Bankr. W.D.N.C.: In Re Carolina Sleep Shoppe- Subchapter V case may be closed pre-discharge under § 350 and Rule 3022, even with a non-consensual plan Ed Boltz Wed, 05/14/2025 - 15:30 Summary: Carolina Sleep Shoppe, LLC filed a Subchapter V Chapter 11 in April 2024. Despite expectations of a consensual plan, no creditor cast a ballot, resulting in a non-consensual cramdown confirmation under § 1191(b). The Debtor proceeded to substantially consummate the plan, pay all administrative expenses, and begin distributions—particularly to its only secured creditor, the SBA. Seeking case closure prior to discharge, the Debtor moved under 11 U.S.C. § 350 and Fed. R. Bankr. P. 3022. The Bankruptcy Administrator objected, citing post-confirmation oversight concerns, costs to creditors if the case had to be reopened, and general policy against closing non-consensual Subchapter V cases pre-discharge. Judge Edwards,ruled in favor of the Debtor, holding that: The Subchapter V Trustee had been discharged under the terms of the confirmed Plan and substantial consummation. The estate was “fully administered” under the Rule 3022 factors—even though no discharge had yet been entered. There is no blanket rule that cases with non-consensual plans must remain open until discharge. Closing a case pre-discharge is permissible and often practical, as reopening remains available under § 350(b). Importantly, the court noted that the discharge of a Subchapter V Trustee in a non-consensual plan must be evidenced via a separate Report of No Distribution, and future closure requests should be made by motion—not embedded in a final report. Commentary: This case presents a pivotal and pragmatic clarification on Subchapter V practice in the Western District of North Carolina: a non-consensually confirmed Subchapter V can, and sometimes should, be closed before the plan term ends. Judge Edwards's opinion decisively dispels the misconception that § 1191(b) plans require cases to remain open for their entire duration. While the Bankruptcy Administrator raised valid concerns about estate oversight and creditor protections, the Court gave credence to what many Chapter 11 practitioners already know—post-confirmation oversight often imposes unnecessary burdens without meaningful benefit, particularly when creditor engagement is nonexistent (as was the case here). In a nod to judicial economy and administrative pragmatism, the court emphasized flexibility in interpreting "fully administered" and prioritized plan performance over bureaucratic inertia. This ruling may prompt other districts to reconsider rigid closure policies in Subchapter V cases, especially where creditor silence—not opposition—drives cramdown. It also highlights the evolving role of the Subchapter V Trustee post-confirmation and underscores the importance of tailoring plan provisions to explicitly govern vesting and trustee discharge. Commentary: While  Chapter 13 cases  obviously remain open while plan payments and disbursements continue to be made,  it is not uncommon  for a case to remain open for extended periods of time after plan completion.  A frequent example involves the Notice of Final Cure and Motions to Declare Current in mortgage cases.  The recognition that  there may be burdens for a debtor,  whether a consumer in Chapter 13 or a business in a Sub V,  in remaining in an open case  is important  as that impacts, among other things,  the abandonment of assets under  §554,  any restrictions (from either the bankruptcy court or lenders) the debtor may have on obtaining new credit, and also the real psychological desire of being free from bankruptcy. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_carolina_sleep_shoppe.pdf (533.57 KB) Category Western District

4th Cir.: Front Row Motorsports v. Diseveria- BK Racing Again Ed Boltz Tue, 05/13/2025 - 16:10 Summary: The Fourth Circuit’s recent unpublished opinion in Front Row Motorsports v. DiSeveria is, on the surface, a straightforward contract dispute arising from an indemnity agreement. But behind the curtain of corporate formalities is the long shadow of In re BK Racing, the bankruptcy case that has become the NASCAR equivalent of a Russian nesting doll—each layer revealing deeper dysfunction. In 2016, Front Row purchased a NASCAR charter from BK Racing for $2 million. The contract promised a lien-free transfer. It wasn’t. BK Racing failed to disclose a $9 million Union Bank lien, and Front Row only discovered it after paying the first $1 million installment. When BK Racing’s principals—Michael DiSeveria