M.D.N.C.: Perry v. CitiMortgage, Inc.- Federal Court Presses Pause in Alleged “Phantom Mortgage” Dispute Stafford Patterson Wed, 03/25/2026 - 17:03 Summary: Arthur and Lisa Perry claim that a mystery deed of trust appeared in the public records against their home—one tied to a loan that Arthur Perry insists he never applied for, never authorized, and never received. According to the complaint, Mr. Perry purchased the property in 2005 with a legitimate mortgage, but in 2006 a second deed of trust was recorded in favor of Corinthian Mortgage (d/b/a SouthBanc Mortgage). The problem did not surface until 2019, when the Perrys attempted to sell the property and discovered that the allegedly fraudulent lien prevented the closing. When they contacted the loan servicer, CitiMortgage, they claim the company acknowledged that it had an incorrect Social Security number for Mr. Perry and struggled to produce documentation supporting the alleged loan. Litigation followed—first in North Carolina state court in 2022. That case (“Perry I”) ended with a voluntary dismissal with prejudice in December 2023. The Perrys then filed a new federal lawsuit in 2024 (“Perry II”) asserting similar claims against CitiMortgage and other defendants connected to the loan closing and title work. But that earlier dismissal turned out to be the procedural landmine in this case. The Federal Case Hits the Pause Button The federal district court granted a stay of the case pending the outcome of an appeal in the earlier state-court action. The Perrys are currently asking the North Carolina Court of Appeals to reverse a ruling refusing to convert their earlier dismissal from “with prejudice” to “without prejudice.” That distinction matters enormously. If the dismissal truly was with prejudice, the doctrine of res judicata could bar the Perrys from pursuing the same claims again. Because the state appellate decision could determine whether the federal claims survive at all, the court concluded that a stay was appropriate under the Colorado River abstention doctrine, which allows federal courts to pause proceedings when parallel state litigation could resolve the dispute. The court emphasized the risk of duplicative litigation and inconsistent rulings if both cases moved forward simultaneously. No Default Judgment—At Least Not Yet The Perrys also sought default judgments against two defendants—Corinthian Mortgage and Trust Title—who had failed to appear. The court declined to enter default judgment for now, relying on a long-standing rule dating back to Frow v. De La Vega (1872): when multiple defendants may share related liability, courts should avoid entering default judgments that might produce inconsistent results. Here, many of the Perrys’ claims overlap among the defendants, including allegations tied to the validity—or fraudulence—of the disputed deed of trust. Entering judgment against the defaulting parties now could effectively decide issues that remain contested with CitiMortgage. Accordingly, the motion for default judgment was denied without prejudice until the stay is lifted. Commentary Two takeaways jump out of this decision. 1. The Perils of a “With Prejudice” Dismissal Voluntary dismissals with prejudice are often filed casually—sometimes as part of a negotiated resolution, sometimes simply to end a case that seems unpromising. But once those words appear in the order, they can slam the courthouse door shut for good. That is exactly the fight now unfolding in the North Carolina Court of Appeals. If the dismissal stands as “with prejudice,” the Perrys may never get to litigate whether this alleged mortgage was fraudulent. For lawyers, the lesson is straightforward: be extremely cautious about agreeing to a dismissal with prejudice unless you are certain the case is truly over. 2. A Familiar Consumer Problem: The “Ghost Lien” Substantively, the allegations are troubling but not unheard of. Consumers sometimes discover years later that their property is encumbered by: misindexed mortgages identity-theft loans recording errors or loans tied to incorrect borrower identifiers (such as a wrong Social Security number) Here, the plaintiffs allege CitiMortgage itself acknowledged maintaining the wrong SSN for Mr. Perry. If proven, that fact could become central to whether the loan was ever properly attributable to him. But none of those factual issues will be resolved until the procedural question—whether the claims are barred by the earlier dismissal—is answered first. 3. A Quiet Reminder About Default Judgments The court’s refusal to enter default judgment is also a reminder that default does not automatically equal victory. When claims against multiple defendants are intertwined—as they often are in mortgage or title disputes—courts frequently delay default judgments to avoid inconsistent outcomes. In other words: even when one defendant fails to show up, the case may still have to wait for the others. The Bottom Line For now, Perry v. CitiMortgage is on hold. The real action has shifted to the North Carolina Court of Appeals, where the fate of the earlier dismissal will determine whether the Perrys’ claims live or die. Until then, the alleged phantom mortgage—and the question of how it appeared in the first place—remains unresolved.   To read a copy of the transcript, please see: Blog comments Attachment Document perry_v._citimortgage.pdf (228.76 KB) Category Middle District

M.D.N.C.: Tuttle v. NewRez- Repackaging a TILA Violation Won’t Save State-Law Debt Collection Claims Ed Boltz Tue, 03/24/2026 - 15:19 Summary: Judge Thomas Schroeder of the Middle District of North Carolina dismissed a borrower class action against Shellpoint Mortgage Servicing and the trust that owned the loan, holding that the plaintiffs’ North Carolina debt-collection and consumer-protection claims were simply an impermissible attempt to enforce the Truth in Lending Act (TILA) against parties that the statute largely shields from liability. The decision is a useful reminder—especially for consumer litigators—that creative pleading cannot transform a non-actionable federal disclosure claim into a viable state-law debt-collection case. The Background Gregory and Sarah Tuttle refinanced their home in 2005 with the once-ubiquitous 80/20 mortgage structure. After filing a Chapter 7 bankruptcy in 2006, Mr. Tuttle’s personal liability on the second mortgage was discharged. Years later, after the CFPB amended Regulation Z in 2018 to require periodic mortgage statements for borrowers who had gone through bankruptcy, the servicer resumed sending statements. Those statements allegedly included retroactive interest and fees—about $20,000 added to a $54,000 balance. When foreclosure was threatened in 2023, the Tuttles sued, asserting: multiple claims under the North Carolina Debt Collection Act (NCDCA) a claim under the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA) breach of contract under the deed of trust declaratory judgment and class claims on behalf of similarly situated borrowers. The core theory was straightforward: because the servicer failed to send statements for years, it should not be able to collect the interest and fees that accrued during that time. The Court’s Analysis 1. You Can’t Enforce TILA Through the NCDCA The plaintiffs’ main strategy was to argue that the defendants violated the NCDCA by attempting to collect fees and interest that were improperly assessed when no monthly statements were being sent. The problem: TILA’s liability provisions generally apply only to creditors—not servicers or assignees. Judge Schroeder concluded that the entire NCDCA theory depended on proving a TILA violation that could not be enforced against these defendants. Recasting that alleged violation as a state-law debt-collection claim did not work: The alleged NCDCA violations all arise from attempts to collect interest and fees assessed during months when plaintiffs were not sent statements—in other words, from a nonactionable TILA violation. Because the complaint identified no independent North Carolina law making those charges unlawful, the NCDCA claims failed. The court also looked to FDCPA precedent—often used by North Carolina courts when interpreting the NCDCA—and found federal courts have consistently rejected similar attempts to enforce TILA obligations through other statutes. 