After doing a bankruptcy for her mom, we helped Tammy sue Navy Federal. Back in 2011, Navy Federal emptied out the savings account where 14-year-old Tammy (not her real name) saved the money she made babysitting. Tammy’s mom, Jessica, needed to file for bankruptcy because she had been out of work for nine months.  She was now two months behind on her second mortgage.  (The second mortgage was from Navy Federal.)  She just got a new job paying half of what she had been making, and she was glad to get that.  But she knew she would not be able to pay all her debts and still feed her children. When she came to see me about filing for bankruptcy, Jessica mentioned in passing that Navy Fed had helped themselves to her daughter’s savings account.  How could they do it? I was shocked.  But I figured out how they do it. Most banks set up children’s accounts under the Uniform Transfers to Minor’s Act, where the parent is the custodian of the account, but the child is the owner. Navy Fed apparently doesn’t do it that way.  Instead, they set up a joint account, with the parent and the child. This gives them right, as they see it, to take Tammy’s money to make mom’s payment. I think that stinks.  The child, by definition, is a child, and hasn’t agreed to co-sign for mom.  So I don’t think the credit union can pretend the little girl did. So we sued; and Navy Federal agreed with us. They gave Tammy her money back before the court date. When you file for bankruptcy and owe money to Navy Fed, they will empty out your accounts So take your money out of Navy Federal.  And that includes your minor children’s money, too. The post After Bankruptcy, suing Navy Federal appeared first on Robert Weed Virginia Bankruptcy Attorney.

E.D.N.C.: Lewis v. EquityExperts PART III- Amendment of Complaint for Class Action Against HOA Agent Ed Boltz Wed, 06/04/2025 - 16:48 Summary: Judge Louise Flanagan ruled on two key post-certification motions in this putative class action concerning alleged abusive debt collection practices targeting North Carolina homeowners’ associations (HO As). Lewis originally filed suit under the Fair Debt Collection Practices Act (FDCPA), the North Carolina Collection Agency Act (NCCAA), and the North Carolina Debt Collection Act (NCDCA), alleging that Equity Experts engaged in improper lien filings, foreclosure threats, and excessive collection fees against homeowners with delinquent HOA dues. After the court certified two classes — homeowners who received a “Notice of Lien” or a “Notice of Intent to Foreclose” and paid within 90 days — the litigation entered a contentious discovery phase, with both sides battling over the production of lien communications, fee details, and procedural manuals. Plaintiff sought to amend her complaint to align with newly uncovered discovery, while the defendant moved for reconsideration of the class certification order, particularly objecting to the court’s sua sponte modification of the class definitions. Judge Flanagan granted the motion to amend, finding the plaintiff had shown diligence in seeking amendment after learning of relevant discovery materials post-deadline. The court emphasized the complexities of discovery across hundreds of homeowner accounts and noted the plaintiff’s success on prior motions to compel — signaling that her pursuit of additional claims wasn’t mere delay or gamesmanship. On the motion for reconsideration, the court partly agreed, clarifying the class definitions to impose a 90-day limit for payments made after receiving the lien or foreclosure notice (tightening the causal chain for standing purposes) but rejected the defendant’s bid to narrow the class further or impose constraints on the types of payments. Importantly, the court reaffirmed that the predominant issues — whether the standardized lien and foreclosure notices misrepresented the legal status or inflated fees — were suitable for class-wide adjudication. It found that numerical thresholds (over 40 class members) and common factual patterns supported class treatment despite the defendant’s insistence on individualized defenses. For previous decisions: E.D.N.C.: Lewis v. EquityExperts.org- Excessive Fees illegal under FDCPA E.D.N.C.: Lewis v. Equityexperts.org II- Class Commentary: This ruling carries several noteworthy implications for consumer protection practitioners, especially those focused on HOA-related debt collection. First, the court’s willingness to allow class amendments after discovery fights underscores the importance of aggressive, diligent discovery strategies in consumer class actions. Plaintiffs’ counsel here successfully leveraged depositions and motions to compel to pry loose critical evidence, persuading the court that amendment was justified even months after the scheduling order deadline. Second, the 90-day payment window imposed on the class definitions is a significant tightening — emphasizing the need for plaintiffs to establish a plausible causal connection between the allegedly deceptive notices and any monetary harm. This echoes Fourth Circuit Article III standing jurisprudence (e.g., Fernandez v. RentGrow), reinforcing that mere receipt of a bad letter isn’t enough: there must be concrete harm, like a payment traceable to the violation. Third, the court’s rejection of arguments about individual account differences (like COVID delays, unique waivers, or payment plans) reflects the judiciary’s comfort with certifying consumer classes where standardized practices or form documents drive the key liability