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Disallowance of Proof of Claim Also Required Creditor to Refund Monies Received on Claim

On Behalf of | Dec 31, 2014 | Bankruptcy |

Debtors file objections to claims all the time in Chapter 13 cases. However, rarely do they seek reimbursement of the monies received by the creditor after the objection is sustained. This practice should be reconsidered given the recent case of In re Thompson, __ BR __, 2014 WL 5335738 (Bankr. E.D. Wis. 10.21.14), where the Bankruptcy Court granted the Chapter 13 debtors’ motion for reimbursement of payments they made to Wells Fargo on its disallowed claim, and ordered the lender to pay the debtors more than $73,000 and also to repay the Chapter 13 trustee more than $11,000. The court found that Wells Fargo would be unjustly enriched if it were allowed to retain the payments made to it by the debtors on a note that it could not enforce.

Wells Fargo had filed a claim in the debtors’ Chapter 13 case in which it claimed it was the proper entity to receive payments under a note signed by the debtors which was payable to First National Funding Group, Inc. The debtors’ plan provided to cure the mortgage arrears and also required that the debtors would make their post-petition payments directly to the lender. The Debtors filed an objection to Wells Fargo’s claim. After nearly 3 years of litigation, the court disallowed the claim finding that the lender did not have standing to file the claim. The debtors then sued Wells Fargo for reimbursement of all the payments they made to it since the filing and also to reimburse the Chapter 13 Trustee for all the payments the Trustee sent them. The court held that under the theory of unjust enrichment, it would be inequitable for Wells Fargo to keep the funds as it had no legal right to collect money as it had no legal right under the law to enforce the note.

Even though the debtors’ confirmed plan provided for the payment of the mortgage arrears to the lender, once the court disallowed the claim, the lender was required to refund all the monies it received from the debtors and the trustee. Debtors’ counsel should take note of this case and seek reimbursement of any monies sent to a creditor whose claim has been disallowed by the court.

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