Zombie Second Mortgages Are Hard to Kill Zombie mortgages are hard to kill. But in the past two years, we successfully used Chapter 13 and consumer law violations to save two families from foreclosure by zombie second mortgages. Maurice and Lily Hadn’t Paid the Zombie Mortgage Since 2008 Maurice and Lily fell on hard times and stopped paying their home equity loan during the mortgage crisis in December 2008. Suddenly, in 2023, that zombie home equity loan started to foreclose, saying they were $216,394.75 behind.  (The principal balance on the loan in December 2023 was $86,188.33. The zombie mortgage claimed $130,000 in interest.) We filed Chapter 13 to stop the foreclosure and we had a fight on our hands. Here’s what we had going for us. The Truth in Lending Act requires a mortgage company to send monthly bills. Somewhere along the line, the mortgage company had stopped. We said a total of 108 months had no monthly statements, so we argued we could deduct $140,000 from what was owed.  That was double the interest on those months. The double the interest penalty is in 15 USC 1640(a)(2)(A)(iv). We didn’t get the whole deduction we wanted, but the mortgage company agreed to reduce the $216,394.75 to $100,000.00. And they also agreed to call the $100,000 current, so it was back on a monthly payment, instead all all due at once. The house was saved. Phil and Emma Stopped Paying in 2013. Phil and Emma bought a house January 2007, with a $575,000 first mortgage at 5.75% and a second of $135,000 at 9%.  Their payment on the second was $990 per month and they kept it up until January 2013.  After seventy months of paying almost a thousand dollars per month, they had only reduced their balance on that mortgage by just $7,000.00. From $135,000 down to $128,000.  At that point, they gave up trying to pay. Fast foward ten years, the second mortgage started to foreclose, claiming Phil and Emma now owed $218,000 (on the original $135,000 plus $84,000 in interest) and were $108,041 behind. We filed Chapter 13 to stop the foreclosure, and I brought in a Virginia lawyer–who is a nationally known consumer law expert–Kristi C Kellly, to help fight this. Ms. Kelly fought back with claims under the Virginia Consumer Protection Act  and RESPA. Eventually, the zombie mortgage agreed to a compromise settlement. The settlement balance was $137,877 (close to the $135,000 original loan) and the interest was reduced from 9% to 6.3%.  Most importantly, instead of being $108,000 behind, Phil and Emma were made current. The house was saved. We were able to fight off the zombie mortgages and save two family homes. Zombie Loans are Enforceable The fact that a loan is showing “charge off” on your credit report, doesn’t help you. And the statute of limitions on mortgages in Virginia is really long.   But, those zombie mortgages may have consumer law violations that you can use along with Chapter 13 to stop a foreclosure, renegotiate the loan and get back in track.     The post Two Homes Saved from Zombie Second Mortgages appeared first on Robert Weed Virginia Bankruptcy Attorney.

M.D.N.C.: Brown v. First Advantage Background Services Corp. & Ashcott, LLC II- Minimal Emotional Distress Damages Ed Boltz Tue, 11/04/2025 - 16:47 Summary: Following up on his earlier order in Brown v. First Advantage granting default judgment as to liability against Ashcott, LLC under the Fair Credit Reporting Act (FCRA), the Middle District of North Carolina revisited Plaintiff Charles Edward Brown’s claim for damages. The Court ultimately awarded Brown $11,343.79 — consisting of $8,843.79 in lost income and $2,500 for emotional distress, while allowing him to separately seek attorney’s fees. Background: Brown, a North Carolina truck driver, applied for a FedEx Ground subcontractor position through FXG in December 2022. FedEx’s offer was contingent upon a background check conducted by First Advantage, which in turn subcontracted to Ashcott. Ashcott erroneously matched felony convictions from Pennsylvania to Brown — despite mismatched Social Security numbers and the fact that he had never lived in that state. The false report led FXG to withdraw its offer. Though Brown immediately disputed the report, it took six weeks to correct. Despite being invited to reapply, he never did so — a fact that sharply curtailed his damages recovery. Lost Income: Judge Schroeder limited Brown’s economic loss to a six-week period, rejecting his claim for a full year’s lost income on mitigation grounds. Brown’s prior employment at R&L Carriers earned him roughly $326 per week, while the FedEx position would have paid about $1,800 per week. The resulting “shortfall” was pegged at $8,843.79. Emotional Distress: Brown claimed $100,000 in emotional damages for depression, sleeplessness, and increased alcohol use, supported only by his own affidavit referencing rising A1C levels and later treatment. Citing Sloane v. Equifax and Robinson v. Equifax, the Court found such claims “fraught with vagueness and speculation” absent medical corroboration or timely treatment. Despite acknowledging Brown’s frustration and “some demonstrable emotional distress,” the Court found the ten-month delay in seeking therapy undercut causation and limited recovery to $2,500. Commentary: This decision serves as a sobering coda to Judge Schroeder’s earlier opinion in Brown v. First Advantage (Sept. 8, 2025), where liability was easily found but damages were deferred. Then, the Court made clear that default judgments under the FCRA are not blank checks; plaintiffs still bear the burden of proving harm — both economic and emotional. Now, the Court’s modest award underscores the difficulty of quantifying emotional distress without objective, contemporaneous medical support. Brown’s experience — losing a job offer over false criminal charges — is undoubtedly humiliating. Yet the Court’s tone reveals skepticism toward the expanding “soft tissue” of FCRA emotional distress claims, particularly where