questions. This holds lessons for both sides: defendants can’t evade class treatment just by pointing to account-level noise, and plaintiffs should focus certification efforts on the common practices and representations underlying their claims. Finally, the decision foreshadows a continued battle over damages measurement — particularly whether the allegedly inflated or unauthorized fees can be assessed through class-wide comparison to actual service costs. Practitioners would do well to watch how the court handles this at the dispositive motion stage or trial, as it could shape future fee-based class actions under North Carolina law The challenge to the collection fees charged — claiming they were inflated, unauthorized, or charged before services were actually rendered. In Chapter 13, trustees and debtor's counsel routinely review creditor fees under § 502(b)(1) (disallowing claims unenforceable under nonbankruptcy law). Practitioners can look to this case to bolster objections to HOA claims where the fee schedules or collection charges exceed what state law allows, especially under the NC Debt Collection Act or the NCCAA.   While Ms.  Lewis'  HOA,  Abbington Ridge Townehomes,  does not appear to have any Proofs of Claim filed in Chapter 13 cases,  knowing what other HO As Equity Experts has represented would be helpful to ensure that disbursements are not made on potentially illegal and inappropriate claims in active cases. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document lewis_v._equity_experts.pdf (188.39 KB) Category Eastern District

Why Does the Bankruptcy Court Need My Tax Forms? When we file your bankruptcy case, we have to turn in copies of your last year’s tax forms. Your bankruptcy trustee will look at them, and you might get asked a question or two at your bankruptcy trustee hearing.  Do the tax forms match your pay stubs? Your tax forms should match your pay stubs, usually. If they don’t, be ready to explain why.  Maybe you lost your job; maybe you just lost your overtime. You may get asked. Are you drilling for oil in Texas? Or raising marijuana in California? Besides your main job, if you have a business or big investment on the side, the trustee wants to know. What about your family?  Your eligibility might depend on whether you are married or single, on the number and age of your children. That’s why we need to send in the complete set of your tax papers. Not just your W-2s. The whole 1040 form. Are you raising marijuana in California? The Tax forms are hardly ever a problem. You probably aren’t drilling for oil in Texas; and if you are not working at the same job, you can explain. We just need to send the forms in, so the trustee can do his job. The post Why Does the Bankruptcy Court Look at My Tax Forms appeared first on Robert Weed Virginia Bankruptcy Attorney.

Bankr. M.D.N.C.- In re Fall Creek One- Valuation of Glamping Pods Ed Boltz Tue, 06/03/2025 - 16:33 Summary: In this Chapter 11 case, Fall Creek One, LLC sought to reorganize after defaulting on a $4.4 million loan from Marine Federal Credit Union secured by real estate (a North Carolina property used for short-term rentals, including cabins and glamping pods). The debtor proposed a plan valuing the secured claim at only $2 million, while the creditor asserted a secured value exceeding $4.1 million. The court, under § 506(a), had to determine the secured value of the creditor’s claim by applying a fair market value standard. Both parties presented expert appraisals, but their approaches diverged: The debtor’s appraiser favored a sales comparison approach. The creditor’s appraiser used an income approach based on anticipated rental income after planned improvements. The court ultimately rejected the debtor’s low estimate as unsupported and somewhat inconsistent with its own plan projections, and it found that the income approach was more appropriate, especially since the debtor proposed to retain the income-producing property. Importantly, the court emphasized that valuation should reflect the property’s anticipated state after completing ongoing improvements (glamping pods, cabin repairs) and rely on the debtor’s own income projections, not historic underperformance. The court calculated the fair market value at $3,794,314.89 — higher than the debtor’s proposal but lower than the creditor’s maximum — using the debtor’s projected net income and a 9% capitalization rate, minus the costs to finish improvements. Commentary: While Fall Creek One is a business Chapter 11 case, it offers valuable lessons for consumer bankruptcy attorneys when valuing secured assets, particularly in Chapter 13: Burden of Proof Falls on the Debtor: The court put the burden on the debtor, especially since they had to prove their Chapter 11 confirmation elements. In consumer Chapter 13 cases, debtors similarly bear the burden when seeking to strip liens or bifurcate undersecured claims, so preparation and credible evidence are key. Income-Generating Assets Must Be Valued on Income Potential:  The court’s insistence on using the income approach — rather than a simple comparable sales or cost approach — underscores that when debtors propose to retain income-producing assets (like rental properties, commercial vehicles, or business equipment), valuation must reflect their future income potential, not just current market prices or past performance. For consumer cases, this could apply to investment properties or side businesses, where the debtor’s own projections carry weight in determining fair market value. Debtor’s Own Projections Can Bind Them:   The court was clear-eyed about the inconsistency between the debtor’s feasibility projections (used to prove the plan could work) and the lower valuations offered for claim bifurcation under § 506(a). In consumer Chapter 13, debtors who present optimistic income or expense projections to secure plan confirmation may find themselves bound by those same numbers when valuing secured claims (for example, cramming down auto loans or investment property liens). Attorneys should advise clients carefully to avoid undercutting themselves.  