2. UDTPA Claims Rise and Fall With the Same Theory The unfair-and-deceptive-trade-practices claim fared no better. The complaint itself alleged that the foreclosure efforts violated UDTPA because they violated TILA. Once the court concluded that the alleged TILA violation was not actionable against these defendants, the UDTPA claim collapsed as well. 3. Breach of Contract Claims Also Failed The borrowers also argued the default notice overstated the debt and that the servicer failed to send a notice to Mrs. Tuttle. The court rejected both theories: The “inflated amount” theory again depended entirely on the alleged TILA violation. While Mrs. Tuttle technically should have received a notice as a borrower under the deed of trust, the failure to address the letter to her was not a material breach, since the notice was sent to her husband at the same property and no prejudice was alleged. 4. No Claims = No Class Action With all substantive claims dismissed, the court also dismissed the proposed class allegations. Commentary This decision illustrates an increasingly common problem in post-bankruptcy mortgage litigation: the tension between the CFPB’s statement requirements and TILA’s narrow liability scheme. After the 2018 amendments to Regulation Z, servicers must generally send monthly statements even to borrowers whose personal liability was discharged in bankruptcy. But the enforcement provisions of TILA still largely shield servicers and assignees from damages liability unless the violation is apparent on the face of the loan disclosures. That gap creates a tempting target for creative pleading. The Tuttles tried what many consumer litigants have attempted: repackaging a TILA disclosure issue as a state debt-collection violation. Judge Schroeder joined several other courts rejecting that approach. The ruling essentially says that if the only reason the debt is allegedly inaccurate is because TILA required disclosures that were not provided, and TILA itself does not permit suit against the defendant, state consumer statutes cannot be used to backdoor that claim. But the opinion also quietly highlights a strategic omission in the plaintiffs’ case. The court noted that the Tuttles failed to identify any North Carolina statute or case law that independently made the fees or interest unlawful. One candidate that was never raised is N.C. Gen. Stat. § 45-91, part of North Carolina’s mortgage-servicing statute. That provision generally requires mortgage servicers to provide timely notice when assessing certain fees or charges and to describe the basis for those charges. Had the theory been that the servicer assessed fees without complying with the statutory notice requirements of § 45-91, the plaintiffs might have been able to point to an independent violation of North Carolina law, rather than relying exclusively on TILA. In that circumstance, an NCDCA claim based on attempting to collect unauthorized fees might have looked very different. Whether such a theory would ultimately succeed is uncertain, but it would have addressed the precise concern the court identified: the absence of any state-law prohibition on the charges themselves. For consumer lawyers, the takeaway is strategic as much as doctrinal: Claims tied solely to failure to send periodic statements may be difficult to maintain unless a creditor (not just a servicer) is the defendant. State-law claims need an independent source of illegality—for example a violation of mortgage-servicing statutes like § 45-91, contractual limits in the deed of trust, or other state regulatory requirements. For mortgage servicers, the case provides reassurance that TILA’s liability limits still matter, even after the CFPB expanded the obligation to send statements to borrowers emerging from bankruptcy. And for practitioners in North Carolina, Tuttle is also a reminder that sometimes the strongest claim may not be federal at all—it may be hiding in the state mortgage statutes that govern how those fees are imposed in the first place.   To read a copy of the transcript, please see: Blog comments Attachment Document tuttle_v._new_rez.pdf (194.06 KB) Category Middle District

NC D.CT.: Harris v. Eastern Financial Services- $495/Hour as a “Customary and Reasonable” Rate for Consumer Litigation Ed Boltz Mon, 03/23/2026 - 15:04 Summary: A recent judgment from the Durham County District Court provides a notable data point for attorneys litigating consumer protection cases—and for courts determining reasonable attorney’s fees. In Glennie Harris v. Eastern Financial Services, LLC, the court entered a default judgment arising from a wrongful automobile repossession that violated the Uniform Commercial Code and North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA). The court awarded damages, costs, and—most significantly for practitioners—attorney’s fees at a rate of $495 per hour. The Judgment Because the defendant failed to appear, the court entered default and awarded a combination of statutory and trebled damages. Specifically, the judgment included: $500 statutory damages for failing to send notice of deficiency or surplus $1,500 statutory damages for three refusals to provide an accounting $3,780 in actual damages (the value of the repossessed automobile), trebled under UDTPA, bringing the total judgment to $13,340 $301.83 in litigation costs $7,524.00 in attorney’s fees The attorney’s fees were calculated based on 15.2 hours of work at $495 per hour, which the court expressly found to be “customary and reasonable for similar services in the same community.” The court also ordered that the plaintiff owed no deficiency to the lender, closing the loop on the repossession dispute. Congratulations to Suzanne Begnoche First, congratulations are in order to Suzanne Begnoche, who represented the plaintiff and secured both the judgment and the fee award. Consumer protection cases—particularly those involving vehicle repossessions—often involve modest damages but significant legal work to hold creditors accountable. Achieving a fee award that recognizes the true market value of that work is both a win for the client and an important signal to the broader bar. Why the Hourly Rate Matters The most interesting aspect of this decision is not the underlying repossession dispute—it is the court’s explicit recognition of $495 per hour as a reasonable rate for consumer litigation in Durham County. That finding should not be overlooked. Courts determining fee awards frequently rely on the “customary rate in the community.” But too often those rates are anchored to