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U.S. Trustee Lacks Authority under the Bankruptcy Code to Pursue Adversary Proceeding against Mortgage Lender for Alleged Abuses in Chapter 13 Case According to Latest ABI Quick Poll

Contact: John Hartgen
               (703) 739-0800
               jhartgen@abiworld.org

 

U.S. TRUSTEE LACKS AUTHORITY UNDER THE BANKRUPTCY CODE TO PURSUE ADVERSARY PROCEEDING AGAINST MORTGAGE LENDER FOR ALLEGED ABUSES IN CHAPTER 13 CASE, ACCORDING TO LATEST ABI QUICK POLL

November 24, 2008, Alexandria, Va. — A majority of respondents (55 percent) in a recent ABI Quick Poll agreed that a U.S. Trustee lacks authority under the Bankruptcy Code to pursue punitive sanctions against a mortgage lender for an alleged pattern of abuses in a chapter 13 case. Thirty-five percent of respondents “strongly agreed” and 20 percent “somewhat agreed.”

Forty-one percent of respondents, however, thought that a U.S. Trustee does have authority under the Code to pursue punitive sanctions in a chapter 13 case on behalf of the public by way of an adversary proceeding in an action alleging a pattern of abuse by a mortgage lender. Thirty-four percent “disagreed strongly” and 7 percent “somewhat disagreed” that a U.S. Trustee does not have the authority to pursue punitive sanctions against an alleged abusive mortgage lender in a chapter 13 case. Two percent of respondents did not know or had no opinion on the issue.

The Quick Poll was based on a bankruptcy judge’s ruling that a U.S. Trustee had no legal basis for seeking monetary sanctions against Countrywide Home Loans for filing inaccurate motions in a Miami couple's chapter 13 case. Bankruptcy Judge A. Jay Cristol said that U.S. Trustee Donald Walton did not have the authority to pursue punitive sanctions on behalf of the public through an adversary proceeding against the mortgage lender. The proper parties to seek sanctions, according to the ruling, were the debtors, who did not participate in the trustee's lawsuit. Walton filed an adversary proceeding March 1 against Countrywide in the chapter 13 case, claiming that the mortgage lender abused the bankruptcy process by filing two inaccurate motions for relief from the bankruptcy stay and a subsequent mortgage foreclosure action.

ABI members and members of the public were welcome to submit their response to the statement: “In an action alleging a pattern of abuse by a mortgage lender in chapter 13 cases, the U.S. Trustee lacks authority under the Code to pursue punitive sanctions on behalf of the public by way of an adversary proceeding. (Walton v. Countrywide Home Loans, S.D. Fla.)”

ABI’s Quick Poll is posted on ABI’s home page, www.abiworld.org. ABI members and the public are invited to respond to a question on a timely bankruptcy or insolvency issue. Visit http://www.abiworld.net/quickpoll/ to access the results of previous ABI Quick Polls.

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ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes nearly 11,700 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.