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What Is New York Bankruptcy Loss Mitigation?

“Loss Mitigation” sounds like an intimidating term, but it’s really just a mechanism within New York bankruptcy to help parties resolve foreclosure issues to debtors’ and creditors’ benefits. That is, its objective is to keep debtors’ principal residences out of foreclosure or reduce needless costs to creditors. It involves negotiations between the parties, possibly including a mediator, aimed at reaching a loan modification, refinancing, forbearance, short sale, deed in lieu of foreclosure, or similar outcome. Loss mitigation is unavailable for investment properties the debtor does not live in. The program has been available in the Eastern District of New York, which includes Brooklyn, Queens, and Staten Island since 2009. Debtors in the Southern District of New York (Manhattan, Bronx, and Westchester) can use it as well.

Either debtors or creditors can request to enter into the loss mitigation program with opposing parties. For debtors, the chapters they file in affects the commencement process. If they file their requests in chapter 13, they must identify the creditor in the chapter 13 plan and note the request in the plan’s docket entry. Creditors have 21 days to object and if they don’t, then the bankruptcy court may order them into loss mitigation, but they can wait until 14 days after the loss mitigation period is over to object to a debtor’s chapter 13 plan. Debtors filing in other chapters, or whose chapter 13 plans have not yet been confirmed, may merely serve and file the commencement request to enter loss mitigation with creditors, which have only 14 days to object.

In all chapters, creditors can serve and file their commencement requests, leaving debtors with only 14 days to respond. The bankruptcy court can also order the parties into loss mitigation, but the parties can object. Other relevant parties, usually creditors with junior liens on debtors’ properties, can be called to participate as well.

Once in loss mitigation, creditors may contact debtors without violating the automatic stay. However, creditors may not file motions to lift the automatic stay. Otherwise, the parties try to negotiate for whatever kind of agreement benefits them so long as they do so in good faith. At meetings, parties must have someone present who has binding settlement authority. This is sometimes a problem in meditation programs because creditors sometimes refuse to send representatives who can bind their organizations. Loss mitigation sessions need not be conducted in person, but the parties must at least agree on holding future sessions and whether documents should be exchanged.

Once the parties agree on the settlement, it is submitted to the bankruptcy court for approval. Importantly, any settlement that’s reached need not require debtors to dismiss their cases. Dismissals can be part of settlement so long as it complies with the Bankruptcy Code and rules.

Information on bankruptcy loss mitigation can be found here (pdf).

Entering a loss mitigation program can be advantageous for debtors, but for some it might not help. Debtors who have filed bankruptcy to avoid a foreclosure might benefit significantly because the process requires good faith participation by creditors who are authorized to enter into binding agreements. It can also help chapter 13 debtors who are facing foreclosure. An experienced New York bankruptcy lawyer can help you decide whether it’s beneficial to participate in loss mitigation.

For answers to more questions about bankruptcy, loss mitigation, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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