As we see increasing amounts of foreclosure throughout the New York metropolitan area, in Brooklyn, Queens, the Bronx, Staten Island, Westchester County, Nassau County and Suffolk County, our office (Starr & Starr, PLLC in Manhattan) get many inquiries about whether bankruptcy can be used to save a home facing foreclosure or deal with an adjustable rate mortgage that has reset to monthly payments that the homeowner can no longer afford.
A recent post on our blog New York Chapter 13 Bankruptcy Eligibility Requirements and Issues addressed the limitations that Chapter 13 bankruptcy has. One very significant limitation is that secured debt can’t exceed $1,010,650. Many condo and co-op apartments and houses in New York (particularly Manhattan, Nassau County, Suffolk County and Westchester County) have debt in excess of this amount based on multiple secured loans and liens, such as first mortgage, second mortgage, and home equity loan (and sometimes also tax liens).
As we also detailed in our prior blog posting, Commonly Encountered Problems in NY Chapter 13 Chapter 13 can’t be used to modified the rights of a lender secured by the debtor’s principal residence. However, Chapter 11 bankruptcy can
Eligibility Requirements for Chapter 11 Bankruptcy:
Unlike Chapter 7 and Chapter 13 there is no eligibility requirement for Chapter 11.
How Chapter 11 Works
The goal of a Chapter 11 case is to confirm a plan of reorganization. That plan, which creditors get to vote on and is subject to Bankruptcy Court approval, details the debtor’s proposed treatment of creditors.
Modification of Loans. In Chapter 11 a debtor can seek to modify loans secured by his/her home (or other property). If the value of the debtor’s home has fallen significantly, the debtor may be able to split a mortgage creditor’s claim into two parts: one that is secured and one that is unsecured.