A majority of people in the legal community believe that a borrower should be able “strip off” a junior-lien mortgage in a bankruptcy payment plan even if the bankruptcy is not discharged.
The findings were based on a poll taken by the American Bankruptcy Institute.
The Alexandria, Va.-based group’s members include lawyers, judges and other bankruptcy professionals. Bankers and lenders are also among its members.
According to ABI, 56 percent of those polled either agreed or strongly agreed that debtors should be allowed to strip off a wholly unsecured junior mortgage lien in a chapter 13 plan, even if they are not entitled to a discharge.
“Under the Bankruptcy Code, a primary mortgage cannot be modified since it is secured by the debtor’s residence,” the statement said. “A second mortgage, however, can be modified in a chapter 13 plan if the property is worth less than what is owed on the first mortgage. For debtors in that situation, the second mortgage is considered to be wholly unsecured and can be ‘stripped’ in a chapter 13 proceeding.”
Just 38 percent of those surveyed disagreed or strongly disagreed that chapter 13 debtors not entitled to a discharge should be allowed to strip off a wholly unsecured junior mortgage, while 4 percent didn’t know or had no opinion.
