The United States Supreme Court is hearing oral arguments regarding whether it’s possible to discharge an underwater mortgage loan through Chapter 7 bankruptcy. Two homeowners with second mortgages owned homes worth less than what they owed on their first mortgages. The same lender possessed the junior-lien rights in both instances.
There have been conflicting rulings by courts on this issue. A prior Supreme Court decision ruled against homeowners facing an underwater second mortgage. However, a federal appellate court ruled in favor of homeowners in the current case, and that’s why this matter is now in front of the U.S. Supreme Court.