outdated assumptions about what consumer lawyers charge or should charge. When a court makes a clear factual finding—based on evidence—that a $495 hourly rate is customary and reasonable, that finding becomes a useful benchmark for future fee applications. A Benchmark for North Carolina Courts This order should prompt a broader conversation. Whether in state court, federal district court, or bankruptcy court, judges in North Carolina should keep this benchmark in mind when evaluating fee applications. Consumer litigation—whether under UDTPA, the FDCPA, the Bankruptcy Code, or similar statutes—often relies on fee-shifting provisions precisely because individual damages are too small to support traditional contingency litigation. If courts undervalue the hourly rate for that work, they effectively discourage enforcement of consumer protection laws. Recognizing rates approaching $500 per hour reflects the reality of modern legal practice: experienced consumer litigators bring specialized expertise, litigation costs and overhead have increased dramatically, and fee-shifting statutes depend on fully compensatory fee awards. Implications for Bankruptcy Courts Bankruptcy courts in particular should take note. When evaluating attorney’s fees—whether in adversary proceedings, sanctions motions, or statutory fee-shifting contexts—courts frequently look to prevailing market rates. A state court finding that $495/hour is customary and reasonable in the Durham legal market provides a useful reference point when those issues arise in bankruptcy litigation. The Larger Point Ultimately, the lesson here is simple. Consumer protection statutes only work if attorneys are willing to bring the cases. And attorneys will only bring those cases if courts recognize—and compensate—the real market value of their work. This Durham judgment does exactly that. And for that reason alone, it is a decision worth noting. (And again—congratulations to Suzanne Begnoche on both the win and the well-deserved fee award.) To read a copy of the transcript, please see: Blog comments Attachment Document harris_glennie_2026.02.09_judgment-fee_order.pdf (1.22 MB) Category NC Business Court

Bankr. E.D.N.C.: Sink v. Albrecht- Pre-Bankruptcy TBE Conversion Avoided Ed Boltz Fri, 03/20/2026 - 14:35 Summary: Bankruptcy exemption planning often walks a fine line between legitimate preparation and avoidable transfer. In In re Albrecht, Judge Pamela W. McAfee of the Bankruptcy Court for the Eastern District of North Carolina addressed where that line falls when a debtor converts jointly owned real property into a tenancy by the entirety shortly before filing bankruptcy. The court ultimately held that the maneuver crossed the line and constituted both a constructively and actually fraudulent transfer avoidable by the Chapter 7 trustee. The Facts Lucas Albrecht and his partner, Kirsten Moore, purchased a Raleigh residence in 2020 as joint tenants with rights of survivorship while unmarried. They lived there together for nearly five years. In February 2025—immediately before filing bankruptcy—two things happened: The couple married, and The next day they executed a deed transferring the property to themselves as tenants by the entirety. Twenty-seven days later, Albrecht filed Chapter 7. Before the transfer, his one-half interest in the home could be reached by individual creditors. After the transfer, the property became tenancy-by-the-entirety property, shielding it from those creditors under North Carolina law. The Chapter 7 trustee, Kevin Sink, sued to avoid the transfer under §548 and the North Carolina Uniform Voidable Transactions Act. Issue #1: Was There Even a “Transfer”? The debtors argued that nothing meaningful had changed—the same property was owned by the same two people—so there was no transfer at all. Judge McAfee disagreed. The Bankruptcy Code defines “transfer” extremely broadly, covering any mode of disposing of or parting with property or an interest in property. Under North Carolina law, the shift from joint tenancy to tenancy by the entirety changes the legal rights in important ways: A joint tenant may unilaterally alienate his interest. A spouse holding property as tenants by the entirety cannot alienate without the other spouse’s consent. Just as importantly, the retitling extinguished the ability of Albrecht’s individual creditors to execute on the property. That change in legal rights—both the debtor’s and the creditors’—was enough. The court held the deed was a transfer under §101(54). Issue #2: Reasonably Equivalent Value? The debtors next argued that even if there was a transfer, it was not constructively fraudulent because each spouse gave and received the same thing: an interest in the same property. Some courts (notably in the Eighth Circuit) have accepted that debtor-focused analysis. But the Fourth Circuit takes a different approach. Following In re Jeffrey Bigelow Design Group, courts must examine the net effect on the debtor’s estate and unsecured creditors. From that perspective, the result here was obvious: Before the transfer: creditors could reach Albrecht’s equity. After the transfer: they could not. Because the transfer reduced the assets available to unsecured creditors, the debtor did not receive reasonably equivalent value. Constructive fraud was therefore established. Issue #3: Actual Fraud and the Badges of Fraud The court also found actual intent to hinder, delay, or defraud creditors based on multiple badges of fraud, including: Transfer to an insider (spouse) Debtor retained possession and control Transfer involved substantially all assets Debtor was insolvent Lack of reasonably equivalent value These factors created a presumption of fraudulent intent, which the debtors failed to rebut. The opinion also notes repeatedly that the marriage and re-titling occurred “on the advice of counsel.” That fact did not change the outcome of the avoidance action. As Judge McAfee explained, disclosure of the transfer and reliance on legal advice do not negate the presence of other badges of fraud or prevent the trustee from avoiding the transaction. Commentary 1. Exemption Planning Is Allowed—But Not Unlimited The opinion carefully acknowledges the well-known principle from Ford v. Poston: debtors are generally allowed to convert non-exempt property into exempt property before filing bankruptcy. But Albrecht shows the limit. Exemption planning is permissible until it crosses into fraudulent transfer territory—particularly when the move effectively removes assets from creditors without any offsetting value. 2. The Fourth Circuit’s Creditor-Focused Approach Matters The key analytical move in this opinion is the reliance on Jeffrey Bigelow and its creditor-focused test for reasonably equivalent value. That approach makes outcomes like this almost inevitable. From a debtor’s perspective, nothing changed—they still owned the house. From the creditors’ perspective, however, the estate lost a reachable asset. And in the Fourth Circuit, that is the perspective that counts. 3. Timing Still Matters—A Lot Even though eve-of-bankruptcy conversions are not automatically fraudulent, timing remains powerful circumstantial evidence. Here, the sequence was difficult to ignore: Five years living together unmarried Marriage Immediate deed to TBE Bankruptcy filed 27 days later Courts rarely treat that kind of chronology as coincidence. 