“Credit Scores Improve Immediately After Filing for Bankruptcy.” That’s from an October 2024 consumer bankruptcy study done by Lending Tree. The average person saw their credit score increase from 533 to 602. (This matches two studies, in 2014 and 2015,  done by Federal Reserve banks.) Some people–the people with the worst scores going into bankruptcy–saw an improvement of up to 193 points!  Generally, those with credit scores below 620 saw an increase when they filed bankruptcy. People with scores above 620, usually saw a drop. Most people with a credit score around 640 see a drop to around 630. People with scores around 650 fell to around 640. High scoring individuals, with scores around 700, fell to around 665. Most people with a 640 score leave bankruptcy with a credit score around 630. These are averages. Your score will be influenced by your complete credit history during at least the last three years. So everyone is different. But we can say two things with confidence.  If you still have a decent credit score, bankruptcy doesn’t hurt much. If you have a terrible score, it will help a lot. No problems getting new credit cards The Lending Tree study shows that people have most no problems getting new credit, in the first two or three months after bankruptcy. Find Out More You can find out more about the five ways bankruptcy gives you a new start. The post What Does Bankruptcy Do to Your Credit? appeared first on Robert Weed Bankruptcy Attorney.

When an individual files for Chapter 7 relief, the goal is to keep their exempt property and discharge their dischargable debts. A corporation does not receive either of these benefits in Chapter 7, meaning that it turns over all of its property to be liquidated and still owes the remainder of its debts after the case is over. So why would a corporation ever for Chapter 7?Bad Stuff Can Happen Before going into the reasons for a company to file Chapter 7,let me talk about some more of the negatives. When a company files Chapter 7, the Trustee gets to look into its financial affairs. If the owners have been paying themselves back in the year before bankruptcy, the Trustee can sue to recover that money. If the board has breached its fiduciary duty, the Trustee can sue them. Additionally, when a company files for Chapter 7, the attorney-client privilege now belongs to the Trustee so the Trustee can ask the lawyer what the company's insiders discussed with counsel.  These are all reasons why filing Chapter 7 can have negative consequences for the people who made the decision to file. Finally, filing Chapter 7 does not dissolve a company under state law so that once the case is over, there is still a corporate shell Considerations for a Corporate Chapter 7So why would a corporation file Chapter 7? Over the years, I have given clients several reasons why a company might file Chapter 7.If a company still has assets, management might elect to file Chapter 7 to turn over the liquidation process to  a third party. Under the corporate trust fund doctrine, management of an insolvent company can be personally liable if they take those assets and put them in their own pockets. Collections lawyers are always looking for someone else to sue and letting a Trustee investigate the company's finances and then do the actual liquidation gives some protection to the Board. If a company has third party investors, they might be quick to question management's decision to handle the wind-up on their own (especially when the Board forgot to mention that the company was in financial peril). A second reason is when a company is facing multiple lawsuits and doesn't have the money to pay defense counsel. If the company does nothing, judgments will be entered and the company will be served with post-judgment discovery. If the post-judgment discovery is ignored, a court may compel the officers and directors to answer it. Bankruptcy schedules and the statement of financial affairs contain much of the same information as would be provided in post-judgment discovery but the information just has to be provided one time. Yes, judgment creditors could pursue the company after Chapter 7, but a collections lawyer with a contingent fee agreement is likely to close the file once bankruptcy is filed.Filing Chapter 7 may be of particular value where the insiders would like to purchase the assets. If the board authorizes a sale of technology that hasn't been monetized to an insider, they are setting themselves up for a breach of fiduciary duty suit. On the other hand, if the insider negotiates a deal with the Trustee and gets a court order approving the sale, both the board and the purchasing insider should be protected. Of course, someone else could always bid more but at least the Board would have done its duty by letting a third party Trustee handle the sale.A third reason to file Chapter 7 is where a creditor is bringing weak alter ego or fraudulent transfer claims against the owners for the sake of harassment. If the company files Chapter 7, the targets of these suits can negotiate a deal with the Trustee. However, this is not a sure thing. The Fifth Circuit treats a motion to compromise claims as being equivalent to a sale of the cause of action. Cadle Company v. Mims (In re Moore), 608 F.3d 253 (5th Cir. 2010).  The annoying creditor can always come in and bid more for the claim, knowing that part of its purchase price will come back to it when the Trustee pays claims.This strategy only works if the creditor lacks the sophistication or ability to outbid the target of the litigation. Additionally, sometimes the Trustee will hire the state court lawyer as special counsel to pursue the insiders which just transfers the fight to the bankruptcy court. Does It Make Sense? The takeaway here is that filing Chapter 7 for a company is not always the answer. Sometimes a bankruptcy filing just creates more trouble for the people authorizing the case. Before authorizing a corporate Chapter 7 it is important to think about both the benefits and the detriments. Once the case is filed it can't easily be withdrawn. As one Western District Judge once said:Chapter 7 bankruptcy is not something that you can dip your toe into in order to check the temperature of the water. It is  something you jump into and you can only be rescued from it if you can show cause.  In re Dreamstreet, Inc., 221 B.R. 724, 725-26 (Bankr. W.D. Tex. 1998).    

