Long Island Bankruptcy Cases May Undergo Radical Changes

by | Mar 3, 2022 | Bankruptcy

In a decision dated February 28, 2022, Judge Grossman of the Central Islip division of the United States Bankruptcy Court for the Eastern District of New York, just gutted what has become a much used program in the bankruptcy courts AND simultaneously established what has never been had in a New York bankruptcy court: a no look Chapter 13 fee.

In the matter of In re Tcherneva, case no. 19-71413, Judge Grossman addressed a fee application by the Debtor’s attorney seeking $9165.00 for both basic Chapter 13 services and what appears to be a long and drawn out loss mitigation process. Judge Grossman raised the issue of good faith in filing and the increasing number of cases where Chapter 13 cases are filed with the sole purpose of participating in loss mitigation.

Judge Grossman appears to believe that loss mitigation as the sole purpose of a bankruptcy case is not a good faith filing.

The judge noted the large numbers of cases that are filed just to get loss mitigation and get dismissed before confirmation, with attorneys “racking up fees” both for the borrower and lender attorneys. The Court essentially said that loss mitigation has become the tail wagging the dog and explicitly stated that the broad powers granted under §105 of the bankruptcy code do not encompass loss mitigation as presently done in the Eastern District of New York. He will no longer grant loss mitigation motions. If debtor’s wish to modify their mortgages, they must do so OUTSIDE of the bankruptcy court, but those must still be approved under Rule 9019.

The Court also addressed attorneys fees. Under §330 of the bankruptcy code, the Court determines, on application, whether a fee charged by counsel is reasonable. The Court was perturbed by what it saw as a tacit agreement between the debtors’ bar and the Chapter 13 Trustee as to when a fee was generally deemed reasonable to let it go through. The Court reasserted its power to award or deny fees and announced a new development in the Eastern District of New York: a no-look fee of $5500 for Chapter 13s filed in the Eastern District of New York, Central Islip Division (Long Island cases). This means that if an attorney charges $5500 or less for a case, they will not need to have a hearing on their fees. The Court did not state that higher fees could never be charged, but stated that those fees will be subject to ordinary fee application processes.

Judge Grossman is not the chief judge and this may not be a procedure or policy adopted by EVERY judge in that district, BUT since there is no guarantee that a filer will get Judge Grossman, Judge Trust or Judge Scarcella, this policy may set the tone for the entire area because debtor’s counsel will not want to roll that die and adjust based on whichever judge they get. This may only stay on Long Island or it may migrate out to the Brooklyn division. Only time will tell.

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