plaintiffs recover swiftly or fail to mitigate. To paraphrase Sloane, “the distress must be demonstrable, not speculative.” Broader Implications: “The Sweatbox” of Psychological Harm While this was a Fair Credit Reporting Act case, the Court’s demand for “external corroboration” of mental suffering parallels a recurring challenge in consumer bankruptcy and debt-collection litigation — the undervaluation of psychological injuries. As I’ve said (perhaps too colorfully) before, consumer lawyers could take a page from personal injury practitioners. Just as PI attorneys are accused (often unfairly) of having “a chiropractor in every glovebox,” consumer advocates need to develop relationships with psychologists and mental-health professionals who can testify to the genuine, measurable trauma inflicted by financial abuse. The scholarship bears this out. The seminal “Life in the Sweatbox” study by Katherine Porter, Deborah Thorne, Robert Lawless, and Pamela Foohey demonstrates that consumers often spend years trapped in a pre-bankruptcy purgatory — juggling debts, fielding collection calls, and enduring what the authors memorably describe as “slow financial asphyxiation” before finally seeking bankruptcy relief. During this “sweatbox” period, families exhaust retirement funds, borrow from relatives, and suffer cascading emotional and physical distress — all to avoid the perceived stigma of bankruptcy until they are, quite literally, out of options.   The UK’s “Debts and Despair” report documents that nearly half of people in arrears felt harassed, and 50% reported suicidal thoughts linked to debt collection contact. Similarly, Debt Collection Pressure and Mental Health (2024) found a statistically significant correlation between repeated creditor contact and depressive symptoms among young adults. Even another credit reporting organization,  Equifax,  reports that "[t]here's a strong link between debt and poor mental health. People with debt are more likely to face common mental health issues, such as prolonged stress, depression, and anxiety." Together, these data reveal that financial harm is inseparable from psychological harm. The FCRA’s remedial structure — permitting “actual damages” for emotional distress — recognizes this, but as Brown demonstrates, federal courts continue to require a clinical translation of distress into medical or diagnostic evidence. Absent such testimony, even a man falsely branded a felon may be told his sleepless nights are worth no more than $2,500. Takeaway: Judge Schroeder’s ruling may be defensible as a matter of evidentiary rigor, but it exposes a deeper disconnect between how courts conceptualize “harm” and how ordinary people actually experience it. Emotional and psychological injuries—especially those tied to financial humiliation, job loss, or harassment—are real, measurable, and often debilitating, yet they remain undervalued when judges require “medical” corroboration for what is, as David Graeber reminded us in Debt: The First 5,000 Years, a human experience intertwined with obligation, shame, and power since the dawn of civilization. To bridge that gap, consumer attorneys should not only improve how they prove emotional distress—but also reconsider who should decide it. A jury of one's  peers, drawn from the same economic and social fabric as the plaintiffs who face abusive credit reporting, debt collection, or financial exclusion, is far more likely to understand the toll of sleepless nights, collection calls, and the loss of dignity that accompany financial hardship. Federal judges, by contrast, tend to approach such claims with institutional skepticism and often little shared experience. As a result, the difference between $2,500 and $100,000 in emotional-distress damages may depend less on the facts than on the decision maker. To shift that balance, consumer advocates should: Document distress contemporaneously — Encourage clients to seek counseling early and to preserve records of anxiety, sleeplessness, and family impact. Retain qualified mental-health professionals — Expert testimony can connect “financial harassment” to observable physical and psychological outcomes such as hypertension, depression, and alcohol misuse. Link causation clearly — Tie those symptoms directly to the statutory violation, whether under the FCRA, FDCPA, or related consumer-protection laws. Push for jury determinations — Where feasible, frame emotional-distress damages as questions for jurors, whose empathy and lived experience make them better arbiters of intangible human harm. Educate courts — Through briefing and expert testimony, remind judges that financial distress and emotional harm are not speculative—they are predictable, documented, and tragically common. Until courts internalize this reality, plaintiffs may continue to win the liability battles yet lose the damages war—a familiar fate for those still living, as Porter, Thorne, Lawless, and Foohey put it, in the Sweatbox. Conversely, creditors and debt collectors facing credible allegations of consumer-rights violations might take note: accepting a default judgment with minimal judicial damages may sometimes be the wiser course than risking a jury’s verdict from twelve citizens who know too well what it feels like to answer the phone with dread. With proper attribution,  please share. To read a copy of the transcript, please see: Blog comments Attachment Document brown_v._first_advantage_ii.pdf (135.37 KB) Category Middle District