and Ronald Devine—offered a personal indemnity agreement to close the second half of the deal, Front Row accepted. Union Bank eventually sued, and Front Row settled for $2.1 million. It then sought indemnity from DiSeveria and Devine, who refused. The defense? That the indemnity wasn’t enforceable because a third BK principal (Wayne Press) didn’t sign it, that indemnification was against public policy because Union Bank had raised a civil conspiracy claim, and that there was no consideration because Front Row was already contractually obligated to pay. The district court (WDNC) rejected these defenses on summary judgment and, after a bench trial, found the $2.1 million settlement was reasonable. The Fourth Circuit affirmed in full. It found that the indemnity was enforceable under North Carolina law, there was no bar under public policy, and the settlement was entirely reasonable given that Devine himself had proposed higher numbers to resolve the same debt.  Commentary: It seems prophetic that the entity was named "BK Racing"  as that certainly now stands for "Bankruptcy Racing". Previous related cases include: Bankr. W.D.N.C.: In re BK Racing Smith v. Devine- Sanctions for Discovery Abuses and W.D.N.C.: Smith v. Payne: Temporary Withdrawal of Reference for Pre-Trial Bankr. W.D.N.C.: Smith v. DeSeveria- Repayment of Short-Term Loans to Insiders was not a Fraudulent Conveyance With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document front_row_motorsports_v._diseveria.pdf (131.36 KB) Category 4th Circuit Court of Appeals

Bankr. E.D.N.C.: B&M Realty v. Elam- Treble Damages of $1.17 Million for Unfair and Deceptive Acts Ed Boltz Mon, 05/12/2025 - 17:22 Summary: In a blistering opinion befitting the severity of the fraud, Judge David M. Warren awarded B & M Realty, LLC over $1.17 million in damages, including trebled damages and attorneys’ fees, against Dwight Elam and his defunct corporate shell United Properties. The court found that Elam fraudulently induced the debtor into entrusting him with over $323,000—derived from both direct payments and loan proceeds secured by multiple rental properties—and then converted those funds under the guise of managing property renovations. Not only did Elam do little or no work, but he also lied about being a licensed contractor, fabricated financial documents, and fronted a long-dissolved corporate entity as a legitimate business operation. The debtor, B & M Realty, was formed by the Lindsey family to manage real estate inherited after the death of Ms. Brown-Lindsey’s father. Seeking to update and improve the properties, the Lindseys were introduced to Elam, who claimed to be a contractor operating under "United Properties"—a dissolved entity Elam continued to use interchangeably with other similarly named but equally hollow LL Cs. At Elam’s urging, the debtor incurred five real estate-secured loans totaling over $700,000. Elam and United Properties received over $183,000 from the loan proceeds—on top of $140,000 in direct payments—and left the properties in disrepair. The court dismissed claims against Elam’s associate Allen Simmons and their co-formed entity Alight Investments due to insufficient evidence. However, it found Elam’s conduct satisfied the elements of fraud, conversion, and a violation of North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA), pierced the corporate veils of United Properties and its variants, and awarded trebled damages and attorney fees. Commentary:   Judge Warren found that Elam’s fraud in connection with the debtor’s rental property renovations affected commerce and therefore fell within the UDTPA. While there is some debate in North Carolina case law about whether conduct purely within the context of litigation is “in commerce,” Elam signals that Warren should  look to the substance and economic effect of the conduct.  For consumer debtors, this may open  a judicial door,  which has often seemed hostile to what it has labelled "alphabet soup laws",  to UDTPA claims (both those arising pre- and post-petition) in bankruptcy cases including,  for example,  mortgage servicing abuses, particularly misapplication of payments or escrow mismanagement, noncompliance with NCGS 45-91 or Rule 3002.1,  etc.   If the deceptive conduct affects the debtor’s use or enjoyment of consumer financial products (mortgage, car loan, credit card), Warren’s opinion suggests he might  consider such conduct to fall “in or affecting commerce.” With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document bm_realty_v._elam.pdf (155.71 KB) Category Eastern District

