How Does Bankruptcy Affect Co-Signers?
When an individual or family has filed a Bankruptcy case to stop the foreclosure of their home, the homeowner is entitled to apply to the Loss Mitigation Program of the Bankruptcy Court. It is important to have quality legal support through this alternative to Foreclosure. The Law Offices of Allen A. Kolber, Esq. has over 35 years of experience helping clients acquire the relief they need through the Bankruptcy Code. If you are facing Foreclosure, it is important to contact a Rockland County Loss Mitigation Program attorney from our firm to discuss your legal matter.
In the Southern District of New York, the Loss Mitigation Program is created by the Bankruptcy Court’s own Loss Mitigation Program Procedures rather than by the Bankruptcy Code, and either the homeowner or the lender may request it, with the Court entering a Loss Mitigation Order after notice and an opportunity to object. During the Loss Mitigation Program, the bank may not proceed to a Foreclosure and Sale.
The purpose of the Loss Mitigation Program is to allow the Homeowner to apply for a loan modification, and to require the bank to review your financial ability, in good faith, to determine whether you qualify for one of the Government loan modification programs, or the bank’s own internal loan modification program.
The following is a basic list of documents you must provide to the bank in any loan modification application:
- Financial Statements or Profit & Loss Statements
- Personal or business bank statements
- Paystubs from each wage earner in your family.
- Personal or business tax returns
- A current utility bill proving you reside in the home.
- A Hardship Letter to explain the reason for your default and your current ability to pay the mortgage.
Your Rights While an Application Is Pending
Federal mortgage servicing rules apply whether or not you are in bankruptcy. Under Regulation X, a servicer generally cannot make the first foreclosure filing until you are more than 120 days delinquent, and if you submit a complete loss mitigation application more than 37 days before a scheduled sale, the servicer may not move for judgment or conduct the sale while it evaluates you. That restriction is known as the ban on dual tracking.
Do I need an attorney?
Attorneys skilled in the loan modification process will be able to process the documents in the most efficient manner. For example, my office has a relationship with almost every law firm that represents the banks in NY State, and my paralegals know most of the loan mod paralegals at those firms. Therefore, we always submit our clients’ packages directly to the law firm as well as the bank representative during the Foreclosure Settlement process. Readers should be suspicious of any loan modification “expert” who tells you he has a “personal connection” in the bank. No bank representative will go against his bank guidelines and risk losing his job, pension, benefits, etc.
Additionally, a skilled attorney, like a skilled accountant, must know how to prepare the Financial Statements or Profit & Loss Statements that will best represent your financial ability to qualify for a loan modification.
But remember, a loan modification is not a discount program to reward homeowners for defaulting on their mortgages. The banks will not approve a loan modification if the homeowner cannot prove sufficient income to pay his monthly mortgage. The banks are not compassionate or understanding. They are merely following their investors’ guidelines: If the mortgage can be returned to a current status, the loan will be modified. If the homeowner cannot afford to carry a mortgage plus real estate taxes, insurance, utilities, etc., then the bank will usually move to take back its collateral (the house) and cut its Losses.
The federal HAMP program that lowered interest rates to 2% and extended loan terms to 40 years closed to new applications at the end of 2016. A government-backed modification today is more likely to target a percentage reduction in your monthly payment, under the Fannie Mae and Freddie Mac Flex Modification or the FHA loss mitigation framework that took effect in February 2026. Some of the banks’ internal programs may lower your interest rate, fix an adjustable rate, forgive excess principal, or place your defaulted payments (“arrears”) at the end of the loan, to be paid when you sell the house or refinance.
Whichever program is offered, the most important feature of being granted a loan modification is that your Foreclosure action will be dismissed, and you will return to a regular monthly mortgage payment. For most of my clients, this is a major step in the return to financial stability.
Alternatives to loan modification in the Loss Mitigation Program
Loss Mitigation covers a range of solutions that both avert the Loss of a debtor’s property to Foreclosure and satisfy the lender to the best of the debtor’s ability. Some of the solutions that fall under The Loss Mitigation Program include:
- Loan modification
- Loan refinance
- Forbearance
- Short sale
- Surrender of the property in full satisfaction
- Some combination of the above methods
Contact an experienced Rockland County loss mitigation program attorney
Filing for Loss Mitigation is time-sensitive and document-heavy. It is important to have quality legal support that can help protect your rights and work towards a positive outcome. If you are filing for Bankruptcy because of Foreclosure, it is important to consult with an attorney. The Law Offices of Allen A. Kolber, Esq. has over 35 years of experience helping clients in New York acquire relief through the Bankruptcy Code. To schedule a consultation, contact The Law Offices of Allen A. Kolber, Esq. for a consultation today.