4th Cir.: In re Bestwall LLC (4th Cir. Oct. 30, 2025) — Solvent Debtor Allowed in Texas Two-Step Bankruptcy, En Banc Rehearing Denied over Fiery Dissent Ed Boltz Fri, 10/31/2025 - 18:31 Summary: The Fourth Circuit, by an 8–6 vote, declined to rehear Bestwall LLC v. Official Committee of Asbestos Claimants en banc, leaving intact the panel’s decision upholding bankruptcy jurisdiction for a solvent debtor created through the notorious “Texas Two-Step.” Judge King issued a fiery dissent (taking the surprising step of naming by  name the position of each of his fellow judges), calling the case a “manufactured sham Chapter 11” that allows a multibillion-dollar corporation to use bankruptcy as a shield against accountability to dying asbestos victims. Background: Georgia-Pacific’s Texas Two-Step Georgia-Pacific, long a defendant in asbestos litigation, used a Texas divisional merger to split itself into two entities: Bestwall LLC, which inherited nearly all asbestos liabilities but few assets or operations, and New Georgia-Pacific, which retained the profitable businesses and the billions in assets. After a brief five-hour Texas reincarnation, both companies relocated—Bestwall to North Carolina—and three months later Bestwall filed for Chapter 11. Although completely solvent thanks to a “funding agreement” from its parent, Bestwall obtained the automatic stay under §362 and a companion injunction halting all asbestos suits nationwide. As Judge King described, this maneuver was “a concerted boardroom effort designed to pause active civil tort litigation, consolidate thousands of asbestos-related claims, and extract more favorable settlement terms from their suffering and dying victims through litigation delay.” Constitutional Argument: What Does It Mean to Be “Bankrupt”? Judge King’s dissent framed the issue as a constitutional one under Article I, Section 8—the Bankruptcy Clause—which grants Congress power to enact “uniform Laws on the subject of Bankruptcies.” Drawing from Founding-era history and early English and American law, he argued that “bankruptcy” was meant only for those who are truly insolvent or honest but unfortunate, not for corporations with “billions in assets seeking a tactical litigation advantage.” “The Constitution,” he warned, “does not permit Congress or the courts to authorize bankruptcy as a strategic weapon of the powerful.” By treating financial distress as “irrelevant,” the Fourth Circuit majority, he wrote, “rewrites the Constitution to suit the needs of a profitable tortfeasor” and “strips tens of thousands of asbestos victims of their Seventh Amendment right to a jury trial.” An Oversight: Solvency Does Not Equal Security Yet Judge King’s otherwise eloquent dissent misses an important nuance familiar to every consumer bankruptcy practitioner: solvency on paper does not always mean financial stability in practice. Thousands of Chapter 13 debtors across the Fourth Circuit are technically solvent—they own homes with equity, maintain retirement accounts, and even have positive disposable income. They seek bankruptcy not because they are “insolvent” in a balance-sheet sense, but because they face unmanageable liquidity crises, judgment collections, medical bills, or foreclosure threats. Congress, in crafting modern bankruptcy law, deliberately moved away from the rigid insolvency test that once defined bankruptcy under the 1800 Act. Financial distress—not insolvency—became the touchstone, recognizing that even solvent individuals and businesses may need court protection to reorganize debts, preserve assets, or ensure fair distribution among creditors. Thus, while Judge King’s historical appeal to the “honest but unfortunate” debtor is emotionally and morally powerful, it risks overstating the constitutional bar against solvent debtors, sweeping in those ordinary families who use Chapter 13 precisely to avoid collapse rather than to exploit it. Still, the contrast between an honest wage-earner struggling to save a home and a conglomerate like Georgia-Pacific—profitable, tax-advantaged, and litigation-savvy—underscores the dissent’s essential moral point: there is a difference between using bankruptcy to survive and using it to manipulate. The Human Toll Since Bestwall’s 2017 filing, nearly 25,000 asbestos claimants have died, including more than 10,000 from mesothelioma, without ever reaching trial. All litigation remains frozen while Bestwall, which has no employees or business operations, and its parent continue to profit. “The sacred right of the asbestos claimants to pursue justice through the tort system…has been placed on hold by a solvent profitable enterprise called Bestwall,” King lamented. Echoes from 1983: Bankruptcy as an “Escape Chute” King cited Judge Young’s warning in Furness v. Lilienfield (D. Md. 1983) that solvent corporations were abusing Chapter 11 “to evade pending litigation.” Forty years later, King wrote, that “gross abuse” has metastasized: corporations now create shell entities like Bestwall to halt tort suits while continuing to operate and profit. “Chapter 11 was designed to give those teetering on the verge of a fatal financial plummet an opportunity to reorganize—not to give profitable enterprises an opportunity to evade liability.” Commentary: Judge King’s dissent may stand as the most forceful moral indictment yet of the Texas Two-Step—but it paints with a brush too broad for the realities of modern consumer and small-business bankruptcy. Financial distress, not insolvency, is the real dividing line between legitimate reorganization and abuse. That said, the dissent’s central warning is unassailable: when billion-dollar corporations use bankruptcy courts to shield assets and suffocate victims’ claims, they transform a system built for mercy into one for manipulation. If the “honest but unfortunate” debtor has long symbolized bankruptcy’s redemptive purpose, then Bestwall represents its inversion—the use of bankruptcy not to start fresh, but to stay rich. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document bestwall_llc_v._official_committee_of_asbestos_claimants.pdf (176.32 KB) Category 4th Circuit Court of Appeals

