We had a collection person advance principal to pay interest on a loan that was in a trustee payment arrangement for several years. Due to the trustee payments, the interest had accrued several thousand dollars. They took the interest and applied to the principal and extended the maturity as they did not increase the payments. They did this without any modification agreement.

The discharge papers did not say to do this. They just did it. I don't see where we can we do this so how do we fix? I would say the correct way would be to do a modification agreement with a new maturity date and the new loan amount (P+I).

Help is greatly appreciated.

The first thing you need to do is contact the bank's attorney. If you are in breach of the Trustee's agreement you most likely are going to owe the borrower some money.

could you expand on the trustee agreement? I read thru the docs and it didn't say to waive the interest. Just to apply the payments to principal during the trustee payment time frame.

Without having the benefit of having a copy of the trustee's agreement from the bankruptcy court I would have no idea what to comment on, plus I am not an attorney.

When it comes to bankruptcy settlements you need to be absolutely certain you are within the bankruptcy court's order and applying any moneys accordingly.

I remember a case from the early 80s where a bank accepted "voluntary" payments from the borrower during the bankruptcy before it was discharged. Long story short they ended up paying the bankruptcy trustee several thousand dollars.