Why Don’t Consumer Cases Mediate?

A wide gap

By: Donald L. Swanson

Mediation is firmly entrenched as a dispute resolution tool in bankruptcy.  Mediation is commonly and regularly used throughout the bankruptcy system.  And mediation’s value in bankruptcy is almost-universally recognized.

A Mediation Gap

But there are wide gaps in bankruptcy where mediation is still under-utilized.  One of the gaps is consumer cases.  Hardly anyone uses mediation to resolve disputes in consumer cases, unless mediation is required by local rule.

I don’t know why or how this gap exists in consumer cases.  But the gap’s existence is a shame because:

–There are mediators in nearly every bankruptcy district who would be more-than-happy to make consumer mediation work.

–Costs and time commitments can be minimized in consumer cases by, for example:

–agreeing to a reduced or flat fee for the mediator;

–eliminating mediation statements (the mediator can get information from the court’s online filings);

–limiting the time commitment for a mediation session to a couple hours or half-day; and

–meeting by telephone when distances are prohibitive.

Attorney Resistance

My experience is that bankruptcy judges would be more-than-happy to approve mediation in consumer-cases.  It’s the attorneys in such cases who are resistant to (or simply don’t think about) mediation.

A 2016 Example

Here’s an example of resistance.

In re Whittick, 547 B.R. 628 (Bankry. N.J. 2016), is an adversary proceeding brought by the Chapter 7 Trustee to recover $13,642 from the Chapter 7 Debtor and his spouse.  The spouse did not file bankruptcy.  Legal wrangling ensues.

New Jersey’s Bankruptcy Court has a local rule mandating mediation.  N.J. LBR 9019-2(a)(1) provides:

–“Every adversary proceeding will be referred to mediation after the filing of the initial answer to the adversary complaint,” unless the parties decline.

The In re Whittick case is teed up for mediation under this local rule.  But the parties decline mediation.

So, the case moves forward on cross-motions, and supporting briefs, for judgment on the pleadings.

A hearing on the cross-motions results in a lengthy opinion from the court (the opinion covers fifteen pages — small type; single space; narrow margins; no pictures).  But the opinion resolves only one issue and sets a trial on remaining issues.  The ruling is as follows:

The Trustee’s “Motion for Judgment on the Pleadings is GRANTED IN PART only to the extent that the court finds that the loan proceeds/funds are property of the estate, but DENIED as to all other matters.

The Defendants’ “Cross Motion for Judgment on the Pleadings is DENIED.”

“A trial will be scheduled on the issue of whether the Debtor transferred the proceeds/funds with the intent to conceal (section 522(g)), and if not, if an exemption applies.”

Several months later, as trial approaches, the parties enter into a “Stipulation of Settlement,” under which the Defendants agree to pay $10,000 to the bankruptcy estate.

A Mystery

This is a mystery.  Why did the parties decline to mediate this dispute?  Declining mediation make no sense here:

–The economics of the case are terrible — who can afford to litigate anything where $13,642 is at stake?

–The parties decide to litigate instead of mediate, and they probably spend more in fees (on each side) than the amount that’s at stake in the dispute.

This is a shame!


Mortgage Modification Mediation (“MMM”) . . . A Program Worth Adopting

By: Matthew Gillespie

For many, if not most of us, our homes are our biggest assets. The inverse of this is also true – our mortgages are often our biggest liabilities.

It makes sense, then, that in Chapter 13 consumer bankruptcies, a debtor’s mortgage can have a major impact on the success (or lack thereof) of a plan. For some, the advantages provided to a Chapter 13 debtor are not enough, and meeting the terms of the mortgage itself is untenable. What is a debtor to do?

Addressing an underwater mortgage in bankruptcy can leave you navigating through the weeds.

A number of bankruptcy courts throughout the country have created a program around one commonsense answer: mortgage modification mediation (called ‘MMM’ for short). This program creates a set of procedures for qualifying debtors to begin a mediation process with their mortgage lenders for loan modification. The lender can also initiate the mediation.  Neither party is obligated to reach an agreement – all that’s required is good faith negotiation.

Now, renegotiation of the terms of a mortgage (‘mortgage modification’) is nothing new. But for many, mortgage modification through procedures established by a lender can be arduous and painful in the best of times – for both sides. The MMM program seeks to ease this process for debtor and lender alike.

While each court has adopted slightly different procedures for its MMM program, the basics are the same:

–First, either the Chapter 13 debtor or the lender petitions the court for MMM. Each district I’ve found that’s adopted such a program requires debtors to dedicate 31% of their gross income to a modified mortgage (or, for some, 75%-100% of the current monthly mortgage payment).

–Second, if and when the motion is approved, each party pays an amount (typically between $200-$400) for the mediation fees, and agrees to split any additional costs evenly.

–Finally, a successful modification agreement is then approved by the court.

That’s it! In the words of the United States Bankruptcy Court for the Northern District of Florida:

The [MMM] program is streamlined to reduce costs, save considerable time, and make it easier for the parties to facilitate a loan modification.

While these courts have taken a bold step to encouraging the efficient and mutually beneficial resolution of Chapter 13 mortgage modifications, both debtors and lenders can take a leaf from these courts’ books by encouraging voluntary mortgage modification mediation in Chapter 13 bankruptcies.

Adopting the MMM program should be considered by every jurisdiction that doesn’t already have it.

To learn more about MMM programs, take a look at a few of the bankruptcy courts that have chosen to support mortgage modification mediation: N.D. Cal., D. Nev.,  E.D.W.I.

Bankruptcy Mediation for the Little Guy – Part 2: Nebraska in the Lead


By Matthew Gillespie

In my previous post, I discussed the Nebraska’s Federal Practice Fund: a fund based on attorney admission fees that, inter alia, allows parties in bankruptcy proceedings to apply for funds to pay their portion of mediation fees when they’re unable to pay themselves. Nebraska’s District Court adopted this measure under the umbrella of the Guide to Judiciary Policy, Vol. 13, Ch. 12.

To my chagrin, I could not find another federal court fund that will pay for an indigent party’s portion of a bankruptcy mediation tab. Continue reading “Bankruptcy Mediation for the Little Guy – Part 2: Nebraska in the Lead”

Bankruptcy Mediation for the Little Guy – Part 1: Financial Assistance

No money in the wallet, no mediator?

By Matthew Gillespie

Of all the benefits mediation provides, the perennial favorite is this: it saves money! Not only can a successful mediation conclude a dispute without the rigmarole and expense of a hearing (or worse, trial), but even unsuccessful mediations can bring the parties closer to resolution of the dispute another time.

But what happens when both parties to an adversary proceeding or contested matter are open to mediation, but, perhaps predictably, the consumer debtor doesn’t have the capital to pay for his or her portion of a mediation? Continue reading “Bankruptcy Mediation for the Little Guy – Part 1: Financial Assistance”