President Obama just sent his legislative package to Congress to create the new Consumer Financial Protection Agency. The new agency's purpose will be to protect consumers from deceptive or confusing practices by financial institutions. Chances are, however, that many consumers who are currently struggling with financial stress are not likely to see the immediate effects of this program. In the mean time, some bankruptcy courts are looking for alternatives to help consumers and debtors get through the bankruptcy process successfully.
The U.S. Bankruptcy Court for the Southern District of New York is experimenting with a "loss mitigation" program for homeowners and lenders. The program was initiated by Bankruptcy Judge Ceclia Morris in response to the loss-loss situation usually associated with home foreclosures. With home sales down, lenders are struggling with recouping foreclosure expenses. Judge Morris describes the program as "mediation without a mediator." She explains that "The Bankruptcy Code does not allow me to rewrite a residential mortgage. But it does allow me to say to both sides that they need to talk, in the hope that they may avert either the loss of a debtor's property to foreclosure, increased costs to the lender, or both." Previously, both consumers and debtors had difficulties getting together to rework financial agreements. Consumers were frequently hard pressed to get a live person to actually talk to them. Debtors were afraid to talk for fear of violating automatic stay requirements.
Either side may request to participate in the process. If a consumer wants to participate, he or she files a motion and sends notice to the creditor. The creditor then has the option of objecting or consenting to the meeting. If both sides agree, the judge proceeds to set up meeting times and time-lines.
An important feature of this program is that neither side is forced into the program; and neither side is forced to agree. The voluntariness of the programs enhances the quality of the negotiation and both sides are motivated by the win-win of better communication.
As the nature of our economy changes, creative ideas and current information are valuable tools in regaining your financial stability. It's important that when you are making the decision to file that you seek a qualified bankruptcy attorney that is familiar with the procedures and programs offered in the jurisdiction where your bankruptcy will be filed. A good bankruptcy attorney can also help you negotiate through the bankruptcy process so that you can find your win-win solutions.