Conflict Between CPLR and Bankruptcy Code: A Dilemma for Lenders
In response to the financial crisis, New York enacted new legislation requiring mandatory settlement conferences in foreclosure actions during which the foreclosing lender and the borrower must negotiate, in good faith, to determine if any foreclosure alternatives are available to the defendant borrower. However, that law conflicts with the prohibition in the Bankruptcy Code against a creditor taking any act that can be construed as trying to collect a discharged debt from a debtor. Thus, if a foreclosure action is commenced against a borrower who previously received a discharge on their mortgage loan debt, the lender is left with a “Catch 22″: comply with the CPLR and risk violating the Discharge Injunction, or vice versa.
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