This can also impact later attempts by a debtor to sell property,  with any "increase"  in value  opening up issues about whether that constitutes a "substantial and unanticipated change in circumstances"  sufficient to justify a modification of the dividend to unsecured creditors.  Improvements and Repairs Matter:  Just as the court valued the property based on completion of the glamping pods and cabin repairs, consumer debtors seeking to value collateral (like home renovations or business equipment upgrades) should account for near-term improvements, not just “as-is” condition. Courts will look at what the collateral will reasonably be worth in the near future, especially when the plan’s success depends on it.   Choice of Appraisal Method: The opinion highlights that courts may discount or even reject appraisals that use inappropriate comparison pools or unjustified assumptions. For consumer debtors disputing valuations (say, for real estate or vehicles), it’s not enough to get “any” appraisal — the selected method must align with the asset’s intended use and the debtor’s situation.  Again  see   Alig v. Quicken Loans,  where the 4th Circuit Court of Appeals looked at improper disclosures prior to appraisals. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_fall_creek_one.pdf (608.18 KB) Category Middle District

Review (of a Book Review): Atkinson, Abbye, WHO'S AFRAID OF BANKRUPTCY? (March 10, 2025). Ed Boltz Mon, 06/02/2025 - 18:11 Available at:   https://harvardlawreview.org/print/vol-138/whos-afraid-of-bankruptcy/ Abstract: Book Review: UNJUST DEBTS: HOW OUR BANKRUPTCY SYSTEM MAKES AMERICA MORE UNEQUAL. By Melissa B. Jacoby. New York, N.Y.: New Press. 2024. Introduction: Who’s afraid of a bankruptcy filing? Perhaps we all should be given the increasingly outsized role that bankruptcy law plays in our market society. Handling more cases per year than any other category of federal court, bankruptcy courts attend to the disposition of debts related to both mundane contractual relationships and pressing social issues. That is to say, beyond its niche façade and dry reputation, bankruptcy law plays a significant role in the resolution of important public and private concerns. For example, bankruptcy law has resolved mass tort liability stemming from decades of widespread asbestos poisoning and from rampant child abuse within some of the most trusted social organizations like the Boy Scouts of America and the Catholic Church (pp. 166, 193–95). Moreover, bankruptcy law seems likely to become the primary locus for resolving mass tort liability stemming from the ongoing opioid crisis (pp. 155–56). Similarly, bankruptcy also indirectly resolves equally important, yet more quotidian social issues like the increasing economic vulnerability of the American family and economic inequality engendered by historical and ongoing racism and sexism in American consumer markets. In other words, debts related to issues that threaten to erode the fabric of our democracy are common in bankruptcy. Bankruptcy’s prominent role exists at the confluence of two policy choices. First, legislatures and courts have long prescribed money as an appropriate substitute for the value of public and private obligations. Second, Congress has broadly defined the scope of justiciable claims in bankruptcy to encompass any obligation that can be reduced to money. Thus, in a world in which liability of all sorts — voluntary or involuntary, contractual, tort-based, criminal, civil, constitutional, and so forth — is regularly expressed in and satisfied by dollars and cents, bankruptcy lingers in the background, ready to redistribute loss when a debtor cannot satisfy their obligation. In this regard, our federal bankruptcy law, the Bankruptcy Code, authorizes a system of “distribution and redistribution” of loss, and as then-Professor Elizabeth Warren once observed, “the distributional issues arising in bankruptcy involve costs to some and benefits to others.” A bankruptcy filing first halts any underlying adjudication or collection of the debtor’s financial obligations up to the time of filing, then the bankruptcy process considers when and how to redistribute the burden of satisfaction of those obligations. Most obviously, those burdens are likely borne by the debtor’s creditors who, once in bankruptcy, are generally no longer entitled to be repaid as required under nonbankruptcy law. Bankruptcy sometimes decides, however, that the debtor deserves no relief and must instead continue to bear the weight of their obligations. In addition, third-party stakeholders may also bear some burden attendant to this redistribution of obligation (p. 5). Bankruptcy law then glazes this redistribution in a finality that forever ends the debtor’s liability for any past, present, or future claims regarding liabilities accrued prior to bankruptcy, regardless of underlying law. In other words, bankruptcy law is