Shed that second mortgage? Recent court decision says "yes"

A recent ruling from the Bankruptcy Appellate Panel of the 8th Circuit Court of Appeals said that people who file for Chapter 13 protection can discharge their second or any junior mortgage (it’s called lien stripping) and still keep their house if the value of the house is less than the first, or primary mortgage.

The decision is being hailed a significant one because it means that people who have a paycheck and want to keep making the payments might be able to do so through the financial reorganization that comes with the bankruptcy process.

A significant challenge for many of those who are trying to recast their debt to make it more manageable is that they owe so much more than their house is worth and have a second mortgage. There’s more about the case that inspired the decision and details about what it means on Craig Andresen’s website. He’s the bankruptcy attorney who represented the debtor in the case that resulted in the decision. Andresen said that the case has been appealed by the Chapter 13 trustee to the Eighth Circuit Court of Appels and that the parties are briefing the court on the issue. A deciision is likely in early summer 2012.