4. A Cautionary Tale for Pre-Bankruptcy Planning For practitioners, Albrecht is a reminder that certain planning strategies—particularly those involving tenancy-by-the-entirety conversions shortly before filing—require careful analysis. One notable feature of the opinion is that Judge McAfee repeatedly emphasized that the marriage and re-deeding were undertaken “on the advice of counsel.” That observation cuts in two directions. On the one hand, acting on advice of counsel may help demonstrate that the debtor did not independently act with deceitful intent, potentially providing some protection against allegations of bad faith, denial of discharge, or even more serious accusations such as criminal bankruptcy fraud. But that same fact does not prevent the transfer from being avoided, and it may shift the spotlight elsewhere. When a strategy designed to move assets beyond the reach of creditors fails under fraudulent transfer analysis, the legal advice that prompted the maneuver can come under scrutiny. In short, Albrecht illustrates the asymmetry of failed pre-bankruptcy planning: the debtor may simply lose the benefit of the transfer, while the attorney who recommended the strategy may face the harder questions afterward. It is also a reminder of a practical strategic point in consumer bankruptcy practice. Aggressive or innovative exemption planning is often safer in a Chapter 13 case than in Chapter 7. In Chapter 13: the debtor retains the ability to voluntarily dismiss the case if a court rejects the strategy, and more commonly, the debtor can negotiate with the trustee and propose a plan that pays creditors enough to resolve or neutralize a potential avoidance claim. Chapter 7 offers no such flexibility. A Chapter 7 trustee is affirmatively incentivized to pursue recoveries because trustees receive a statutory commission on distributions and may also recover attorneys’ fees for litigation that brings assets into the estate. As a result, trustees have strong incentives to identify and monetize assets, whether through avoidance actions or other litigation. In that environment, a strategy that might simply require a plan adjustment in Chapter 13 can become full-blown litigation in Chapter 7. ✅ Bottom Line: In the Fourth Circuit, converting jointly held property into tenancy by the entirety on the eve of bankruptcy can be avoided as both constructively and actually fraudulent when the effect is to place equity beyond the reach of individual creditors. And for practitioners considering aggressive exemption planning, Chapter 13 may provide a far more forgiving forum than Chapter 7. To read a copy of the transcript, please see: Blog comments Category Eastern District

Bankr. E.D.N.C.: Sink v. Albrecht- Pre-Bankruptcy TBE Conversion Avoided Ed Boltz Fri, 03/20/2026 - 14:35 Summary: Bankruptcy exemption planning often walks a fine line between legitimate preparation and avoidable transfer. In In re Albrecht, Judge Pamela W. McAfee of the Bankruptcy Court for the Eastern District of North Carolina addressed where that line falls when a debtor converts jointly owned real property into a tenancy by the entirety shortly before filing bankruptcy. The court ultimately held that the maneuver crossed the line and constituted both a constructively and actually fraudulent transfer avoidable by the Chapter 7 trustee. The Facts Lucas Albrecht and his partner, Kirsten Moore, purchased a Raleigh residence in 2020 as joint tenants with rights of survivorship while unmarried. They lived there together for nearly five years. In February 2025—immediately before filing bankruptcy—two things happened: The couple married, and The next day they executed a deed transferring the property to themselves as tenants by the entirety. Twenty-seven days later, Albrecht filed Chapter 7. Before the transfer, his one-half interest in the home could be reached by individual creditors. After the transfer, the property became tenancy-by-the-entirety property, shielding it from those creditors under North Carolina law. The Chapter 7 trustee, Kevin Sink, sued to avoid the transfer under §548 and the North Carolina Uniform Voidable Transactions Act. Issue #1: Was There Even a “Transfer”? The debtors argued that nothing meaningful had changed—the same property was owned by the same two people—so there was no transfer at all. Judge McAfee disagreed. The Bankruptcy Code defines “transfer” extremely broadly, covering any mode of disposing of or parting with property or an interest in property. Under North Carolina law, the shift from joint tenancy to tenancy by the entirety changes the legal rights in important ways: A joint tenant may unilaterally alienate his interest. A spouse holding property as tenants by the entirety cannot alienate without the other spouse’s consent. Just as importantly, the retitling extinguished the ability of Albrecht’s individual creditors to execute on the property. That change in legal rights—both the debtor’s and the creditors’—was enough. The court held the deed was a transfer under §101(54). Issue #2: Reasonably Equivalent Value? The debtors next argued that even if there was a transfer, it was not constructively fraudulent because each spouse gave and received the same thing: an interest in the same property. Some courts (notably in the Eighth Circuit) have accepted that debtor-focused analysis. But the Fourth Circuit takes a different approach. Following In re Jeffrey Bigelow Design Group, courts must examine the net effect on the debtor’s estate and unsecured creditors. From that perspective, the result here was obvious: Before the transfer: creditors could reach Albrecht’s equity. After the transfer: they could not. Because the transfer reduced the assets available to unsecured creditors, the debtor did not receive reasonably equivalent value. Constructive fraud was therefore established. Issue #3: Actual Fraud and the Badges of Fraud The court also found actual intent to hinder, delay, or defraud creditors based on multiple badges of fraud, including: Transfer to an insider (spouse) Debtor retained possession and control Transfer involved substantially all assets Debtor was insolvent Lack of reasonably equivalent value These factors created a presumption of fraudulent intent, which the debtors failed to rebut. The opinion also notes repeatedly that the marriage and re-titling occurred “on the advice of counsel.” That fact did not change the outcome of the avoidance action. As Judge McAfee explained, disclosure of the transfer and reliance on legal advice do not negate the presence of other badges of fraud or prevent the trustee from avoiding the transaction. Commentary 1. Exemption Planning Is Allowed—But Not Unlimited The opinion carefully acknowledges the well-known principle from Ford v. Poston: debtors are generally allowed to convert non-exempt property into exempt property before filing bankruptcy. But Albrecht shows the limit. Exemption planning is permissible until it crosses into fraudulent transfer territory—particularly when the move effectively removes assets from creditors without any offsetting value. 2. The Fourth Circuit’s Creditor-Focused Approach Matters The key analytical move in this opinion is the reliance on Jeffrey Bigelow and its creditor-focused test for reasonably equivalent value. That approach makes outcomes like this almost inevitable. From a debtor’s perspective, nothing changed—they still owned the house. From the creditors’ perspective, however, the estate lost a reachable asset. And in the Fourth Circuit, that is the perspective that counts. 