The U.S. Supreme Court decided the case of Bank of America v. Caulkett on June 1, 2015. Bank of America held a junior mortgage which was completely underwater (no value in the property to support the lien), because the first mortgage exceed the value of the debtor's property. Caulkett filed a Chapter 7 case and filed a motion to avoid the junior mortgage lien under Section 506(d) of the Bankruptcy Code.
In 1992, the Supreme Court decided the case of Dewsnup v. Timm, in which the Court held that a Chapter 7 debtor could not strip a partially secured junior mortgage off a debtor's property under Section 506(d). The debtor in the Caulkett case argued to the Supreme Court that the Dewsnup precedent should not prohibit lien stripping of a wholly unsecured junior mortgage.
The Supreme Court disagreed, holding that the difference between a partially unsecured and wholly unsecured lien in Chapter 7 didn't matter - the principle in both instances is the same. Section 506(d) does not allow a chapter 7 to strip a lien off property. The Court noted a difference between Chapter 7 and Chapter 13 (where lien stripping is allowed). The lesson in the Caulkin case is that if a debtor has an opportunity to strip off a wholly unsecured junior mortgage or other lien, the debtor should file a Chapter 13.