extraordinary; it is a “superpower” (p. 15). In Unjust Debts: How Our Bankruptcy System Makes America More Unequal, Professor Melissa Jacoby shares her unique experiences embedded in the saga that is bankruptcy law’s evolution over the last thirty years. Jacoby has borne witness to its transition from an emergency toolkit for “the honest but unfortunate debtor” into an unduly biased institution that protects and indulges nonhuman entities, like corporations and municipalities, even as it directs its strongest disapprobation and illiberality toward individual filers. For these and other reasons, Jacoby begins her excellent book by noting that for her, it “is a story of falling out of love” with bankruptcy law (p. 1). She chronicles its descent into unjustified and sometimes cruel suspicion of individual filers (pp. 20–21). She explains how it makes the pain of financial distress worse by treating individuals as if their financial distress is their own fault rather than symptomatic of broad financial vulnerability in the American middle class (pp. 22–23).  Moreover, she shows how bankruptcy’s apparent antipathy for the plight of individuals in financial distress further exacerbates the economic inequality that plagues our market society (pp. 49–50). Jacoby then describes how bankruptcy law accords significant latitude to nonhuman filers as compared to individual filers. She documents how some nonhuman filers, through their sophisticated lawyers and C-suite denizens, have begun to exploit this leeway by invoking bankruptcy law’s “power tools” (p. 199) to manage with greater convenience “thorn[y] . . . legal problems that are not fundamentally about money” nor accompanied by true financial distress (p. 200). Moreover, in using bankruptcy like “a legal Swiss Army knife” to satisfy their instant needs (pp. 152–53), nonhuman filers have molded bankruptcy laws in ways that predictably seem to undermine the interests of individuals, whether as debtors or as creditors (pp. 8–10). In juxtaposing this disparate treatment of individual and nonhuman filers, Jacoby exposes bankruptcy law’s current normative vulnerabilities. While there may be some reasonable basis for treating individual filers differently from nonhuman filers, there is no current reasonable basis for treating individual filers worse than nonhuman filers. This leaves bankruptcy law susceptible to the idea that its evolution might be positively described as evidence of its effective capture by powerful and innovative legal actors and stakeholders who have become de facto bankruptcy policymakers (p. 245). Having witnessed firsthand bankruptcy law’s evolution and expansion over the course of her career, Jacoby has come to believe that bankruptcy should play a more limited role in the resolution of obligation in our market society than it currently does. Marshaling her deep and broad expertise and experience with bankruptcy law, she concludes that bankruptcy’s “expansion in usage” has carried it “into policy problems for which it has little training or preparation” (p. 153). Rather, bankruptcy’s current availability as a forum of first choice in the resolution of debt that implicates public issues, like mass tort liability, undermines the “foundational legal principles, including separation of powers and federalism,” that are meant to shore up our democracy (p. 11). Meanwhile, bankruptcy law has largely failed in its prime objective to “provide[] robust cancellation of obligations the average person recognizes as debts” (p. 11). Consequently, Jacoby argues that it is time for bankruptcy law to retract its current overextended arms and return to its first principles. She states that if her “book has a policy prescription, it is to reduce the footprint of the bankruptcy system” so that it “focus[es] on just debts,” where “just debts” has a dual meaning (pp. 10–11). First, bankruptcy should concern itself with only those debts that stem from traditional contractual relationships rather than taking up any obligation that can be expressed in monetary terms (p. 11). Second, bankruptcy should eschew attempts to harness its tremendous power to work around principles of fairness and justice (p. 11). Jacoby’s conclusion starkly contrasts with the expansiveness of the current bankruptcy system, and it invokes the current debate about bankruptcy’s role in the resolution of the opioid crisis and other current mass tort controversies, like talc-based illness. Clearly Jacoby’s proposal is rooted in her deep sense of justice and fairness, and the ways in which current bankruptcy policy and practice, in the context of mass tort liability, threaten to subordinate overall fairness in the name of resolution and finality (pp. 233–34). Yet, the reality is that money is ubiquitous as an expression of all obligation, both voluntary and involuntary (p. 6). Consequently, if only as a practical matter, to shrink bankruptcy in the ways that Jacoby and other bankruptcy minimalists suggest would inadvertently justify bankruptcy’s present shrunken approach to the most vulnerable individual debtors. From that perspective, an overinclusive bankruptcy law, with judicial safeguards, that is as generous to individuals as it currently is to nonhuman debtors might be preferable to an underinclusive bankruptcy system that is reduced in scope as to all filers. This Review proceeds as follows. Part I describes Jacoby’s observation that modern bankruptcy law unjustifiably treats individual filers worse than nonhuman filers. Jacoby explains how