 When we file a Chapter 7 bankruptcy petition for an individual, clients often ask which assets they will be able to keep after the bankruptcy case is closed.Oftentimes, clients own interests in LL Cs or partnerships and want to know if they will lose that interest in Chapter 7 bankruptcy.Forbes recently published an article by Jay Adkisson titled “Can an LLC Interest Owned by a Debtor Be Sold by the Bankruptcy Trustee?” In this well-written article, Mr. Adkisson analyzes a recent case of first impression in the Eastern District of Kentucky, captioned Business Aircraft Leasing v. Ultra Energy Resources LLC (In re Addington).The bankruptcy court held that in a Chapter 7 bankruptcy filing, a bankruptcy trustee can sell an economic right in an LLC member's interest. In the Addington case, Larry Addington filed for Chapter 11 bankruptcy, which was later converted to Chapter 7. He owned a 36% membership interest in a limited liability company called Ultra Energy Resources, LLC. The judge in the Addington case discusses that an LLC membership interest consists of a governance interest, which includes the right to manage the LLC, vote to admit members or dissolve the LLC, and the economic rights of an LLC, which are the rights to distributions of money or property from the LLC.The dispute in the case was whether the creditor who purchased the LLC interest from the Chapter 7 Bankruptcy Trustee acquired governance interests or economic rights. The LLC's position was that the purchaser had simply acquired economic rights, and the bankruptcy court, in a declaratory judgment, held that the purchaser had indeed only acquired economic rights, not governance interests.In reaching his decision, the Bankruptcy Judge analogized to a charging lien that a judgment creditor obtained on a debtor LLC member's interest. The Addington case is one of the first to involve the sale of a membership interest in an LLC by a Bankruptcy Trustee in a Chapter 7 proceeding.Mr. Adkisson, in his article, notes that the managers of a closely held LLC are unlikely to admit the purchaser as a member unless they know the purchaser will be friendly. A few comments based on our experience:1. If the LLC is a single-member LLC, the Bankruptcy Trustee will be able to sell the member's governance and economic interest.2. Whether a governance or economic interest can be sold will often depend on the terms of the Operating Agreement and state LLC law.Individuals or their advisors with questions pertaining to the sale of LLC member interests in a chapter 7 bankruptcy filing should contact Jim Shenwick, Esq.jhsJim 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!

Bankr. E.D.N.C.- In re 255 NORTH FRONT STREET CONDOS, INC.- Single Asset Real Estate Entity Ed Boltz Sun, 05/11/2025 - 16:20 Summary: In this Subchapter V eligibility skirmish, the United States Bankruptcy Court for the Eastern District of North Carolina tackled whether a condominium association—specifically, 255 North Front Street Condos, Inc.—qualified as a “single asset real estate” (SARE) entity under 11 U.S.C. § 101(51B), which would disqualify it from Subchapter V treatment as a “small business debtor.” The Bankruptcy Administrator (joined by a purported creditor) objected to the Debtor’s Subchapter V designation, arguing that its operations—managing common elements of a condo project for two unit owner-members—met the definition of SARE because the real property (i.e., the common areas) supposedly generated substantially all of the Debtor’s income and no other substantial business was being conducted. The court disagreed, holding that the Debtor’s income was not generated by the property itself (such as rent or proceeds of sale), but rather from services rendered by the Debtor—like maintenance, insurance, fire inspections, and accounting—to its members under the statutory duties imposed by the North Carolina Condominium Act. As such, the Debtor was not merely passively collecting income from real estate, but actively managing operations with meaningful effort. Thus, it did not meet the “no substantial business” or “gross income generated by the property” prongs of the SARE test. Accordingly, the court overruled the objection and permitted the Debtor to proceed under Subchapter V. Commentary: In Front Street, Judge Warren emphasized that eligibility exclusions (like SARE or the Subchapter V bar) should be understood historically in light of Congress’s goal to stop strategic misuse, not to disqualify good-faith reorganizations by  debtors based on formalities.    