Mortgagee’s Misapplication of Plan Payments not Tortious

American Bankruptcy Institute Law Review Staff

 

 

In In re Oliver, the Bankruptcy Court for the District of Kansas held that a debtor did not meet the threshold requirements to proceed on a claim of outrage (i.e., intentional infliction of emotional distress)[1] by alleging that a creditor had misapplied payments received from the debtor and the trustee in violation of the debtor’s chapter 13 plan.[2] Mr. and Mrs. Oliver (the “Debtors”) entered into a loan agreement with CitiCorp Trust Bank FSB (the “Creditor”) to finance the purchase of their home.[3] Roughly three years later, the Debtors filed a chapter 13 bankruptcy petition.[4] The Debtors’ confirmed chapter 13 plan stipulated that the Creditor must apply any mortgage payments to the mortgage balance immediately upon receipt as opposed to holding the payments in a suspense account.[5] The plan also required the Creditor to apply payments made by the chapter 13 trustee and the Debtors to pre-petition arrearages and post-petition claims respectively.[6] The Debtors alleged that the creditor violated the terms of its chapter 13 plan by holding partial mortgage payments in suspense accounts, which resulted in improper interest calculations.[7] Additionally, the Debtors alleged that the Creditor had also violated the plan by failing to provide complete and accurate accountings of payment received from the Debtor and the chapter 13 trustee.[8] Finally, the Debtors also claimed that the Creditor’s misapplication of payments caused the Debtors to file incorrect tax returns, and that as a result, they were denied credit or offered credit at a higher rate.[9]