bankruptcy law generally treats individual filers, whom Jacoby refers to as “real pe[ople]” (p. 15), as presumptively abusive and profligate debtors from whom creditors and society should be protected (p. 21). She then explains how this approach exacerbates inequality among the most vulnerable debtors. Meanwhile, bankruptcy simultaneously treats nonhuman filers, whom Jacoby descriptively rather than pejoratively refers to as “fake people,” generally as in need of protection from overzealous creditors and other stakeholders (p. 64). Consequently, while severely restricting individual access to a maximal discharge of debt, current bankruptcy law has simultaneously expanded to permit nonhuman filers to take full advantage of its “extraordinary powers . . . to stay [all] parallel litigation” and “to finally resolve all pending claims and bar future claims against the debtor.” Part II posits that one way to reconcile this difference in treatment is to understand bankruptcy law positively as merely part of “the code of capital,” as termed by Professor Katharina Pistor, in which powerful interests and the legal professionals who represent them have guided bankruptcy law away from the plight of ordinary, over indebted Americans, and molded it into an institution that prioritizes their clients’ ends. Indeed, Pistor’s insight maps onto Jacoby’s explication of the general subordination of individual interests in bankruptcy law, whether as bankruptcy filers or as creditors in a nonhuman bankruptcy filing, in favor of more powerful institutional interests. Moreover, this perversion of bankruptcy law has caused Jacoby to take a minimalist stance on bankruptcy’s proper normative orientation (pp. 5–7, 11). Part III considers Jacoby’s minimalist stance on what role bankruptcy should play for individual filers and for nonhuman filers going forward. Her views align with bankruptcy minimalists who argue that bankruptcy’s penchant for quick-and-rough justice and its limited opportunities for appellate review — together with its tremendous power to mandate “a final and centralized end to litigation in the past, present, and future” — mean that bankruptcy’s applicability to the resolution of “social debt” should be limited. These arguments have developed in the context of bankruptcy’s current primacy in the resolution of mass tort liability, where minimalists have argued that bankruptcy law can conflict with core democratic features of our system of judicial federalism. Consequently, arguing against bankruptcy maximalists who favor function over form by understanding bankruptcy as an appropriate forum for the efficient resolution of aggregate claims, bankruptcy minimalists argue that bankruptcy is best suited to address the plight of companies in true financial distress, whose liability has ideally already been adjudicated in applicable state and federal courts. These minimalist arguments have crystallized in the context of bad-acting nonhuman filers who openly invoke a combination of limited liability and the Bankruptcy Code to escape from liability relatively unscathed. For example, it is intolerable to think that an alleged mass tortfeasor, like Johnson & Johnson, which has been accused of knowingly selling carcinogenic talc-based hygiene products for decades, could dance its way to financial exculpation merely by cleaving itself into two; saddling the resulting “bad company” with all its talc-based liability (in the case of Johnson & Johnson), while enriching the resulting “good company” with the profitable aspects of its business; then putting its “bad company” in bankruptcy in order to pay cents on the dollar to potentially thousands of its former customers (or their grieving families) presenting with, or who may in the future present with, ovarian cancer or other serious illnesses. This apparent abuse of bankruptcy law is so objectionable that it has even inspired a rare bipartisan effort in Congress to limit this so-called “Texas two-step” maneuver. Yet, as ever, bad facts threaten to make bad law. Although a minimalist approach to bankruptcy is intuitive in the present context, bankruptcy minimalism has hurt individual filers, particularly the most vulnerable individual filers. Thus, while bankruptcy’s current expansive approach to nonhuman filers has emboldened certain debtors to abuse the bankruptcy power to satisfy their own ends, a minimalist solution that is predicated on preconceived notions of financial distress or categorical limits on discharge threatens to throw the proverbial baby out with the dirty bathwater. Specifically, arguments in favor of further minimizing bankruptcy’s reach across the board neglect a harsh practical reality: As long as money damages are the principal expression of all obligations, bankruptcy is an important, if imperfect, backstop. While a robust bankruptcy law with judicial discretion to weed out true opportunism on a case-by-case basis would undoubtedly be over inclusive, it may also better serve the needs of individual filers whose financial distress stems from underlying criminal, contract, tort, familial, or other indebtedness that defies mechanical adjudication in bankruptcy. Commentary: It does verge a bit on parody about how self-consuming the world of bankruptcy commentary is that I'm blogging about a review of  Melissa Jacoby's Unjust Debts: How Our Bankruptcy System Makes America More Unequal,   which I already wrote about directly when it was first released.  (Albeit in a less prestigious forum.) That aside,  Prof.  