Bank of America, N.A. v. Caulkett
575 U.S. 790 (2015) — Supreme Court of the United States (2015)
Facts of the Case
David Caulkett and Edelmiro Toledo-Cardona each filed Chapter 7 bankruptcy and sought to 'strip off' (void) junior mortgage liens under § 506(d) of the Bankruptcy Code. In both cases, the senior mortgage exceeded the home's current market value, meaning the junior liens were entirely 'underwater' — there was no equity to support them. The debtors argued that because the junior liens were not 'secured' under § 506(a), they could be voided under § 506(d). The bankruptcy court agreed and voided the junior liens.
Legal Issue
Whether a Chapter 7 debtor may 'strip off' (void) a junior mortgage lien when the debt is entirely underwater — that is, the senior lien exceeds the property's value, leaving no equity to secure the junior lien.
Court Holding
The Supreme Court unanimously held (9-0) that a debtor in Chapter 7 CANNOT strip off a junior mortgage lien that is entirely underwater. The Court held that § 506(d) voids a lien only if the underlying claim is not an 'allowed secured claim,' and a claim does not become unsecured simply because the collateral value is zero in a Chapter 7 case. The junior lien survives bankruptcy — it remains a lien on the property even though there is no equity to support it. In a Chapter 13, lien stripping is permitted for wholly unsecured junior liens (Nobelman v. American Savings Bank, 1993). But Chapter 7 does not permit lien stripping — the distinction is deliberate.
Why This Case Matters
Caulkett is a landmark decision defining the limits of lien stripping in bankruptcy. It establishes that Chapter 7 — the liquidation chapter — cannot modify secured claims by stripping off wholly unsecured junior liens. Homeowners with junior mortgages (second mortgages, HELOCs) who file Chapter 7 cannot remove these liens — they survive. The strategic implication is clear: if you need to strip a junior lien, you must file Chapter 13 (which permits it under § 1322(b)(2)), not Chapter 7.
Impact on Homeowners
If you have a second mortgage or HELOC that is entirely underwater and you file Chapter 7, the junior lien SURVIVES the bankruptcy — you still owe it, and the lender can foreclose if you default. To strip the junior lien, you must file Chapter 13 and comply with the plan requirements. This decision affects homeowners with both a first and second mortgage where the home is worth less than the first mortgage balance. Consult a bankruptcy attorney to determine whether Chapter 13 lien stripping is available.
Related Resources
Defense Doctrines
Court Procedures
Related Documents
Frequently Asked Questions
What's the difference between lien stripping in Chapter 7 and Chapter 13?▼
Can I strip a lien if it's partially secured?▼
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