Similarly,   Chapter 13's debt limits, codified in § 109(e), have historically been justified as a gatekeeping function: Congress wanted Chapter 13 reserved for wage earners with modest debt loads, and not complex, high-debt business entities or wealthy individuals.   Arguably,  these  debt limits should  be interpreted not with rigid mathematical exclusion, but with consideration of whether the debtor fits the core profile Congress intended Chapter 13 to serve: a wage-earning individual capable of reorganization through a plan.   This perspective would support, for instance, courts excluding disputed or non-liquidated debts from the debt limit tally, especially where inclusion would push a debtor into more expensive or less appropriate chapters and also only enforcing debt limits when eligibility is actively challenged by a creditor rather than on a per se and automatic basis. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_255_north_front_street_condos_inc.pdf (176.8 KB) Category Eastern District

4th Cir.: NCO v. Montgomery Park- Explicit Demand for Attorney Fees Required Ed Boltz Thu, 05/08/2025 - 16:31 Summary: In NCO Financial Systems, Inc. v. Montgomery Park, LLC,  the Fourth Circuit revisited — for the fifth time — a protracted commercial lease dispute over roughly 100,000 square feet of office space in Baltimore. After NCO vacated the property prematurely in 2011, Montgomery Park prevailed in its suit for breach of the lease, ultimately obtaining a judgment exceeding $9.8 million for unpaid rent. The district court subsequently awarded Montgomery Park an additional $3.76 million in attorneys’ fees, expert witness fees, and default interest under the lease’s fee-shifting provision. On appeal, NCO raised three main issues: That Montgomery Park never made a proper "demand" for costs and fees as required by the lease, and therefore was not entitled to interest; That the fee award should have excluded costs incurred defending against NCO’s initial claims rather than pursuing its own remedies; That expert witness fees were not recoverable under Maryland law. The Fourth Circuit partially agreed. While it held that Montgomery Park’s August 24, 2022, fee motion constituted a valid "demand," the court ruled that default interest could only accrue from that date—not retroactively to when the fees were incurred. Thus, it vacated and remanded for recalculation of the interest award. On the remaining issues, however, the court affirmed: It held that the fees incurred defending against NCO’s claims and pursuing its own remedies were inextricably linked under the “common core of facts” doctrine, and that the lease's broad reference to “fees” encompassed expert witness costs. Commentary: The lesson is that “notice” and “demand” are not mere formalities—they are gatekeeping mechanisms that define when a party’s enforcement rights arise. In commercial settings, courts may allow a fair degree of flexibility, especially among sophisticated parties. But in consumer contexts, precision is paramount. Lenders and servicers ignore these preconditions,  which often include  not only statutory requirements,  such as under NCGS 45-91,  but also contractual preconditions like Notices of Default and explicit acceleration of the  note, at their peril, as courts should not allow attorneys’ fees  where those obligations are  strictly followed. With proper attribution,  please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document nco_v._montgomery_park.pdf (143.45 KB) Category 4th Circuit Court of Appeals

4th Cir.: Talley v. Folwell- Overpayment of State Retirement Ed Boltz Wed, 05/07/2025 - 16:33 Summary: In Talley v. Folwell, the Fourth Circuit affirmed the dismissal of constitutional claims brought by retired North Carolina teacher Patsy Talley, who had received over $86,000 in retirement overpayments due to a longstanding administrative error. When the Teachers’ and State Employees’ Retirement System (TSERS) discovered the error eight years later, it began recouping the overpaid amount through a reduction in Talley’s monthly benefits. Talley did not dispute the overpayment but alleged that the state violated her due process and equal protection rights by reducing her benefits without a prior hearing or clear standards governing recoupment procedures. The district court dismissed most of Talley’s claims, holding that Eleventh Amendment immunity barred her official-capacity claims and that the individual defendants were protected by qualified immunity. The court also found her equal protection and