Law Review (Economics): Hollenbeck, Brett and Larsen, Poet and Proserpio, Davide, The Financial Consequences of Legalized Sports Gambling Ed Boltz Thu, 10/30/2025 - 16:55 Available at:   https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4903302 Abstract: Following a 2018 ruling of the U.S. Supreme Court, 38 states have legalized sports gambling. We study how this policy has impacted consumer financial health using a large and comprehensive dataset on consumer financial outcomes. We use data from the University of California Consumer Credit Panel, containing credit rating agency data for a representative sample of roughly 7 million U.S. consumers. We exploit the staggered rollout of legal sports betting across U.S. states and evaluate two treatment effects: the presence of any legal sports betting in a state and the specific presence of online or mobile access to betting. Our main finding is that overall consumers' financial health is modestly deteriorating as the average credit score in states that legalize sports gambling decreases by roughly 0.3%. The decline in credit score is associated with changes in indicators of excessive debt. We find a substantial increase in average bankruptcy rates, debt sent to collections, use of debt consolidation loans, and auto loan delinquencies. We also find that financial institutions respond to the reduced creditworthiness of consumers by restricting access to credit. These results are substantially stronger for states that allow online sports gambling compared to states that restrict access to in-person betting. Together, these results indicate that the ease of access to sports gambling is harming consumer financial health by increasing their level of debt.  Commentary:  From Casino Floors to Courtrooms Bankruptcy attorneys have long seen gambling debts as a guaranteed bet for financial ruin—often a moral failing and then a line item in the Statement of Financial Affairs to be sheepishly acknowledged and hopefully quickly forgiven. But the world of gambling has changed faster than the Bankruptcy Code’s assumptions. Gone are the days when compulsive gamblers had to drive hours to Atlantic City or Las Vegas. Today, the casino lives on the phone—always open, algorithmically tuned, and cross-promoted during every football game. And as this study shows, once gambling becomes as accessible as checking Instagram, it starts showing up in credit reports—and in bankruptcy filings. Bankruptcy courts have historically taken a dim view of gambling losses, often equating them with “bad faith” or dismissing them as “self-inflicted wounds.” That moral lens made sense when gambling required planning and travel. But today’s “disordered gambling” is less vice than vulnerability—an addiction intensified by tech platforms designed to maximize engagement, just as social-media apps do. Judges and trustees may soon need to rethink the reflexive skepticism toward debtors whose credit cards, payday loans, or even mortgages collapsed under the weight of DraftKings, FanDuel, or BetMGM. Policy Recommendations: From Punishment to Protection Congress and state legislatures could help mitigate the harm in several ways: Bankruptcy Reform for Disordered Gambling – Amend §523(a)(2)(C) to clarify that gambling-related credit card advances are not per se presumptively nondischargeable, especially when incurred in the context of documented gambling disorder.  This is especially true as the credit card lenders that make on-line gambling possible are  hardly  innocent naifs,  but actually actively promoting this behavior. Mandatory Gambling Self-Exclusion in Credit Underwriting – Require financial institutions and credit bureaus to allow consumers to flag gambling transactions or block gaming-related merchant codes, similar to existing “voluntary credit freeze” mechanisms. Tax Revenue Earmarks – Dedicate a fixed percentage of sports-betting tax revenue to fund state treatment programs for gambling addiction and financial counseling. (Currently, many states allocate less than 1% of gaming taxes to addiction services.) CFPB Oversight – Direct the Consumer Financial Protection Bureau to study predatory lending practices tied to gambling losses, including the use of debt consolidation or cash-advance products marketed to problem gamblers. Maybe in 2029? Identifying and Helping Clients: For Attorneys: Consumer bankruptcy lawyers can expect to see more clients whose budgets crumble from gambling losses—but few will volunteer that information. Warning signs include: Unexplained cash withdrawals or “Venmo”-style transfers with sports-related notations.\ Frequent small transactions on debit/credit statements at odd hours. Missing paychecks or “mystery loans” from family or friends. Obsessive secrecy or shame around finances, often cloaked as “bad investing.” Gentle inquiry helps. Ask, “Do you use any betting apps or online gaming platforms?” rather than “Do you gamble?” The former sounds like routine intake; the latter sounds like judgment. For Existing Clients: Offer confidential referrals and normalize treatment as part of financial recovery—just as you would refer for credit counseling or mental-health care. Bankruptcy can be positioned not as failure but as the financial detox necessary to reclaim stability before relationships, housing, or hope are lost. Resources for Clients: Attorneys can provide these evidence-based and anonymous resources: National Council on Problem Gambling (NCPG): www.ncpgambling.org 24-hour helpline (1-800-522-4700) with chat and text support. Gamblers Anonymous: www.gamblersanonymous.org peer-support meetings nationwide and online. NC Problem Gambling Program: morethanagame.nc.gov free treatment and counseling for North Carolina residents. National Suicide Prevention Lifeline: 988 — critical if gambling losses have triggered despair or suicidal thoughts. Final Thoughts As gambling becomes as easy as scrolling a phone, the line between “sports fan” and “debtor” is blurring. This isn’t the old Vegas high-roller—it’s the Uber driver in Greensboro betting $10 parlays during lunch. Bankruptcy courts will increasingly see these debtors not as moral failures but as casualties of a legalized, algorithmic addiction. If the law’s purpose is a “fresh start,” it must evolve to recognize that some losses come not from vice, but from design. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document the_financial_consequences_of_legalized_sports_gambling.pdf (330.54 KB) Category Law Reviews & Studies

