In the case of Leonard Nobelman, et ux. v. American Savings Bank et al., 1992, the U.S. Supreme Court ruled that bankruptcy courts cannot reduce a debtor's obligation to pay off a home mortgage in full when the value of the property is less than what is owed on it (a situation known as being "underwater"). The court held that Chapter 13 of the Bankruptcy Code does not allow for modification or reduction ("cramdown") of rights secured only by liens on debtors' principal residences. This decision affirmed an earlier ruling by lower courts and clarified how bankruptcy laws apply to underwater mortgages, thereby protecting lenders from having their loans reduced in such situations.

In the dissenting opinion for Leonard Nobelman, et ux. v. American Savings Bank et al., Justice Stevens argued that the majority's interpretation of Section 1322(b)(2) of the Bankruptcy Code was too narrow and failed to consider its broader purpose: providing a fresh start for honest debtors. He contended that this section should not be interpreted as completely barring modification of rights of holders secured only by debtor’s principal residence but rather allowing some modifications if they do not impair claims or interests. According to him, such an interpretation would better align with Congress' intent in enacting bankruptcy laws - helping distressed homeowners avoid foreclosure while also ensuring fair treatment for creditors.