For people who are filing for bankruptcy in Kentucky, an important decision caps what experienced bankruptcy lawyers consider a critical move – always make sure you tell the right people about the bankruptcy case and all related proceedings. As a recent Kentucky bankruptcy court opinion confirms, failure to notify creditors properly could limit your bankruptcy protections.

In the case of In re Allen, a Kentucky homeowner filed for Chapter 7 bankruptcy after taking out a home loan that went through the usual ringer of being securitized (in other words, it was chopped up into a million little pieces and sold to investors). The Chapter 7 trustee filed a lawsuit against Deutsche Bank National Trust Company and Mortgage Electronic Registration Systems, Inc. to declare that their interest in the property was invalid.
So far, this is what is swiftly becoming a routine course of action in bankruptcy cases around the country. Mortgage gets securitized, nobody knows who owns it, and someone seeks to invalidate the entire secured claim.
In this case, neither Deutsche Bank National Trust Company nor Mortgage Electronic Registration Systems, Inc. filed an answer to the trustee’s complaint. Trustee wins the case by default.
But here’s where things take a wrong turn. And where an experienced bankruptcy lawyer knows how easily a bankruptcy case can get tripped up.
Our hero, the Chapter 7 trustee, didn’t serve Deutsche Bank National Trust Company and Mortgage Electronic Registration Systems, Inc. in the right place. He served papers on Deutsche in New York, which is where they are headquartered. He did not, however, serve papers on the agent that filed the Proof of Claim in the U.S. Bankruptcy Court.
Why is serving a corporation at headquarters a bad idea … sometimes?
Under Fed. R. Bankr.P. Rule 7004(b)(3), you’re allowed to serve a corporation by mailing “a copy of the summons and complaint to the attention of an officer, managing or general agent, or to any other agent authorized by appointment or law to receive service of process.”
In this case, Deutsche listed Litton Loan Servicing as its agent on the proof of claim for all notices regarding the bankruptcy case.
This, the Allen court held, serves as an “appointment” under the Rule.
In other words, serving Deutsche at headquarters would have been proper before Litton filed a Proof of Claim. But once the Proof of Claim was filed, only Litton could be served. The court struck the default judgment and essentially brought everything back to Square One.
What does this mean for Kentucky bankruptcy cases?
The answer may not be readily apparent, but look deeper – the issue isn’t limited to this case. It goes for all lawsuits filed in bankruptcy court, and applies to every single lawyer who takes on these cases. When you choose a lawyer for your bankruptcy case, their experience and attention to detail counts. So, too, does their knowledge of the bankruptcy laws outside those that are used each day.
Most bankruptcy lawyers routinely refer to the laws but not to the Federal Rules of Bankruptcy Procedure or the Federal Rules of Civil Procedure. That may not cause a problem for consumers frequently, but when it does the issue can be a huge one for your case.
Jay S. Fleischman helps people file for bankruptcy in New York. He is New York co-chair of the National Association of Consumer Bankruptcy Attorneys, and speaks frequently around the country to local and national bankruptcy bar associations.