Facing the Loss of Your Home? Call Us for Help! If you have received a foreclosure summons, a notice of acceleration, or a foreclosure date from your lender, the Fort Worth bankruptcy attorneys at Allmand Law Firm, PLLC may be able to help. From the date the foreclosure notice is sent, you could have as little as three weeks to save your home. For this reason, you will need to act quickly. Ignoring foreclosure notices won’t make them go away. Similarly, falling further behind on your mortgage payments will only increase the risk of foreclosure. If you want to save your home, you should move quickly to secure the help of a skilled foreclosure defense lawyer. Contact Allmand Law Firm, PLLC today to request your free consultation. How Allmand Law Firm, PLLC Can Assist You Having helped tens of thousands of debtors throughout the Fort Worth area, Allmand Law Firm, PLLC has the skill, experience, and resources to help you fight the loss of your home. Whether you have already received a notice of foreclosure or you have started to fall behind on your mortgage payments, you can turn to us for the help you need. If you are facing foreclosure, our firm may be able to help you: Stop, halt, or prevent foreclosure proceedings End your mortgage on favorable terms Avoid potential tax liability from foreclosure Lessen unsecured debt while keeping your home Minimize the impact on your credit history Fight Foreclosure Through Chapter 13 Bankruptcy There are several different foreclosure defense methods, including short sales, deeds in lieu of foreclosure, and filing for Chapter 13 bankruptcy. Chapter 13 is one of the most popular methods of fighting foreclosure because it allows you to repay your mortgage arrears over three to five years. If you stay current on your mortgage and pay back your arrears by the end of your bankruptcy, you should be able to keep your home. Contact Our Board Certified Bankruptcy Expert If you are facing the loss of your home, Allmand Law Firm, PLLC should be your next call. During a free financial empowerment session, we’ll help you understand your options. How can you benefit from working with our team? We have helped tens of thousands of debtors in Texas We have more than two decades of collective experience Reed Allmand is a board certified bankruptcy specialist Our firm has been featured on CBS News, Fox News & ABC Take control of your finances by enlisting the help of our Fort Worth bankruptcy lawyers. We are not here to judge – we are here to help you toward a better future. The post Stop Foreclosure in Fort Worth, TX appeared first on Allmand Law Firm, PLLC.

Many debtors considering bankruptcy know they need a bankruptcy attorney; but they are afraid of what it will cost and of course how they will pay the fees. If you’re considering filing for bankruptcy and are worrying about how you will pay bankruptcy attorney fees, you’re not alone. To take away the mystery of bankruptcy attorney fees, let’s take a look a number of factors that will determine the cost of your bankruptcy attorney fees: The complexity of your bankruptcy case. The amount of time the bankruptcy attorney will be required to devote to the case. Whether you are filing a Chapter 7 or Chapter 13 bankruptcy. The amount of assets involved in the case. And those are just a few of the determining factor. That’s why there is no one-size fits all for bankruptcy attorney fees. The cost for filing a bankruptcy involving $1 million in assets will not cost the same as filing a bankruptcy for $30,000 in assets. The only way that a bankruptcy attorney can give a debtor an accurate fee quote is to sit down and discuss the bankruptcy case with the debtor. After discussing the bankruptcy case with the debtor, the bankruptcy attorney can discuss what assets can be used to pay the fees and other payment options that may be available. Many debtors view bankruptcy attorney fees as just another bill; but that’s a huge mistake in perception. The fees paid for a bankruptcy attorney is an investment in your financial future. The post I Know I Need A Bankruptcy Attorney–But I’m Afraid Of The Costs appeared first on Allmand Law Firm, PLLC.

Most debtors file for bankruptcy as a last ditch effort to dig themselves out of the hole when their debt troubles are just too much to handle. But often their last stop right before bankruptcy is debt settlement. There are a lot of companies out there that offer debtors the opportunity to settle their debts with creditors for “pennies on the dollar.” Sound too good to be true? Well, many debtors coming to bankruptcy court after going through “debt settlement” have found that at least in their case, it is too good to be true. What a lot of debt settlement companies fail to tell their customers is that debt settlement is risky and not guaranteed. The debt settlement companies require upfront fees; but they can’t guarantee the debtor that the creditor will accept the debt settlement offer. Many debtors go through debt settlement and still end up having to file bankruptcy because their creditors would not accept the debt settlement offer. The other problem with debt settlement is that many debtors, actually most debtors are not good candidates for debt settlement. The best candidates for debt settlement are people who have so much income and/or assets that bankruptcy is not a viable or easy option. These people can afford to pay debt settlement fees and can afford to pay for the taxes owed on the forgiven debt. Yes, debt settlement leaves a tax bill. Any debtor considering debt settlement should speak with a bankruptcy attorney first to find out if bankruptcy would be a better option. The post Debt Settlement Or Bankruptcy? appeared first on Allmand Law Firm, PLLC.