3. Timing Still Matters—A Lot Even though eve-of-bankruptcy conversions are not automatically fraudulent, timing remains powerful circumstantial evidence. Here, the sequence was difficult to ignore: Five years living together unmarried Marriage Immediate deed to TBE Bankruptcy filed 27 days later Courts rarely treat that kind of chronology as coincidence. 4. A Cautionary Tale for Pre-Bankruptcy Planning For practitioners, Albrecht is a reminder that certain planning strategies—particularly those involving tenancy-by-the-entirety conversions shortly before filing—require careful analysis. One notable feature of the opinion is that Judge McAfee repeatedly emphasized that the marriage and re-deeding were undertaken “on the advice of counsel.” That observation cuts in two directions. On the one hand, acting on advice of counsel may help demonstrate that the debtor did not independently act with deceitful intent, potentially providing some protection against allegations of bad faith, denial of discharge, or even more serious accusations such as criminal bankruptcy fraud. But that same fact does not prevent the transfer from being avoided, and it may shift the spotlight elsewhere. When a strategy designed to move assets beyond the reach of creditors fails under fraudulent transfer analysis, the legal advice that prompted the maneuver can come under scrutiny. In short, Albrecht illustrates the asymmetry of failed pre-bankruptcy planning: the debtor may simply lose the benefit of the transfer, while the attorney who recommended the strategy may face the harder questions afterward. It is also a reminder of a practical strategic point in consumer bankruptcy practice. Aggressive or innovative exemption planning is often safer in a Chapter 13 case than in Chapter 7. In Chapter 13: the debtor retains the ability to voluntarily dismiss the case if a court rejects the strategy, and more commonly, the debtor can negotiate with the trustee and propose a plan that pays creditors enough to resolve or neutralize a potential avoidance claim. Chapter 7 offers no such flexibility. A Chapter 7 trustee is affirmatively incentivized to pursue recoveries because trustees receive a statutory commission on distributions and may also recover attorneys’ fees for litigation that brings assets into the estate. As a result, trustees have strong incentives to identify and monetize assets, whether through avoidance actions or other litigation. In that environment, a strategy that might simply require a plan adjustment in Chapter 13 can become full-blown litigation in Chapter 7. ✅ Bottom Line: In the Fourth Circuit, converting jointly held property into tenancy by the entirety on the eve of bankruptcy can be avoided as both constructively and actually fraudulent when the effect is to place equity beyond the reach of individual creditors. And for practitioners considering aggressive exemption planning, Chapter 13 may provide a far more forgiving forum than Chapter 7. To read a copy of the transcript, please see: Blog comments Attachment Document albrecht_trustee_brief.pdf (187.76 KB) Document albrecht_brief.pdf (272.13 KB) Document albrecht.pdf (201.05 KB) Category Eastern District

Law Review: Bruce, Kara- Desperation Finance: Merchant Cash Advances in Bankruptcy and Beyond Ed Boltz Wed, 04/01/2026 - 15:15 Available at SSRN: https://ssrn.com/abstract=6192358 Abstract Over the last several years, Merchant Cash Advances (MC As) have risen in prominence as a form of short-term financing for distressed small businesses. MCA transactions are distinct from most small-business lending because they are not structured as loans at all. Rather, in exchange for a lump sum of cash, the merchant purports to sell to the funder an unidentified percentage of its future receipts or receivables. This structure allows funders to sidestep the application of lending regulations and usury protections, but it strains the foundations of commercial law and generates a host of interpretive challenges. Bankruptcy, district, and circuit courts across the nation are grappling with the true nature of MCA transactions to determine what rights in the underlying receivables are transferred and when that transfer occurs. These issues rise in prominence if a merchant seeks bankruptcy protection, as the extent of the estate’s interest in property—and by extension the application of any number of bankruptcy provisions—hangs in the balance. This essay provides a comprehensive analysis of MCA agreements and other forms of revenue-based financing. Drawing from a robust literature involving recharacterization of financial transactions, this essay advances an analytical framework for evaluating the nature of MCA transactions and explores how recharacterization affects both bankruptcy and non-bankruptcy entitlements. Desperation Finance: Merchant Cash Advances and the Bankruptcy System Bankruptcy judges sometimes see financial products that look less like lending and more like a distress flare. Professor Kara Bruce’s forthcoming article, Desperation Finance: Merchant Cash Advances in Bankruptcy and Beyond, provides a thorough and deeply useful examination of one of the most troubling recent examples: Merchant Cash Advances (MC As)—a form of financing marketed to struggling small businesses but frequently carrying effective interest rates well above 100% and sometimes far higher. MC As are intentionally structured not as loans but as “sales” of a percentage of future receivables. That formal structure allows funders to argue that usury laws do not apply, even though the economic reality often resembles extremely high-interest lending. When bankruptcy inevitably follows—as it often does—the legal system must answer a deceptively simple question: Is an MCA really a sale of receivables, or is it a disguised loan? The answer determines everything from property of the estate, to preference liability, to fraudulent transfer analysis, and even Subchapter V eligibility. Bruce’s article provides a roadmap through that thicket. How Merchant Cash Advances Work The typical MCA transaction looks like this: A distressed business receives an immediate cash advance. In exchange, it “sells” a portion of future receivables. The funder collects repayment through daily ACH withdrawals from the merchant’s bank account. The arrangement is marketed as flexible—payments supposedly fluctuate with revenue. But courts increasingly find that the supposed flexibility is illusory, buried beneath reconciliation provisions that are difficult or impossible to invoke. More troubling are the economics. One example cited in the article involved: $75,000 advanced $111,750 required repayment daily withdrawals of $1,117 That translates into an effective interest rate of about 115% per year—before fees. And many MCA borrowers do not stop at one advance. Businesses often stack multiple MC As, sometimes pledging more than 100% of their anticipated revenue. That spiral usually ends in litigation or bankruptcy.   Bankruptcy Complications Once the debtor files bankruptcy, MCA agreements create several recurring legal disputes. 1. Property of the Estate MCA funders often argue that the receivables were already sold prepetition, so the revenue belongs to them—not the bankruptcy estate. But that argument runs headlong into a basic property principle: You cannot sell property that does not yet exist. Future receivables cannot be transferred until they are generated. As a result, courts increasingly hold that post-petition receivables remain property of the estate, regardless of MCA language. 