substantive due process claims failed to state a plausible constitutional violation. The Fourth Circuit agreed, finding that any alleged lack of pre-deprivation process was cured by a post-deprivation hearing before an administrative law judge. The court emphasized that the recoupment process was rational and statutorily authorized, and that Talley had not shown a clearly established constitutional right requiring a hearing before benefit reductions in this context. Her motion to amend the complaint to add new plaintiffs was also denied as untimely and procedurally deficient. Commentary: If TSERS merely made an administrative error (as appears to be the case here), and there is no allegation that Talley knew about the overpayments or fraudulently induced them, then no § 523(a) exception would appear to apply, and the debt would be dischargeable in bankruptcy.   This raises the next critical issue: even if the overpayment is discharged, TSERS may argue for a right of recoupment or setoff, which are equitable doctrines that allow deduction from ongoing payments even in bankruptcy.    N.C. Gen. Stat. § 135-9(b)   expressly allows  TSERS to recover overpayments by offsetting against future benefit payments. If Talley was not receiving future payments from TSERS (e.g., if she had already taken a lump sum or otherwise separated from the system), then recoupment might not be possible, and the state would be limited to collection as a creditor—and being dischargeable without further ability to collect from other sources. With proper attribution,  please share this post.  Blog comments Attachment Document talley_v._folwell.pdf (226.35 KB) Category 4th Circuit Court of Appeals

Law Review: Abigail B. Willie, Do Bankruptcy Judges Belong in Chambers? Rethinking Inherent Civil Contempt Power in Bankruptcy, 90 Brook. L. Rev. 737 (2025). Ed Boltz Tue, 05/06/2025 - 16:59 Available at:    https://brooklynworks.brooklaw.edu/blr/vol90/iss3/2 Abstract: In recent years, the Supreme Court of the United States has recognized limitations on the adjudicatory authority of the bankruptcy judge in certain contexts. In the face of this seeming erosion in the previously presumed power of the bankruptcy judge, the time is ripe to consider areas in which a bankruptcy judge’s adjudicatory authority may be further challenged. Inherent civil contempt power is one such area. Contempt power in the bankruptcy context has been murky since the creation of the non-Article III bankruptcy court in 1978. While today, courts generally agree that bankruptcy judges possess (at least some) inherent civil contempt power, this conclusion often rests on the extension of Article III case law on inherent contempt power—most notably, Chambers v. NASCO. However, a close examination of Chambers calls into question the soundness of this extension. This Article contributes scholarship on the history of how federal statutes and rules have treated contempt in the bankruptcy context—a strange story marked by the creation of non-statutory “judges,” the questionable vesting of adjudicatory authority in non-judges, the application of Article III case law to a non-Article III court, and the promulgation of federal rules that brought confusion and inconsistency—the ghosts of which still haunt bankruptcy law. It then examines the current state of the law on inherent civil contempt in bankruptcy, including the application of Chambers, and ultimately calls for the abandonment of the Chambers-based approach. It argues instead for an approach based on a theory of implicit delegation of the inherent contempt power of the district court to its bankruptcy judges. The implicit delegation-based approach is consonant with the jurisdictional and referral statutes that govern the district court’s relationship with its bankruptcy judges, does not offend constitutional concerns, and puts to rest much of the search for the “limits” of a bankruptcy judge’s inherent civil contempt power. Commentary: While most contempt decisions in consumer bankruptcy cases arise under a statutory basis-  clear under 11 U.S. Code § 362, at least implicit under 11 U.S. Code § 524(a)(2) and (i),  and derived under Rule 3002.1-  that is not always the case.  The recent 4th Circuit decision in Sugar/Sasser v. Burnett,  where the dismissal with prejudice and monetary sanctions against the attorney,  relied on the bankruptcy court's inherent contempt power.  Whether or not this article points to a limitation on those contempt sanctions may be raised as that case was remanded for further hearing, as the parties could argue that the implicit delegation of contempt powers could be rescinded and the district court here this matter directly. In terms of the delegation of contempt power by the district court to the bankruptcy court,  it is noteworthy that bankruptcy  courts have been generally hostile to the idea that bankruptcy trustees,  particularly in Chapter 13 cases,  can similarly delegate their authority and powers (such as to bring avoidance actions)  to debtors. With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document do_bankruptcy_judges_belong_in_chambers_rethinking_inherent_civi_compressed.pdf (11.31 MB) Category Law Reviews & Studies