Atkinson's review does make a more cogent argument against bankruptcy minimalism than my snarky suggestions that consumers flood the bankruptcy courts of Delaware with their own Chapter 11 cases.  While Professor Melissa Jacoby (and others) argue for shrinking the footprint of bankruptcy — limiting it mostly to contractual debts and curtailing its use in areas like mass torts — the article points out that this approach risks worsening outcomes for vulnerable individual debtors, since  Bankruptcy already disproportionately excludes or burdens individual debtors, especially marginalized groups, by: Imposing mechanical means tests (e.g., under BAPCPA) Keeping nondischargeable categories (like student loans, penal debt, domestic support obligations) Forcing Chapter 13 filers through intense, long-term surveillance before they get a discharge (unlike corporate Chapter 11 filers) Further shrinking bankruptcy (for example, by saying only “contract debts” should qualify) could cement or even worsen these exclusions, disproportionately hurting people who already lack wealth and are often carrying involuntary or unavoidable debts (e.g., criminal fines, child support, medical bills, tort damages). While certain that Congress is not likely to increase bankruptcy protections and relief for individuals,  it is similarly unlikely that it would restrict corporations in bankruptcy  without similarly imposing the same (or worse)  on real people.  One clear example would be a restriction on corporate venue (particularly using the Texas Two-Step),  often sought by academics,  which would certainly increase the burdens and risks on individual consumers  filing bankruptcy in the convenient forum for them. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document whos_afraid_of_bankruptcy.pdf (315.29 KB) Category Book Reviews

Law Review: Araujo, Ligia De, How Financial Consulting Can Help Prevent Business Bankruptcy in the U.S. (February 27, 2025). Ed Boltz Fri, 05/30/2025 - 18:57 Available at:  https://ssrn.com/abstract=5167034 Abstract: The rise in corporate bankruptcies across various sectors and business sizes in the United States highlights the importance of financial consulting as a fundamental tool for ensuring business sustainability. This article explores the role consulting can play in bankruptcy prevention, offering a detailed analysis of the economic landscape, emphasizing the significance of micro and small enterprises, and illustrating how financial consultants can assist with restructuring, strategic planning, and risk management. It also discusses the growing influence of emerging technologies such as artificial intelligence, process automation, and data analytics-on consulting processes. The article concludes by demonstrating that financial consulting, together with sound governance practices and long-term strategies, can be decisive in maintaining company competitiveness and survival in a business environment marked by challenges and uncertainties. Commentary: I'll make like Walt Whitman and contradict my repeated position that requiring that consumers take a credit counselling course before filing bankruptcy is a foolish waste of time and money,  by whole-heartedly endorsing the idea that  Tall Building Lawyers  should be forced to have their  clients watch a video on business sustainability before  filing their Chapter 11 case.   Or maybe it's just a terrible waste of time and money for everyone, whether a fake or real person in bankruptcy. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document ssrn-5167034.pdf (106.03 KB) Category Law Reviews & Studies

Political Science Review: Papageorgiou, Stylianos and Tejada, Oriol, Economics and Politics of Student Debt Relief (April 14, 2025) Ed Boltz Thu, 05/29/2025 - 17:01 Available at: . Available at SSRN: https://ssrn.com/abstract=5216239 or http://dx.doi.org/10.2139/ssrn.5216239 Abstract: We study student debt relief as the product of probabilistic voting by an electorate that includes both college graduates and non-college laborers. While politicians favor the most homogeneous group in a probabilistic voting setup, we identify conditions under which politicians forgive student debt even when laborers are more homogeneous than graduates. This political asymmetry in favor of student debt relief gives rise to a double equilibrium that is driven by strategic complementarities among a pivotal mass of citizens: When laborers are not sufficiently more homogeneous than graduates, either this pivotal mass banks on student debt relief, thus going to college, and forcing politicians to forgive student debt, or they reject college, thus preempting politicians from forgiving student debt. Income-driven repayments make politicians forgive fewer students' debt but under a wider range of parameters. We finally identify conditions under which student debt relief and a redistribution in favor of laborers act as strategic complements or substitutes from politicians' perspective. Commentary: As usual,  I  admit my inability to analyze the statistical basis of this research,  especially as it is so beyond my skills that I merely skip over all but the first six pages of the paper.  Further, as always,  I turn my focus not more generally about how  politicians respond to voter pressures around student debt forgiveness. But instead consider  how  bankruptcy fits into this model. Bankruptcy relief operates differently: it provides individualized, legal remedies rather than broad political redistribution. If Congress expands dischargeability of student loans in bankruptcy (or the Trump Administration continues to proceed under the more tolerant SLAP guidance), this reshapes the political landscape in several ways.    