4th Cir.: All American Black Car Service, Inc. v. Gondal — Setoff, Ratification, and the Limits of Lay Testimony in Bankruptcy Litigation Ed Boltz Wed, 10/29/2025 - 17:54 Summary: In this unpublished October 15, 2025, decision, the Fourth Circuit affirmed the rulings of the Bankruptcy Court and the Eastern District of Virginia in a messy dispute arising from the dissolution of a small limousine company, All American Black Car Service, Inc. (“AABCS”). The case reads like a familiar tale of closely-held corporate dissolution gone awry—complete with COVID-era losses, unwritten understandings, and shareholder distrust—transposed into the bankruptcy context. Facts and Procedural History: AABCS had three shareholders: Cheema (51%) and two minority shareholders, Gondal and Sheiryar (each 24.5%), who also worked for the company. When the pandemic gutted revenue and the business ceased paying wages or distributions, the trio agreed to dissolve the corporation, liquidate assets, pay debts, and escrow the remainder for division. Between 2022 and 2023, Gondal and Sheiryar sold ten vehicles for $317,000, paid debts of $88,559.31, and then—contrary to the dissolution agreement—pocketed the remaining $228,000 instead of placing it in escrow. When Cheema revived the corporation in Chapter 11, AABCS filed an adversary proceeding demanding return of the funds and lost profits. At trial, the bankruptcy court (Judge Mayer, E.D. Va.) found Gondal and Sheiryar liable for conversion but granted them a setoff equal to their 49% ownership, reducing judgment to $116,504.76. The court also rejected their defenses of (1) unpaid wages and (2) corporate ratification, and denied AABCS’s request for speculative lost profits. Fourth Circuit’s Holding: The Fourth Circuit (Judges Wilkinson, Thacker, and Heytens) affirmed in full, finding “no reversible error” across four disputed issues: Exclusion of Wage Testimony: Sheiryar attempted to introduce a chart of “market wage rates” from ZipRecruiter and similar websites to justify unpaid compensation exceeding $228,000. The bankruptcy court properly excluded this as impermissible expert testimony, not a lay opinion under Rule 701, because it was based on third-party data—not personal experience. Without that evidence, his claim for unpaid wages failed. Rejection of Ratification Defense: The defendants argued that because the corporation’s 2022 tax return reported the $228,000 as “shareholder distributions,” AABCS had ratified their taking. The court disagreed, noting that the return merely confirmed that sales occurred and that Cheema, a non-lawyer and non-native English speaker, did not understand the legal implications of “ratification.” More importantly, the corporation immediately repudiated the act by suing within weeks. Denial of Lost Profit Damages: AABCS’s appeal on this point was deemed waived for failure to brief it adequately under Rule 28(a)(8)(A). The court noted that two conclusory sentences, without legal or factual citation, do not preserve an issue. Allowance of Setoff: The bankruptcy court’s decision to credit the defendants with their 49% ownership interest was equitable and consistent with Va. Code § 13.1-745(A), which allows distribution of remaining corporate assets after debts are settled. AABCS’s belated argument that Dexter-Portland Cement Co. v. Acme Supply Co., 147 Va. 758 (1926), barred such a setoff was both unpreserved and inapposite. Commentary: Though a relatively small dispute, All American Black Car Service underscores several recurring bankruptcy practice lessons: Lay vs. Expert Testimony: Debtors and insiders often try to shoehorn “market” or “customary” valuations or compensation estimates into lay testimony. The Fourth Circuit continues to enforce Rule 701 strictly—personal experience counts, but quoting internet averages does not. (Practitioners should note similar reasoning in Lord & Taylor, LLC v. White Flint, L.P., 849 F.3d 567 (4th Cir. 2017).) Ratification Requires Intent and Benefit: The decision usefully clarifies that mere bookkeeping or tax reporting—especially in closely held entities—does not establish ratification absent evidence that the corporation intended to approve or benefited from the unauthorized act. Setoff as Equity: Even where insiders misappropriate funds, bankruptcy courts retain equitable discretion to account for ownership interests. This serves as a reminder that bankruptcy courts are courts of equity—but also of accounting, where the math still matters. Appellate Waiver: The Fourth Circuit remains unforgiving toward poorly briefed issues. Two sentences without citations? Waived. While this case originates from Virginia, its reasoning resonates for North Carolina practitioners navigating disputes among small business owners who treat their corporations like joint checking accounts. The equitable setoff here—essentially forgiving nearly half of an admitted conversion—illustrates how bankruptcy courts temper legal rights with pragmatic fairness. For debtor’s counsel, the takeaway is that “what’s fair” may still include a reduction for equity, even when fiduciary misconduct is proven. For creditors or majority owners, it’s another reason to escrow first and trust last. Practice Pointer: For bankruptcy litigators dealing with dissolved entities or partner disputes: Document dissolution and winding-up agreements carefully—preferably with court approval if bankruptcy looms. Distinguish clearly between shareholder distributions, wages, and loan repayments in corporate records to avoid later “setoff” surprises. If asserting unpaid wages or insider compensation, support it with contemporaneous records or testimony grounded in firsthand experience, not online data. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document all_american_black_car_service_inc._v._gondal.pdf (139.12 KB) Category 4th Circuit Court of Appeals