2. Avoidance Litigation MCA payments frequently become the target of preference or fraudulent transfer actions. Funders argue that daily withdrawals are merely collecting their own property. Trustees respond that the withdrawals are payments on an antecedent debt. Courts increasingly accept the latter view. In other words, those daily ACH sweeps may be avoidable transfers. 3. Fraudulent Transfer Issues The question often becomes whether the debtor received reasonably equivalent value. Some courts say yes—because the MCA provided a “lifeline” when no other lender would. Others are more skeptical, especially where the transaction simply refinanced earlier MC As at astronomical cost. Why Courts Are Increasingly Recharacterizing MC As Bruce argues that the key legal battle is recharacterization—whether the transaction is really a loan. Several features push courts in that direction: Fixed repayment obligations Personal guaranties acceleration clauses aggressive collection remedies daily withdrawals regardless of revenue These features look far more like secured lending than a sale of receivables. And once recharacterized as loans, MC As can trigger: usury defenses preference liability fraudulent transfer claims regulatory enforcement Desperation Finance Is Not Limited to Small Businesses While MC As affect businesses, the same economic pattern appears throughout consumer bankruptcy practice. The common thread is simple: Borrowers with no access to conventional credit turn to lenders willing to exploit that desperation. Three examples stand out. Consumer Desperation Finance Payday Loans Payday lending has long been the consumer analogue to MC As. Typical features include: extremely short repayment terms triple-digit AP Rs automatic bank withdrawals The structure frequently leads borrowers to roll over loans repeatedly, creating a cycle nearly identical to MCA stacking. Many Chapter 7 debtors arrive with multiple payday loans outstanding, often consuming a large portion of monthly income. Title Loans Vehicle title loans may be even more destructive. These loans: are secured by the borrower’s vehicle carry extremely high interest rates permit quick repossession upon default For many debtors, losing the car means losing the ability to work, which accelerates the downward spiral into bankruptcy. Check-Cashing Loans “Check loans” and other storefront finance products operate similarly: high fees disguised as service charges repayment structures designed to force refinancing minimal underwriting All are variations on the same theme: credit extended not because repayment is likely, but because collateral or fees guarantee profit. Desperation Finance in the Legal Profession Perhaps the most uncomfortable example of desperation finance appears not in consumer lending—but in the financing of bankruptcy attorney fees themselves. Kallen v. U.S. Trustee A recent decision from the District of Arizona illustrates the risks of third-party fee financing in consumer bankruptcy cases. In Kallen v. U.S. Trustee, a Chapter 7 firm entered into a financing arrangement with EZ Legal, a company that advanced funds to the firm for debtor legal fees. Under the initial structure, EZ Legal advanced 75% of the $3,000 flat attorney fee to the firm and in return obtained the right to collect and retain the entire $3,000 fee from the debtor. Later versions of the arrangement shifted to a 62% / 38% split, with EZ Legal retaining roughly $1,149 of the $3,000 fee while the firm accepted $1,860 as payment for its services. Debtors were required to sign “Promises to Pay” making them directly obligated to EZ Legal, including default interest rates of up to 300% annually—terms that were not disclosed in the attorney compensation disclosures filed with the bankruptcy court. After extensive proceedings, the bankruptcy court found a years-long pattern of disclosure violations, conflicts of interest, and misleading statements. The court voided all retention agreements in the financed cases and imposed sweeping sanctions. Among other remedies, the court ordered: Full disgorgement of fees totaling $1,644,566, removal of negative credit reporting tied to the agreements, and a two-year ban on filing bankruptcy cases in the District of Arizona. The district court affirmed. The Lesson The facts of Kallen show how easily the economics of desperation finance can creep into bankruptcy practice itself. When third-party lenders step between a debtor and counsel—especially without full disclosure—the risks multiply: undisclosed fee-sharing, conflicts of interest, misleading compensation disclosures, and fee structures that resemble consumer credit products more than legal representation. Courts have traditionally given bankruptcy attorneys significant flexibility in structuring payment arrangements. But Kallen demonstrates that when those arrangements drift too far toward high-cost consumer lending, the consequences can be severe. A Structural Problem What links MC As, payday loans, title loans, and some bankruptcy-fee financing arrangements is not simply high cost. It is structural vulnerability. The borrowers involved share several characteristics: lack of access to traditional credit urgent need for liquidity weak bargaining power limited regulatory protection These conditions allow financial products to flourish that would never survive in ordinary credit markets. Bankruptcy as the End of the Line In many cases, bankruptcy is the only mechanism capable of stopping the cycle. But even there, the legal system must untangle complex questions about: property rights transaction characterization avoidance powers Bruce’s article shows that courts are gradually developing a coherent framework. But the broader lesson is simpler. When credit markets produce products with triple-digit effective interest rates, the problem is rarely innovation. It is desperation.  And desperation finance almost always ends in bankruptcy,  whether for the small business owner with MC As, consumers with payday loans  or consumer debtors attorney with bifucated factoring finance.  To read a copy of the transcript, please see: Blog comments Attachment Document desperation_finance_merchant_cash_advances_in_bankruptcy_and_beyond.pdf (744.54 KB) Category Law Reviews & Studies

