Anna Nicole Smith Decision Could Impact Bankruptcy DebtorsThe Anna Nicole Smith bankruptcy case has extended well beyond the death of the celebrity and may now impact the jurisdiction and power of bankruptcy judges.  The central issue raised in the Anna Nicole Smile bankruptcy was whether a bankruptcy judge had a right to decide a non-bankruptcy dispute which impacted the case.

Vickie Lynn Marshall, known to the public as Anna Nicole Smith filed for bankruptcy after the death of her husband. Howard Marshall II, her late husband’s son, filed suit against Vickie alleging defamation. Vickie counter-sued alleging tortious interference with a gift; asserting that Howard II fraudulently prevented Vickie’s husband from putting Vickie in her husband’s will. The bankruptcy court found in favor of Vickie and awarded her $425 Million Dollars in actual and punitive damages. The case then went through the appeals process and landed in the Supreme Court.

The Supreme Court ruled that the bankruptcy court erred in their decision putting into question whether or not bankruptcy courts could face challenges on other judgments.  This is especially probable in cases which involve cramming down mortgages during bankruptcy. Mortgage cram downs are done when a mortgage is worth significantly more than the property which secures it. Logically, you cannot say that a mortgage of $100,000 is fully secured by a home which has a value of only $50,0000. Because of this bankruptcy courts have routinely decided that the unsecured portion of a mortgage could be discharged in bankruptcy. However, after the Anna Nicole Smith ruling there is a chance that some mortgage companies may challenge this bankruptcy practice of cramming down overinflated mortgages. And because there are so many bankruptcy cases which involve partially unsecured mortgages, the mortgage industry has an incentive to push this issue.

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