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Bank of America drops lawsuit against Chapter 13 trustee

When a consumer in Tennessee files a chapter 13 bankruptcy petition, the court typically appoints an impartial trustee to administer the case. After a payment plan is approved by the court, the appointed trustee is responsible for collecting payments from the debtor and distributing them to the creditors identified in the plan. However, disputes sometimes arise, as today's post illustrates.

Earlier this year, Bank of America became the first lender to sue a Tennessee bankruptcy trustee. The mortgage company failed to file a timely creditor's claim in the consumer's individual chapter 13 proceeding, then argued that it should be exempt from the trustee's request for documentation of the mortgage note.

A chapter 13 trustee typically convenes a meeting of creditors shortly after a debtor files a chapter 13 petition. Whereas unsecured creditors usually must file their claims with the court within 90 days after that meeting, secured creditors, such as mortgage holders, may be subject to different requirements. Perhaps for that reason, Bank of America believed it did not have to produce documentation of its right to the consumer's home.

In any event, the company recently announced it was dropping its lawsuit -- and paying the attorney's fees incurred by the trustee in defending against the litigation -- after working out a deal directly with the debtors. Through an amended claim filed on behalf of the debtors, Bank of America will be getting $567.18 a month in mortgage payments.

Consumers in Tennessee can use a chapter 13 proceeding to save their homes from foreclosure. The automatic stay stops the foreclosure proceeding as soon as the petition is filed. However, bankruptcy procedures must be complied with, as this posting illustrates. For that reason, consumers often benefit from seeking the advice of a bankruptcy attorney.

Source: Nashville Business Journal, "Bank of America drops case against TN trustee; agrees to pay attorney fees," Annie Johnson, Aug. 16, 2012

  • Our firm handles situations similar to the one discussed in this post. If you would like to learn more about our practice, please visit our Memphis Chapter 13 Bankruptcy page.

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