issue in both cases was whether consumers may wipe out underwater second mortgage liens in chapter 7 bankruptcy.
See related post: Supreme Court to Decide Bankruptcy Mortgage Strip Issue
What is Lien Stripping?
The practice of "lien stripping" is widespread across the country in chapter 13 bankruptcy. The practice is allowed under chapter 7 of the Bankruptcy Code only in the 11th Circuit.
The Supreme Court's 1992 opinion Dewsnup v. Timm held that mortgage lien rights generally survive chapter 7 bankruptcy.
See related post: 11th Circuit Allows Second Mortgage "Strip Off" in Chapter 20 Bankruptcy
How Was the Dewsnup Opinion Reached?
The Dewsnup case was decided 6-2.
Justice Thomas took no part in the decision, and Justices Scalia and Souter dissented. Of the six justices that supported the Dewsnup opinion, only one (Kennedy) remains on the Supreme Court.
Before oral argument last week, I commented that the case seemed like a no-brainer based on Dewsnup and its progeny.
However, after oral argument, some legal experts now predict the SCOTUS could effectively overturn Dewsnup.
See related Forbes article: Second-Mortgage Case Has Justices Second-Guessing An Old Decision
After reviewing the oral argument transcript, I'm updating my prediction to 6-3 in favor of Bank of America, while keeping my fingers crossed.