When a client walks into the office of a New York bankruptcy attorney with the intent to declare personal bankruptcy, it is often with head held low, believing everything is about to change. But did you know that the concept of bankruptcy is far from a recent legal construct? Article 1 of the United States Constitutionactually authorizes Congress to make uniform laws governing bankruptcy, and there is even an entire private division of each federal court dedicated to handling only bankruptcy proceedings. It is important to understand that, with the help of a New York bankruptcy attorney, New York’s federal bankruptcy courtsare here to help those struggling with financial hardships find freedom from the bondage of debt. Ronald D. Weiss, P.C., Attorney at Law, can help you implement a structured plan that could protect you, your family, and even your home.
Unlike Chapter 7 bankruptcy, which can wipe out the majority of your debts if you qualify for liquidation, if you have a steady source of income you can file for Chapter 13 bankruptcy, which initiates a restructuring of your debts to help you repay them over time. Chapter 13 bankruptcy is preferable for many individuals because it can actually help you save your home from foreclosure by giving you the opportunity to cure delinquent mortgage payments during a three- to five-year period. According to the New York Bar, the following are the most common reasons individuals elect to file for Chapter 13 bankruptcy:
For those looking to keep their homes, filing for Chapter 13 bankruptcy will automatically stay the foreclosure litigation while the bankruptcy court structures your debt so that you can pay back your arrears without accruing additional debt. However, there is a difference between a payment structure that permits you to repay arrears accrued during a temporary financial hardship and an actual modification for your loan terms in order to make your monthly payments affordable.
When you petition for Chapter 13 bankruptcy, you must provide the court with the following:
Once your petition is filed, you must submit a repayment plan to the court and begin making payments on your debts. Depending on the nature of the debt, however, whether it is priority (such as bankruptcy filing fees), secured (your mortgage), or unsecured (credit card debt), you may be able to pay pennies on the dollar. The judge will eventually review your plan to determine whether it is sustainable, but because your mortgage is a secured debt, if you want to stay in your home you are generally looking at reinstatement of the original payment schedule only with the opportunity to catch up on arrears. If this is not feasible because of your financial situation, however, you will have to avail yourself of the unique benefit of filing for Chapter 13 Bankruptcy: loss mitigation and loan modification.
Although loan modification is a type of loss mitigation, not all loss mitigation options involve a loan modification. New York banking regulations define “loss mitigation” as “an alternative to foreclosure, including loan modification, reinstatement, forbearance, deed-in-lieu and short sale.” A loan modification, however, means a modification of one or more material loan terms, which can include an interest rate reduction, capitalization of arrears, extension of a loan term, forbearance, or even partial forgiveness.
The United States Bankruptcy Court for the Eastern District of New York, which governs bankruptcy matters on Long Island, has a standing order that addresses court-supervised loss mitigation conferences and procedures. The purpose of these procedures is to encourage lenders and borrowers to reach mutual resolutions, such as loan modifications, when residential properties are at risk of foreclosure. Furthermore, any mutual resolutions can be incorporated into a final settlement order to ensure protection of its terms from the bankruptcy court. The benefit of holding a loss mitigation conference is that the bankruptcy court will work with you to extend certain court deadlines and eliminate additional fees to facilitate resolution.
Not every petitioner, however, qualifies for loss mitigation. To be eligible, you must meet the following criteria:
If you are eligible, either you or the creditor can request a loss mitigation referral, and even the court can force the conference if it deems it to be in the best interest of the parties.
Once the parties have entered into loss mitigation with the bankruptcy court, the defaulting borrower has the benefit of a mediated discussion with the creditor to determine modification eligibility. During this time, a creditor may generally not file to lift the automatic stay in place on any foreclosure litigation and must negotiate with you in good faith to avoid possible sanctions. If you or your attorney believes that your lender is not negotiating in good faith, then you have the added benefit of being able to request judicial intervention by the bankruptcy judge.
At the end of the loss mitigation period, the parties must file a final loss mitigation report that sets forth the modification agreement or resolution reached between the parties, if any. The court can then incorporate the modification into the final bankruptcy order, which may include terms regarding your arrears and a possible removal of a second lien holder. Accordingly, you will not only be afforded greater protection by the court order itself, but you will not have to file for a private, in-house loan modification that may result in an arbitrary denial.
Whether you are considering a loan modification, are currently in foreclosure, or have recently petitioned for Chapter 13 Bankruptcy on Long Island, Chapter 13 loss mitigation may be the best option for you and your family. Bankruptcy is not the end—it is merely a new start. Ronald D. Weiss, P.C., Attorney at Law, has experience with loan modification, foreclosure, and bankruptcy in Nassau and Suffolk Counties. He can analyze your eligibility and the specific facts of your case to determine whether filing for Chapter 13 loss mitigation is the right choice for you. Contact us online or at (631) 271-3737 for a confidential, no-risk consultation.