On April 5, 2011, the Senate Judiciary Committee passed a bill to establish a National Loss Mitigation Program in Bankruptcy Cases. By a vote of 10-8, the bill sponsored by Senator Whitehouse of Rhode Island will move onto the Senate. Senate Bill 222 will allow bankruptcy judges under 11 USC 105 to establish loss mitigation programs in bankruptcy cases. The bill mirrors the Model Loss Mitigation Program that has been in place in Rhode Island for the last several years. The Program gives the Debtor the opportunity to request Loss Mitigation Opportunities with his or her creditors at any time prior to discharge in a Chapter 7 or any time during a Chapter 13. This may have major implications on the administration of bankruptcy cases by delaying discharges and confirmations of Chapter 13 plans. In addition, Motions for Relief from Stay on Real Property could be put on hold until loss mitigation is completed.

Loss Mitigation discussions can be a very good process for both Creditors and Debtors. However, if not implemented in a fashion to prevent abuses, such as being used to  slow down a bankruptcy case and allow a debtor to live in his or house for a longer period of time without payment, the program could have negative consequences. 

The prognosis of the bill passing in the Senate is strong. However, it will have much more difficulty in the Republican controlled House, and the chances of passage do not look good.

Weltman, Weinberg & Reis will continue to monitor the status of this legislation and provide regular updates to our clients.

If you have any questions on this matter, please contact Alan C. Hochheiser, Esq. Alan is the Managing Partner of the Bankruptcy Practice Group of Weltman, Weinberg & Reis co., LPA located in the Brooklyn Heights, Ohio office. He can be reached directly at 216.739.5649 or .