N.C. Ct. App.: Harrington v. Laney — Quiet Title Claim Barred by Statute of Limitations Ed Boltz Mon, 10/27/2025 - 18:49 Summary: In Harrington v. Laney (COA24-1071, filed October 15, 2025), Chief Judge Dillon, joined by Judges Murry and Freeman, reversed a Superior Court verdict that had invalidated a deed executed under a power of attorney, holding instead that the plaintiff’s claims were barred by the statute of limitations. Facts and Background: The dispute centered on a family property in Anson County. In June 2016, the plaintiff’s elderly parents executed a power of attorney (“POA”) naming defendant Curtis Laney and a now-deceased co-agent. Acting under that POA, Laney conveyed the parents’ property to himself, later reconveyed it to the plaintiff’s mother, and then executed a 2018 deed giving himself and his wife a remainder interest. When the mother died in 2019, the Laneys became owners of the property. The plaintiff, Robert Harrington, waited until September 2022 to bring a quiet title action, arguing that the POA was void because his mother lacked capacity and the document had been fraudulently obtained. The jury agreed and voided the deeds, but the Court of Appeals reversed. Holding and Reasoning: The Court agreed with the defendants that the applicable limitations period was three years under N.C. Gen. Stat. § 1-52(1) or (9), since the claim “at its core” challenged the validity of a contract—the 2016 POA. Whether the cause of action accrued in 2016 (when the POA was executed) or in 2019 (when title passed under the challenged deed), Harrington filed too late by 2022. The Court rejected arguments that longer limitation periods under §§ 1-38 (possession under color of title) or 1-47 (validity of deeds) applied, emphasizing that this was not a title-possession or deed-recording issue but a contract dispute over authority. Harrington also sought to invoke the “survivor statute,” § 1-22, to toll the limitations period based on his mother’s incapacity before death and his own alleged incapacity thereafter. The Court noted that any representative of his mother’s estate—not just her heir—could have timely brought a claim within one year after her death, but no one did so by June 2020. The suit filed in 2022 was therefore barred. Because the case was resolved on statute-of-limitations grounds, the Court did not reach the remaining issues regarding jury instructions or laches. Commentary: This decision is a textbook example of how North Carolina appellate courts treat disputes over powers of attorney as contract-based actions for purposes of the statute of limitations. Following O’Neal v. O’Neal, 254 N.C. App. 309 (2017), the Court emphasized there is “little reason to draw distinctions between powers of attorney and contracts.” That framing makes the three-year statute under § 1-52(1) controlling, even when the plaintiff’s complaint is styled as one to “quiet title.” For practitioners, Harrington reinforces two lessons: Timing is everything — Claims attacking a power of attorney or self-dealing conveyances must be filed within three years of execution (or at most within one year after the principal’s death under § 1-22). Waiting to challenge such transactions until after probate or subsequent conveyances will likely be fatal. Quiet title ≠ limitless claim — Even though actions under N.C.G.S. § 41-10 have no specific statute of limitations, the underlying theory controls. Where the “quiet title” claim depends on attacking an earlier contract, courts will apply the contract limitations period. While Harrington is an unpublished opinion, it is a useful reminder that North Carolina limitation periods can sharply constrain later challenges to allegedly fraudulent or self-interested conveyances, even within families. Had this dispute instead arisen in bankruptcy (for example, if Harrington had later filed Chapter 7 or 13 and sought to recover the property for the estate), the trustee would likely face the same three-year state-law bar unless federal avoidance statutes (such as § 548 or § 544(b)) extended the lookback period. Practice Pointer: When reviewing prepetition transfers involving family powers of attorney, counsel should determine when the challenged transaction occurred and whether any surviving representative acted within the § 1-22 one-year window. Otherwise, even the most egregious self-dealing may be time-barred. To read a copy of the transcript, please see: Blog comments Attachment Document harrington_v._laney.pdf (94.77 KB) Category NC Business Court