S.Ct.: US. V. Miller Ed Boltz Tue, 05/06/2025 - 15:28 Summary: The Supreme Court held that while §106(a) of the Bankruptcy Code waives sovereign immunity “with respect to” §544 of the Code, that waiver does not extend to the state-law claims that a trustee uses as the basis for a §544(b) fraudulent transfer action. The case arose when a Chapter 7 trustee attempted to claw back $145,000 in misappropriated debtor funds that had been used to pay the shareholders' personal IRS liabilities. Since sovereign immunity would normally preclude a creditor suit under Utah’s fraudulent transfer laws against the United States, the Government argued no “actual creditor” could exist to satisfy §544(b)’s threshold requirement. The Tenth Circuit had held that §106(a)’s waiver extended to the state-law claims nested within §544(b), thus abrogating sovereign immunity in full. The Supreme Court reversed, concluding that §106(a) only provides jurisdiction to hear §544(b) actions—it does not waive immunity for the underlying state-law causes of action that the trustee must borrow to prevail. Justice Jackson, writing for the majority, emphasized that sovereign immunity waivers must be narrowly construed, and cannot be read to create new substantive rights. She rejected the idea that §106(a)’s waiver of immunity should be read to eliminate the “actual creditor” requirement in §544(b), stating that doing so would untether the trustee from the very creditors whose rights §544(b) is meant to emulate. Although the trustee argued that the phrase “with respect to” in §106(a)(1) was broad enough to cover state law, the Court found that context—and precedent—cut sharply against that reading. Justice Gorsuch dissented, arguing the trustee wasn’t trying to alter §544(b)’s elements but merely invoking a statutorily waived affirmative defense (sovereign immunity) that would otherwise block an otherwise valid state-law claim. Commentary: This could  limit  trustees in coupling  §544(b) with state fraudulent transfer statutes,  with their longer (usually 4 year)  Statutes of Limitations,  to pull back prepetition tax payments to the IRS, the SBA or on federal student loans.  Particularly as to student loans,  this could provide opportunities for consumer debtors (at least those with the ability to wait on filing) for pre-bankruptcy planning. With proper attribution,  please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document u.s._v._miller.pdf (157.34 KB) Category Law Reviews & Studies

Bankr. W.D.N.C.: Martinez Quality Painting v. Newco-Merchant Cash Advances as Avoidable Transfers Ed Boltz Mon, 05/05/2025 - 16:29 Summary: In this adversary proceeding arising from a Chapter 11 case, Martinez Quality Painting & Drywall, Inc. (“Debtor”) sought to avoid approximately $799,250 in payments made under two merchant cash advance (“MCA”) agreements with Newco Capital Group VI, LLC (“Newco”), alleging the transfers were constructively and actually fraudulent under § 548 of the Bankruptcy Code, as well as under North Carolina’s Uniform Voidable Transactions Act, and that the MCA contracts were void ab initio under New York’s usury laws. The agreements at issue involved payments of $575,000 from Newco in exchange for over $799,000 in daily withdrawals from the Debtor’s bank account. While each MCA was labeled as a “purchase of receivables,” the Debtor alleged these were de facto loans with effective interest rates exceeding 40%, thus violating New York’s criminal and civil usury statutes. Newco moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(1) and 12(b)(6), arguing that the agreements were not loans and that even if they were, they were exempt from usury laws under North Carolina law. Judge Edwards denied the motion as to subject matter jurisdiction and rejected Newco’s argument that the Debtor failed to allege a plausible fraudulent transfer claim. Importantly, the Court declined to