“Credit Scores Improve Immediately After Filing for Bankruptcy.” That’s from an October 2024 consumer bankruptcy study done by Lending Tree. The average person saw their credit score increase from 533 to 602. (This matches two studies, in 2014 and 2015,  done by Federal Reserve banks.) Some people–the people with the worst scores going into bankruptcy–saw an improvement of up to 193 points!  Generally, those with credit scores below 620 saw an increase when they filed bankruptcy. People with scores above 620, usually saw a drop. Most people with a credit score around 640 see a drop to around 630. People with scores around 650 fell to around 640. High scoring individuals, with scores around 700, fell to around 665. Most people with a 640 score leave bankruptcy with a credit score around 630. These are averages. Your score will be influenced by your complete credit history during at least the last three years. So everyone is different. But we can say two things with confidence.  If you still have a decent credit score, bankruptcy doesn’t hurt much. If you have a terrible score, it will help a lot. No problems getting new credit cards The Lending Tree study shows that people have most no problems getting new credit, in the first two or three months after bankruptcy. Find Out More You can find out more about the five ways bankruptcy gives you a new start. The post What Does Bankruptcy Do to Your Credit? appeared first on Robert Weed Bankruptcy Attorney.

E.D.N.C.: Alston v. NCR- Consumer Rights Claims are Not Assignable but are Personal Injury Torts Ed Boltz Fri, 05/02/2025 - 17:38 Summary: James Alston, claiming to  have been assigned FDCPA claims from a third party (Louis Greene), brought various claims against  National Credit Systems, Inc.  under the Fair Debt Collection Practices Act (FDCPA).    Judge Flanagan  found that Alston lacked standing to prosecute this matter,  since FDCPA claims are personal tort claims, and under North Carolina law, such claims cannot be assigned.  Accordingly,  the case was  dismissed without prejudice for lack of subject matter jurisdiction under Rule 12(b)(1). Commentary: This case (and those it relies on, e.g.Investors Title Ins. Co. v. Herzig, 330 N.C. 681 (1992) ) has implications beyond just questions of assignability,  particularly as it holds that FDCPA claims (and also those under other consumer rights statutes)  are considered personal tort claims.  As personal injury torts, those consumer rights claims would be fully exempt under  N.C.G.S. § 1C-1601(a)(8). With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document alston_v._ncr.pdf (637.79 KB) Category Eastern District

Proposed 2025 Formal Ethics Opinion 1- Obligations Related to Notice When the Lawyer Leaves a Firm Ed Boltz Fri, 05/02/2025 - 17:29 Available at:   https://www.ncbar.gov/for-lawyers/ethics/proposed-opinions/ Summary: Should this FEO be adopted,  these are the steps that must be taken so that affected clients are adequately notified when a lawyer departs a law firm. Determine which  clients are affected:  This could include those: With whom the departing lawyer has an ongoing professional relationship; This would not in most circumstances seem to include clients in cases that have completed,  received a discharge,  been dismissed,  or closed. For whose legal matters the lawyer was responsible at the time of departure; With whom the lawyer had significant client contact or provided substantial legal services.   Notice must be sent to the client informing them: That the lawyer is leaving and where they are going (if known);  That they have the right to choose their counsel; Of their three main options:  stay with the current firm, go with the departing lawyer, or  select new counsel. The current case status; An accounting of any client property held in trust; Any responsibility for fees/costs already incurred; The deadline by which the client must elect representation; Instructions for file and fund transfer (with client consent); and  Any necessary details about new fee agreements or changes in billing if choosing the departing lawyer. Commentary: This FEO  only addresses the ethical requirements that the NC State Bar places on lawyers when one leaves a law firm.  As usual,  it is not exactly congruent with actual consumer bankruptcy representation,  particularly for larger multi-attorney consumer debtor firms (such as my own)  where there often are several "primary  attorneys"  involved in various aspects of a case  or for law practices that represent mortgage  servicers or other creditors.   It would certainly be helpful,  especially as I have directly been recently involved in both circumstances where an attorney left my firm and also cases where a lawyer for a large mortgage servicer departed,  if there was clearer,  supplemental guidance in the Local Rules for the three districts in North Carolina,  about when   and how departures and substitutions of counsel should be handled. With proper attribution,  please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document proposed_2025_formal_ethics_opinion_1.pdf (111.27 KB) Category Law Reviews & Studies