4th Cir.: Herlihy v. DBMP- Fourth Circuit Upholds Stay in DBMP “Texas Two-Step” Asbestos Bankruptcy Ed Boltz Thu, 03/19/2026 - 14:26 Summary:  The Fourth Circuit has again weighed in on the now-familiar “Texas Two-Step” asbestos bankruptcy strategy—and once again sided with the debtor. In , the court affirmed the denial of a motion by several asbestos claimants to lift the automatic stay in the Chapter 11 case of DBMP, LLC, the entity created when building-products manufacturer CertainTeed split its asbestos liabilities into a new subsidiary that then filed bankruptcy in the Western District of North Carolina. The panel majority, in an opinion by Judge Niemeyer, concluded that the bankruptcy court properly applied the Fourth Circuit’s longstanding Robbins factors and that the claimants had not shown the filing was made in bad faith. Judge King dissented vigorously, warning that the Fourth Circuit risks becoming a “safe haven” for wealthy corporations using bankruptcy to avoid jury trials in mass-tort litigation. The Backdrop: A Classic “Texas Two-Step” The case arises from CertainTeed’s effort to resolve massive asbestos liabilities using a strategy increasingly seen in mass-tort bankruptcies. Facing tens of thousands of asbestos claims and billions in defense and settlement costs, CertainTeed executed a Texas divisional merger in 2019. The maneuver split the company into two entities: New CertainTeed, holding most assets and operations DBMP, assigned the asbestos liabilities DBMP received some assets and, more importantly, an uncapped funding agreement obligating the parent enterprise to fund asbestos liabilities and bankruptcy costs. DBMP then filed Chapter 11 to pursue a §524(g) asbestos trust, a special bankruptcy mechanism designed to resolve both present and future asbestos claims. The filing automatically stayed roughly 60,000 asbestos lawsuits nationwide. The Claimants’ Motion The appellants—two mesothelioma plaintiffs and the estate of another victim—sought limited relief from the automatic stay so they could proceed with their state-court tort suits. Their central argument: DBMP’s bankruptcy was filed in bad faith because the enterprise was solvent and capable of paying claims outside bankruptcy. According to the claimants, the bankruptcy existed only to delay litigation and force settlement negotiations. The Fourth Circuit’s Holding The Fourth Circuit affirmed the denial of stay relief. 1. Robbins Still Governs Stay Relief The court applied the familiar In re Robbins balancing test for lifting the automatic stay: Whether the dispute primarily involves state law Whether lifting the stay promotes judicial economy Whether the estate can be protected while litigation proceeds elsewhere The bankruptcy court concluded—and the Fourth Circuit agreed—that lifting the stay would: Flood courts with asbestos cases Undermine efforts to treat claimants consistently Potentially destroy the Chapter 11 case Thus, the Robbins factors weighed strongly against relief. 2. Bad Faith Could Justify Stay Relief—But Wasn’t Shown Importantly, the Fourth Circuit acknowledged that bad faith can constitute “cause” under §362(d). But the court held that the claimants failed to show either: Subjective bad faith, or Objective futility of the reorganization. DBMP, the court said, was pursuing exactly what Congress designed §524(g) to address: companies facing decades of asbestos claims seeking to centralize and equitably resolve them through a trust. 3. Solvency Is Not Disqualifying The majority also rejected the claimants’ central premise—that a solvent company cannot use Chapter 11. Section 524(g) contains no insolvency requirement, and Congress specifically envisioned solvent companies using bankruptcy to manage long-tail asbestos liability and ensure fair treatment of future claimants. The Dissent: Bankruptcy as Corporate Escape Hatch Judge King’s dissent pulls no punches. He describes the Texas Two-Step strategy as a “corporate sleight-of-hand” designed to dump asbestos liabilities into a shell company and force victims into bankruptcy proceedings rather than jury trials. In his view: DBMP was never financially distressed. The bankruptcy was engineered entirely by lawyers under a project code-named “Project Horizon.” The maneuver deprived thousands of claimants of their constitutional right to a jury trial. King warns that the Fourth Circuit’s jurisprudence risks turning the circuit into a haven for mass-tort defendants seeking bankruptcy protection without financial distress. Commentary From a bankruptcy-policy perspective, Herlihy continues a clear trend: the Fourth Circuit remains receptive to large-scale mass-tort restructurings. The decision does three important things. 1. It reinforces the circuit’s tolerance for Texas Two-Step bankruptcies Although the panel emphasized that the legality of the divisional merger itself was not before it, the practical result is the same: the strategy remains viable so long as the debtor can plausibly pursue a §524(g) plan. This follows earlier decisions involving Bestwall, another Western District of North Carolina asbestos bankruptcy. 2. It narrows the path for claimants seeking stay relief The court effectively signals that individual plaintiffs will rarely succeed in lifting the stay in a mass-tort bankruptcy. Allowing even a handful of cases to proceed, the court reasoned, would quickly lead to “hundreds, if not thousands” of similar requests and could unravel the entire bankruptcy process. 3. It highlights a growing policy divide The dissent reflects a broader national debate: Proponents say §524(g) trusts produce faster, fairer compensation for all claimants—including those who have not yet developed disease. Critics argue the strategy strips victims of jury trials and allows profitable companies to manage liability on their own terms. Until Congress intervenes—or the Supreme Court takes a more aggressive stance—the Fourth Circuit appears comfortable allowing these reorganizations to proceed. ✅ Bottom line: For now, the Western District of North Carolina remains a favorable venue for asbestos-related Chapter 11 cases. Unless a challenger can prove both subjective bad faith and objective futility, courts in this circuit are unlikely to lift the automatic stay and send claims back to the tort system. To read a copy of the transcript, please see: Blog comments Attachment Document herlihy_v._dbmp_llc.pdf (425.79 KB) Category 4th Circuit Court of Appeals

Chapter 7 Bankruptcy Audits Are Back: What You Need to Know If you’re considering Chapter 7 bankruptcy, audits are active again—and they’re being enforced more frequently than in recent years. 🔍 Why Audits Chapter 7 audits were created under BAPCPA (2005) to verify the accuracy of filings. Audits are: ✅ Random – selected at random for review ⚠️ Triggered – high income, large assets, or unusual facts Congressional Goal: Protect honest filers and maintain trust in the bankruptcy system. The bankers’ goal: Make filing for bankruptcy harder and more expensive. 📅 Audit History Timeline Year Status 2006 Program launches, audits fully active 2013 Suspended due to budget constraints 2014 Resumed at reduced levels 2020 Paused due to COVID-19 2023 Resumed, activity increasing One way to make your life easier in case of bankruptcy audits. Close unnecessary bank accounts. Even when enforcement paused, the audits never went away—they were always required by law. ⚡ Audit Triggers: What Can Draw Attention High income (e.g., over $250,000) Large or unusual assets Odd expenses Example: One of my high-income clients received an audit notice this month. The income and expenses were very high. enormous mortgage and enormous car payments. Those big payments help eligibility for Chapter 7, but also trigger the audit. 📝 What This Means for You Make sure you list all your bank accounts. Or better yet, close the ones you are not using.  Leaving out the bank accounts you “hardly ever use” is an obvious way to get in trouble on the audit. Ensure your budget is consistent and accurate. Don’t just throw down the first thing that comes into your head.  Take a few minutes to think about it. Being thorough keeps your filing smooth and gives you peace of mind if the government picks your case for audit. ✅ Bottom Line Audits may have seemed rare in recent years, but now they are active again. Be careful about what you tell the bankruptcy court.   The post Chapter 7 Audits are back appeared first on Robert Weed Virginia Bankruptcy Attorney.

