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Supreme Court mulls overturning old bankruptcy decision

South Carolina homeowners with underwater mortgages along with other debts may be considering bankruptcy relief to find protection from creditors and opportunities for make a new start. Authorities agree that this is especially common among people with second mortgages. A case that has gone before the U.S. Supreme Court holds out the possibility of sweeping changes for people whose amount owed on their mortgages is higher than the value of their property.

The case deals with the disposition of a second mortgage on a property that had lost so much value that selling it on the open market could never possibly realize the price of the first loan, let alone any subsequent ones. A lower court had ruled that personal bankruptcy filings could remove the lien of an underwater second mortgage, and the lender appealed the case all the way to the Supreme Court. However, in recent oral arguments, some of the justices seem inclined to not only rule in favor of the defendants but to overturn a previous case and widen bankruptcy protections.

The previous case dated from 1992 and placed arbitrary limits on second mortgages. One Supreme Court justice stated her understanding that personal bankruptcy laws were meant to protect debtors so that they could get a fresh start, and some justices appeared to be not in favor of a decision that defeated that purpose. However, others expressed their disagreement.

Those who are considering filing for bankruptcy as a result of overwhelming financial obligations may want to speak with an attorney who has experience in these matters. The attorney can explain the eligibility requirements as well as the effect that bankruptcy will have on certain types of debt.

Source: Forbes Magazine, "Second-Mortgage Case Has Justices Second-Guessing An Old Decisione," Daniel Fisher, March 24, 2015.

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