Debtor Denied Motion Due To Improper Notice

March 26th, 2010 by Reed Allmand

In the Chapter 13 bankruptcy case of Hannon, Mary; In re (Hannon v. Countrywide Home Loans Inc.), the bankruptcy court denied a debtor’s motion for sanctions against a creditor because the debtor failed to properly notify the creditor and give them time to correct the problem.

The details of the bankruptcy case:

Countrywide Home Loans filed a proof of claim stating an arrearage of $9,294 of which $5,000 was identi­fied as “sheriff deposit” paid in two installments of $2,500. The Chapter 13 debtor’s counsel prepared a motion for Rule 9011 sanctions and warned Countrywide that it would be filed if the claim was not amended to accurately state the lender’s claim. Countrywide complied by filing an amended claim that deleted one of the $2,500 deposits. Shortly after the debtor’s plan was confirmed, the sheriff refunded $2,158 to Countrywide. More than one year later, the debtor filed a motion for sanctions under Rule 9011 against Countrywide for not amending its complaint to reflect the refund. The court denied the motion because the debtor’s demand was not preceded by the “safe harbor” letter giving Countrywide 21 days to correct the problem.

The bankruptcy court ruled that while the creditor appeared to engage in conduct that could warrant sanctions, the bankruptcy court could not consider the debtor’s motion for sanctions under Rule 9011 of the bankruptcy code because the debtor did not properly notify the creditor so that they could correct the proof of claims.  However, the bankruptcy court stated that it would consider its own sanctions because Countrywide apparently lacked procedures for amending its claims to reflect the refund of Sherriff’s deposits.