Bankr. E.D.N.C.: Travis v. Adair Realty – Standing Restored After Dismissal; Foreclosure “Rescue” Claims Proceed Despite Omissions in Chapter 13 Petition Ed Boltz Fri, 10/24/2025 - 15:34 Summary: In Travis v. Adair Realty Group, LLC, Adv. Pro. No. 25-00040-5-PWM (Bankr. E.D.N.C. Oct. 8, 2025), Judge Pamela McAfee denied motions to dismiss filed by both the Chapter 7 trustee for Adair Realty Group (“ARG”) and its principal, Robin Shea Adair. The opinion clarifies two key issues for consumer bankruptcy practitioners: (1) when a debtor retains standing to pursue undisclosed claims after a dismissed Chapter 13 case, and (2) how North Carolina’s “foreclosure rescue” statutes can impose personal liability on individuals behind such schemes. Background: Melissa Travis—formerly known as Melissa Leigh Marek—purchased her Holly Springs home in 2015. After defaulting on her mortgage, she contacted Robin Adair, who promoted himself online as a professional who could “help homeowners avoid foreclosure.” In December 2022, Adair met Travis at a UPS Store, where she signed a quitclaim deed conveying a 50% interest in her home to Adair’s company, Adair Realty Group, LLC, in exchange for promises to reinstate her mortgage ($29,344.62), invest $10,000 in repairs, and split sale proceeds once the home was sold. Adair never made the promised reinstatement payment and allowed the foreclosure to proceed in January 2023. On January 12, 2023, Travis filed a Chapter 13 case (No. 23-00091-5-PWM) to halt the foreclosure. That case was dismissed without discharge on March 11, 2024. Critically, her bankruptcy petition failed to disclose both the December 2022 property transfer and any potential claim against Adair or ARG—neither appearing on Schedule A/B nor in her Statement of Financial Affairs. Despite the bankruptcy filing, Adair recorded the deed post-petition. When the property was later sold for $400,050, the surplus proceeds of $155,429.58 were split, with ARG receiving half. Travis then sued Adair and ARG in Wake County Superior Court under N.C. Gen. Stat. §§ 75-1.1 and 75-121 (the “foreclosure rescue” statutes), seeking to void the deed and recover damages. ARG’s subsequent Chapter 7 filing brought the case into bankruptcy court. Chapter 7 Trustee’s Motion – Standing After Dismissed Chapter 13: The Chapter 7 trustee for ARG argued that Travis lacked standing because her claims were property of her prior Chapter 13 estate and had never been disclosed or abandoned. Judge McAfee rejected that argument, adopting the Second Circuit’s reasoning in Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473 (2d Cir. 2014). Under 11 U.S.C. § 349(b), dismissal “revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case,” including unscheduled assets. Unlike a closed Chapter 7 case, dismissal of a Chapter 13 terminates the estate entirely, restoring the parties to their pre-petition positions and leaving no property in custodia legis. Thus, even though Travis failed to disclose these claims, her right to pursue them reverted to her upon dismissal. Adair’s Motion – Jurisdiction and Personal Liability: Adair argued that the bankruptcy court lacked jurisdiction over claims against him personally and that any recovery would require piercing ARG’s corporate veil. The Court found “related-to” jurisdiction under In re Celotex Corp., 124 F.3d 619 (4th Cir. 1997), because any judgment against Adair would reduce Travis’s claim against the debtor estate. The Court further held that Travis alleged Adair’s direct participation in a “foreclosure rescue transaction,” which under N.C. Gen. Stat. § 75-121(a) makes “any person or entity” personally liable for engaging in or promoting such conduct. No veil-piercing was required. Claims Surviving Dismissal of Chapter 13: Unfair & Deceptive Trade Practices (N.C. Gen. Stat. §§ 75-1.1 and 75-121): Survives. The statute expressly prohibits foreclosure-rescue conduct, whether or not the transaction was “isolated.” Fraud: Survives. The amended complaint met Rule 9(b)’s particularity standard, detailing the misrepresentations, timing, and resulting injury. Unjust Enrichment: Dismissed with leave to amend, as the benefit was alleged to have gone to ARG, not Adair personally. Commentary: Judge McAfee’s decision is significant for consumer practitioners. It reinforces that dismissal of a Chapter 13 case generally fully restores ownership of undisclosed claims to the debtor, preventing trustees from later asserting control. And it underscores that foreclosure-rescue statutes have real teeth, exposing individuals—not just their LL Cs—to personal liability. Professional Responsibility Note – Counsel’s Role in the Omission: While the Court’s opinion did not directly address the performance of Travis’s prior bankruptcy counsel, the undisputed record raises a natural question: Should her former attorney have identified and disclosed these potential claims or the prepetition deed transfer? The December 2022 transfer of a partial ownership interest, coupled with alleged misrepresentations by Adair, occurred weeks before the January 2023 bankruptcy filing. Under Rule 1007(b)(1) and Schedule A/B, such a transfer and any related contingent claims were required to be disclosed. Even if Travis did not fully appreciate the legal significance of the “foreclosure rescue” transaction, counsel arguably had a duty of reasonable inquiry under Fed. R. Bankr. P. 9011(b) to investigate any prepetition transfers or disputes. That said, Judge McAfee’s application of Crawford spared both the debtor and her counsel the harsher consequence of a standing dismissal or judicial-estoppel bar—holding that dismissal of the Chapter 13 case “rewinds the clock.” Still, Travis serves as a quiet reminder that thorough intake and disclosure are the best defenses: even “rescues” gone wrong should be treated as potential litigation assets and properly listed. For debtor’s counsel, however, the case carries a cautionary undertone: the best outcome is still to disclose everything. Had Travis’s prior case resulted in discharge rather than dismissal, the omission could have proven fatal. To read a copy of the transcript, please see: Blog comments Attachment Document travis_v._adair_realty.pdf (186.11 KB) Category Eastern District