Stripping off a second mortgage in a Chapter 7 Bankruptcy

Recently, a number of my Chapter 7 Bankruptcy clients have been presented with a similar situation: the value of their home has fallen so much in the last few years that the second mortgage has become wholly unsecure. Of course the value of the home is subject to different valuations, but in many of these cases the estimate is so low that even the highest estimate would leave the second mortgage in the same situation.
In a Chapter 13 Bankruptcy, this type of unsecured mortgage is dealt with by “stripping off” the unsecured mortgage and paying it as a general unsecured debt in the Chapter 13 Bankruptcy plan; however, it is not clear whether the court will accept this in a Chapter 7 Bankruptcy. The Bankruptcy Courts around the country are split on how to deal with this issue but there has been no definitive authority on this in the Northern District of Illinois Bankruptcy Court.
A New York Bankruptcy Judge recently ruled that the logic of a Chapter 13 Bankruptcy Plan “strip off” should be applied to Chapter 7 Bankruptcy cases and that wholly unsecured second mortgages should be stripped off in Chapter 7 Bankruptcy as well.
I tend to agree with the New York Judge and will be trying the strip off in Illinois. More to report on this when I see some results.