Court relaxes bankruptcy rules for underwater homeownersby Jessica Mador, Minnesota Public Radio
St. Paul, Minn. — A recent court decision allows underwater homeowners in Minnesota to discharge second or third mortgages in bankruptcy.
Before, such mortgages could not be "stripped off" in Chapter 13 bankruptcy proceedings, so underwater homeowners were still responsible for those payments.
Attorney Jane Bowman Holzer from the Housing Preservation Project said the change will help people struggling to make payments when they owe more than their homes are worth.
"It puts them in a position where that first mortgage is now hopefully affordable," Holzer said.
Bankruptcy courts in Minnesota were among the last in the nation to adopt the change, Holzer said. Second mortgage strip-offs do not apply in Chapter 7, or "liquidation" bankruptcies.