In the common Chapter 13 case, a client owns a house with 2 mortgages. The house is worth less than the first mortgage securing the property and therefore the property is underwater. The bankruptcy code allows a debtor to strip off a second mortgage when that mortgage has no equity in the property. The actual stripping off and discharge occurs at the confirmation of the plan and when the debtor is discharged. But what happens when the debtor is not entitled to a discharge because of a previous bankruptcy?
Unfortunately, there are no cases on point in the First Circuit; however, other Circuits have taken a negative view. In re Victorio, 2011 Bankr. LEXIS 2704 at *15 (Bankr. S.D. Cal. July 8, 2011), comes out of the Ninth Circuit. The court held in this case that if a second mortgage secures a primary residence then pursuant to 1322(b)(2) a creditor's rights cannot be modified. A strip off would amount to a de facto discharge. Only a discharge would make the lien strip off effective and since the debtor is not entitled to one, the second mortgage cannot be stripped off.