Bankruptcy  relief could: Reduce political pressure for blanket forgiveness by offering borrowers a fallback, lowering the need for politicians to act as last-resort fixers. Reshape voter coalitions, as only some borrowers (those in distress) need political help, making graduates a less unified political bloc. Be less polarizing: unlike forgiveness, which many see as directly redistributing taxpayer resources, bankruptcy balances relief between debtors and creditors, looking at both a debtor's income and assets,  avoiding visible harm to non-college laborers. Appear  more fair  to non-college laborers as it imposes some costs, burdens and stigmas on student borrowers by minimizing the perception of a moral hazard for the undeserving.  Act as either a substitute (reducing need for political forgiveness) or a complement (offering both legal and political relief avenues). In short, bankruptcy reform may offer a durable, less politically volatile solution that shifts the incentives politicians face. Combining it smartly with forgiveness policies could create a more balanced and sustainable student debt system.  An impediment to this, however, is that there is often an impression among many student borrowers (and some of the organizations that represent them)  that bankruptcy relief is to be avoided due to its social stigma and the perception that it marks financial failure. This  over-estimates the long-term  negative impacts on those who file bankruptcy.  It also reinforces the often class (and race)  distinction between student borrowers and their "good  debt"  with the "bad debt"  of those (often non-college laborers) who file bankruptcy.  This lack of debt solidarity   plays into the very polarization that this paper identifies. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document economics_and_politics_of_student_debt_relief.pdf (442.28 KB) Category Law Reviews & Studies

4th Cir.: Purdy v. Burnett- Dismissal with Prejudice Affirmed Ed Boltz Thu, 05/29/2025 - 16:58 Summary: The Purdys filed a Chapter 13 bankruptcy and were subject to the local form Order and Notice, which imposed,  among other requirements  and restrictions,  that they obtain prior approval from the bankruptcy court before incurring new debts in excess of $10,000.  Two years later,  on December 8, 2021,  the Purdys moved to incur a mortgage to finance a home.  While the Trustee did not object to that motion,  the bankruptcy court sua sponte denied the motion (including a subsequent denial of a motion to reconsider) on January 5,  2022.  In April of 2022,  after being provided information regarding the Purdy's income,  the Trustee discovered that they were making a monthly mortgage payment,  having gone forward with the purchase and financing of a home- despite the earlier denial by the bankruptcy court.  While continuing to pursue the mortgage financing,  Ms.  Purdy, shaving the truth far too close, informed the lender that the Trustee had not opposed the motion and provided a letter that appeared to be on the Trustee's letterhead and to include his signature stating that "[o]ut office fully supports Marcus and Amanda Purdy obtaining a mortgage." This letter was a forgery by Ms. Purdy. The Trustee moved to dismiss the Purdy's case and following a hearing on September 27, 2022,  the bankruptcy dismissed the case with prejudice.  Mr. Purdy was barred from refiling for a period of 5 years and Mrs.  Purdy for 10 years. The Purdys appealed arguing that the bankruptcy court erred in admitting the forged letter into evidence as they had not contested that they had violated the local Order and Notice.  The district court upheld the admission of the forged letter,  as it was relevant to the Purdys' opposition to the motion to dismiss their case.  The district court also declined to consider the "irrelevant and baseless"  arguments raised by Purdy's that their self-described "housing decision" caused no damage to any party or that the local rules  were "unconstitutionally nonuniform",  abridged substantive rights and violated the separation of powers.  The district court also upheld the dismissal with prejudice and further referred the matter to the U.S. Attorney for the Eastern District of North Carolina. On appeal,  the Fourth Circuit again (with Sugar/Sasser v. Burnett being just the most recent examples)  held that the Purdys seek to be excused by  “now object[ing] to the general proposition that the Local Rule governed [their] conduct following [p]lan confirmation.”   Based on the "fraud and knowing violation of court orders and local rules met the high bar for bad faith"   the dismissal with prejudice was upheld . Previous decision: Bankr. E.D.N.C.: In re Purdy- Dismissal with Prejudice for Forged Letter Commentary: Maybe it  was unwise to  appeal  a dismissal of a bankruptcy case with prejudice,  not only by relying on  pleadings that  admitted forgery but also where Ms.  Purdy had pleaded guilty in federal court after being charged with making false mortgage statements.  EDNC Case No. 24 CR-133..  These factors made it virtually certain that the Court of Appeals   would not overturn  the Local Rule,  both in this case and likely going forward (since now at least 6 Circuit judges have looked at it in tainted cases).  But it has also reset the Overton Window  for dismissals with prejudice, if only in an unpublished opinion,  that a 10 year bar to refiling can be appropriate. Unlike in the Sugar/Sasser v. Burnett opinion,  the Court of Appeals did not, however, recognize that Ms.  Purdy may have also had a reliance on counsel defense. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document purdy_v._burnett.pdf (114.12 KB) Document purdy_criminal_information.pdf (46.45 KB) Category 4th Circuit Court of Appeals