engage in a definitive choice-of-law analysis at the pleading stage but assumed, for purposes of the motion, that New York law applied per the MCA contracts’ express choice-of-law provision. Crucially, the Court distinguished between the application of New York’s civil usury statute (§ 5-511 of the General Obligations Law) and the criminal usury statute (§ 190.40 of the Penal Law). Following precedent in In re Azalea Gynecology (Bankr. E.D.N.C. 2024), the Court held that a corporate debtor like Martinez could not affirmatively invoke the criminal usury statute, as it is only available as a defense. However, the civil usury provision remains a viable basis for alleging the MCA agreements were void, thereby supporting the plausibility of a § 548(a)(1)(B) constructive fraud claim. The Court emphasized that, under Fourth Circuit precedent (In re Jeffrey Bigelow Design Grp.), the key question in constructive fraud claims is whether the Debtor’s estate received reasonably equivalent value—not whether the agreements were labeled as “loans” or “sales.” Because the Debtor alleged it received $575,000 but paid $799,250, a potential Excess Amount of $224,250 existed that may constitute avoidable transfers. However, the Court dismissed without leave to amend the Debtor’s claims premised on actual fraud (§ 548(a)(1)(A)), finding no allegations of intent to hinder, delay, or defraud creditors, and likewise rejected a stray reference to preferential transfers under § 547, since the Defendant had been paid in full prepetition and had not filed a proof of claim. The Court allowed the Debtor’s claims for recovery under § 550 and turnover under § 542 to proceed, and granted leave to amend only the state law claim brought under North Carolina’s UVTA, noting it contradicted the Complaint’s insistence that New York law governed. Commentary: In the ongoing judicial reckoning with predatory MCA contracts in bankruptcy, Judge Edwards’ opinion reflects a nuanced and debtor-friendly interpretation of reasonably equivalent value under § 548, while recognizing statutory limits on the application of New York’s criminal usury laws to corporate borrowers. Notably, this decision affirms that civil usury under N.Y. Gen. Oblig. Law § 5-511 remains a viable sword—even if the criminal statute may only be raised defensively. This case complements and follows the reasoning of In re Azalea Gynecology (E.D.N.C. 2024) but goes one step further by sustaining the debtor’s constructive fraud claim based on a civil usury theory, providing a roadmap for other  debtors* and trustees facing similar MCA overreach. Importantly, Judge Edwards reaffirms that constructive fraudulent transfer claims must focus not on gross repayment totals but on the net effect on the estate—reminding debtors’ counsel to frame avoidance theories in terms of net value lost, not just oppressive terms. The decision further bolsters the viability of challenging MCA schemes in bankruptcy, especially where excessive “fees” and recoupment exceed market equivalents, even without a proof of claim on file. *That Chapter 13 debtors do not necessarily have the statutory authority to bring these sorts of actions  themselves and with Chapter 13 trustee,  who will not gain any direct benefit from the time and effort prosecuting this sort of case,  might again mean that a debtor should either consider another Chapter,  i.e.  Chapter 11 where the debtor could bring this action (as was done here) or Chapter 7,  where the trustee's own pecuniary interest encourages this sort of action.  Alternatively,  a Chapter 13 debtor could provide for delegation of this authority in a non-standard provision.   Lastly,  as mentioned in the recent post regarding Sliwinski v. Sliwinski,  the debtor first commencing an Adversary Proceeding under Rule 7001(3)   and then filing a motion  under Rule 19(a)(2) to join the Trustee as a necessary and even involuntary plaintiff.  The factors for the court to consider include: (1) the extent to which a judgment rendered in the person's absence might prejudice that person or the existing parties; (2) the extent to which any prejudice could be lessened or avoided by: (A) protective provisions in the judgment; (B) shaping the relief; or (C) other measures; (3) whether a judgment rendered in the person's absence would be adequate; and (4) whether the plaintiff would have an adequate remedy if the action were dismissed for nonjoinder. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document martinez_quality_painting_v._newco.pdf (612.71 KB) Category Western District