4th Cir.: Goldman Sachs v. Brown- Bankruptcy Court Keeps Stay-Violation Claims Out of Arbitration — And Keeps the Door Open for a Class Action Ed Boltz Thu, 03/19/2026 - 02:59 Summary: In Goldman Sachs Bank USA v. Brown, the Fourth Circuit has now weighed in—forcefully—on the growing tension between arbitration and bankruptcy. And in doing so, it delivered a significant win for consumer debtors (and their counsel), affirming that core bankruptcy rights—especially the automatic stay—belong in bankruptcy court, not private arbitration. The underlying adversary proceedings arose from a straightforward—but troubling—set of facts: after receiving notice of their respective bankruptcy filings, Goldman Sachs nonetheless continued to pursue collection of prepetition credit card debt against both debtors. Rhea Brown (Chapter 13) and Gregory Maze (Chapter 7) each alleged that Goldman Sachs engaged in repeated post-petition collection activity—emails, letters, and telephone calls—over a period of months, including statements pressuring payment and threatening adverse credit reporting, even after being informed of the bankruptcy and, in some instances, being provided with counsel’s contact information. These actions formed the basis of claims under 11 U.S.C. § 362(a)(3) and (6), with the debtors asserting willful violations of the automatic stay and seeking damages, including punitive relief, as well as class-wide remedies on behalf of similarly situated consumers subjected to post-petition collection efforts. The Holding (and the Fight Beneath It) The issue was familiar: Goldman Sachs sought to enforce arbitration clauses in its credit card agreements to compel individual arbitration of § 362(k) claims for willful stay violations. The Fourth Circuit said no. Applying the McMahon framework, the Court concluded that arbitration would create an “inherent conflict” with the purposes of the Bankruptcy Code—particularly: Centralized resolution of disputes Enforcement of the automatic stay Uniformity of bankruptcy law The debtor’s “breathing spell” The bankruptcy court’s specialized expertise and speed is at least the equal of any arbitrator In short, this was not just another statutory claim. This was bankruptcy at its core. A Notable Assist from the Academy Importantly—and quite usefully for future briefing—the majority expressly relied on Professor Kara Bruce’s article: “Bankruptcy’s Arbitration Countercurrent and the Future of the Debtor Class,” 96 Am. Bankr. L.J. 819. That citation is no throwaway. It signals that the Fourth Circuit recognizes—and is willing to embrace—the idea that bankruptcy is a “countercurrent” to the Supreme Court’s otherwise relentless pro-arbitration jurisprudence. Expect to see that article cited early and often in future stay, discharge, and class litigation. Why This Matters: The Class Action Survives Perhaps the most practical—and immediate—impact: Keeping this dispute in bankruptcy court preserves the potential for a nationwide class action against Goldman Sachs. The arbitration clause here was explicit: No class actions Individual relief only Had arbitration been compelled, the case would have fractured into dozens (or hundreds) of individual proceedings—effectively ending any meaningful systemic accountability. By affirming the bankruptcy court’s discretion, the Fourth Circuit preserved: The ability to aggregate claims The deterrent function of § 362(k) And the reality that some violations are only worth pursuing if brought collectively That is not incidental—it is central. Congratulations (and Thanks Where Due) Congratulations to Thad Bartholow on this significant victory. This is exactly the kind of litigation that shapes the boundaries of consumer bankruptcy practice nationwide. And thanks as well to Judge Allan L. Gropper (ret.) for his amicus brief on behalf of NACBA and NCBRC—an effort in which I  had a small but enjoyable role as something of an “appellate paralegal,” filing briefs and shepherding the mechanics of the appeal thanks to admission to the Fourth Circuit Bar. The Dissent—and the Road to SCOTUS? Judge King’s dissent is not subtle. Despite reiterating his collegiality with the majority, he would have compelled arbitration, relying heavily on: McMahon Moses v. CashCall And the Second Circuit’s decision in MBNA v. Hill More importantly, the dissent accuses the majority of: Creating a circuit split Misapplying Supreme Court precedent That combination—arbitration + split + dissent—almost guarantees the next step: 👉 A petition for certiorari is highly likely. Whether the Supreme Court takes the case is another matter—but this is precisely the type of arbitration/bankruptcy conflict that has drawn its attention in the past. A Quiet Assumption and an Absent Assumption One important caveat: The parties assumed the arbitration agreement was valid and enforceable. But that assumption may not hold in future cases. These credit card agreements impose ongoing obligations on both sides, raising a serious question: Are they, at least in part, executory contracts? If so, and if they were not assumed: In the Chapter 13 plan, or During the Chapter 7 case Then under § 365, they were rejected as a matter of law—and arguably no longer enforceable. That issue was not litigated here. But it is sitting just beneath the surface, waiting for the right case. Final Take This decision is a strong reaffirmation that: The automatic stay is not just another claim—it is the backbone of bankruptcy. Bankruptcy courts retain discretion to protect that system from fragmentation. And arbitration, for all its federal favor, has limits—especially when it collides with the structure of bankruptcy itself. For now, at least in the Fourth Circuit, the message is clear: If you violate the automatic stay, you may have to answer for it in bankruptcy court—and potentially on behalf of a class.   To read a copy of the transcript, please see: Blog comments Attachment Document goldman_sach_v._brown.pdf (224.02 KB) Category 4th Circuit Court of Appeals

 Slutty Vegan’s owner couldn’t pay back a $1M Covid-era disaster loan. She isn’t alone according to an article at  bizwoman, which can be found at    https://www.bizjournals.com/boston/bizwomen/news/latest-news/2026/03/covid-era-eidl-loan-program-debt-bankruptcy.html?page=allJim Shenwick, Esq may have been able to help her!Clients or their advisors with questions about SBA EIDL loan defaults should contact  Jim Shenwick, EsqJim Shenwick, Esq  917 363 3391  jshenwick@gmail.com Please click the link to schedule a telephone call with me. https://calendly.com/james-shenwick/15minWe help individuals & businesses with too much debt! & creditors in Bankruptcy cases