Bankr. E.D.N.C.: Williams Land Clearing, Grading, and Timber Logger v. Apex Funding Source, LLC et al- Merchant Cash Advances are Usurious Loans Ed Boltz Wed, 05/28/2025 - 17:06 Summary: In this extensive Chapter 11 adversary proceeding, the Bankruptcy Court for the Eastern District of North Carolina ruled on cross-motions for summary judgment concerning a Merchant Cash Advance (MCA) agreement between the debtor, Williams Land Clearing, and Apex Funding Source. The court held that the MCA was a loan, not a true sale, and that it was criminally usurious under New York law with an effective interest rate of 101.1% per annum. As such, the MCA agreement was void ab initio. Fraudulent transfer claim under § 548: Denied. The debtor received "reasonably equivalent value" because it had not repaid the full loan amount. Preference claim under § 547: Granted in part. A $30,159.42 payment made by the debtor’s customer (Domtar) to Apex within 90 days of the petition date was avoidable. Recovery under § 550: Correspondingly, the debtor could recover that amount for the benefit of the estate. Equitable subordination and objection to claim: To proceed to trial. Unfair and Deceptive Trade Practices (UDTPA): Partially allowed. The claim could not stand solely on the allegedly inflated proof of claim, but broader allegations of predatory lending survived summary judgment. Intervenor creditor CFI’s claims: Its attempt to claim the proceeds from the preference recovery as its own (due to a senior lien) failed. The court reiterated that Chapter 5 recoveries belong to the estate, even if based on collateral. CFI's claim for conversion also failed for lack of key elements, including possession and demand. All claims against Apex's attorney Yehuda Klein: Dismissed without evidentiary support. Commentary: This decision is the latest in a growing line of opinions treating MCA agreements as disguised, high-interest loans rather than true sales of receivables. While this case arises in a Chapter 11 context, it resonates strongly with issues in consumer bankruptcy: Recharacterization of MC As as Loans: The court embraced the now-established methodology—relying heavily on Fleetwood Services, LG Funding, and In re Shoot the Moon—to look past contractual form and assess substance over labels. This reinforces the need for consumer bankruptcy attorneys to scrutinize "factoring" and "advance" agreements that mask usurious credit terms. Void Ab Initio Doctrine as Defensive Weapon: Importantly, the court clarified that while a debtor generally cannot bring a standalone affirmative claim under New York’s criminal usury law, a usurious MCA can be invalidated when asserted defensively in response to a proof of claim. This is a critical avenue in consumer bankruptcy, where lenders may file inflated claims based on void contracts. UDTPA as a Complementary Tool: The partial survival of the unfair and deceptive trade practices claim highlights that North Carolina’s UDTPA remains a viable mechanism to challenge predatory financial practices—even when bankruptcy displaces state contract law. While the court did not grant summary judgment on the claim, it allowed allegations of aggressive and misleading MCA marketing to proceed to trial, potentially enabling treble damages and attorney’s fees under N.C. Gen. Stat. § 75-16. Preference Recovery Benefits the Estate, Not Secured Creditors: For trustees and consumer debtor counsel alike, the ruling reaffirming that prepetition security interests do not attach to postpetition avoidance recoveries under § 550 is a strong reaffirmation of Hutson v. First-Citizens and the estate-centric philosophy of Chapter 5 powers. This helps preserve plan funding in Chapter 13 and liquidation dividends in Chapter 7. Attorney Involvement: The dismissal of all claims against Yehuda Klein reminds practitioners to carefully distinguish between the conduct of lenders and their counsel, unless evidence shows the attorney participated directly in tortious activity or was independently liable. Even though this was a corporate debtor, many consumer debtors are entangled in MCA-like arrangements through small business ventures or gig economy work. This case provides a roadmap for: Objection to claims based on invalid contracts. Preference litigation against aggressive collectors. Rebuttal of "true sale" assertions that attempt to defeat avoidance actions. Use of UDTPA claims as leverage for settlements or affirmative recovery.  With proper attribution,  please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document williams_land_clearing_grading_and_timber_logger_v._apex_funding_source_llc.pdf (296.57 KB) Category Eastern District

Tired of eating fees at the end of a Chapter 13 when the debtor-client gets a discharge and you get a write off of the unpaid fees? The problem– attorneys fees incurred during the case but unpaid at case end are uncollectible when the debtor gets a discharge. It happens all too frequently when you […] The post The Trick To Getting Paid For All Your Work In Chapter 13 appeared first on Bankruptcy Mastery.