4th Cir.: Carpenter v. Douglas Management- HOA Fees are Not Transfer Fees under NCGS 39A Ed Boltz Thu, 05/01/2025 - 15:51 Summary: The Fourth Circuit affirmed the dismissal of a class action complaint filed by a North Carolina homeowner who alleged that fees charged by an HOA management company and its software provider for real estate closing documents violated the state’s transfer fee statute and constituted unfair and deceptive trade practices. Plaintiff Susan Carpenter, acting as trustee for the H. Joe King, Jr. Revocable Trust, sold two properties subject to homeowners’ associations. To complete the closings, she was required to obtain “statements of unpaid assessments” from the management company, William Douglas Management, through the HomeWiseDocs.com platform. Carpenter was charged fees ranging from $175 to $255 for those documents. Alleging these charges were unreasonable, she brought a putative class action asserting violations of North Carolina’s “transfer fee covenant” ban (N.C. Gen. Stat. § 39A-1 et seq.), the Unfair and Deceptive Trade Practices Act (UDTPA), and other related claims. The Fourth Circuit, applying North Carolina law, held that these charges did not qualify as “transfer fees” under N.C. Gen. Stat. § 39A-2(2), because they were “payable upon the preparation” of the assessment statements—not “upon the transfer” of the property or “for the right to make or accept” such transfer. The court noted that the statute’s exclusion for “reasonable fees” to prepare such statements did not imply that unreasonable ones were automatically unlawful. The court also found no violation of the UDTPA, emphasizing that allegations of excessive pricing, absent more, do not establish a claim under the statute. Other claims—unjust enrichment, negligent misrepresentation, civil conspiracy, and violation of the North Carolina Debt Collection Act—were deemed derivative and likewise dismissed. Commentary: Importantly, the court sidestepped broader equitable considerations, including the fact that these fees are often unavoidable for sellers, who are functionally compelled to pay them in order to satisfy closing requirements set by lenders and title insurers. Though the North Carolina General Assembly amended the HOA statutes in 2020 to cap such fees going forward (N.C. Gen. Stat. § 47F-3-102(13a)), this case illustrates how difficult it is to retroactively challenge those charged before the amendment. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document carpenter_v_william_douglas_management.pdf (155.01 KB) Category 4th Circuit Court of Appeals

4th Cir.: Truck Insurance v. Kaiser Gypsum (on remand from the U.S. Supreme Court)- Good Faith In Plan Confirmation Ed Boltz Thu, 05/01/2025 - 01:38 Summary: This long-running asbestos bankruptcy saga involving Kaiser Gypsum and its affiliate Hanson Permanente Cement returned to the Fourth Circuit following a Supreme Court remand, which held that Truck Insurance Exchange ("Truck") qualified as a “party in interest” under § 1109(b) of the Bankruptcy Code. This opened the door for Truck to assert objections to the proposed § 524(g) reorganization plan, which had previously been rebuffed for lack of standing. On remand, the Fourth Circuit considered Truck’s two central challenges: (1) that the plan was not proposed in good faith under § 1129(a)(3), and (2) that it failed to meet multiple statutory requirements of § 524(g). Truck, the Debtors’ primary liability insurer, contended that the plan left it exposed to fraudulent asbestos claims because it allowed insured claims to be litigated in the tort system without parallel anti-fraud mechanisms required for uninsured claims processed through the Trust. It also challenged whether the Trust truly “assumed” liabilities, received “future payments,” or could realistically exercise control over the reorganized Debtors as required by § 524(g). The Fourth Circuit affirmed the district court’s confirmation of the plan, finding no clear error in its good faith determination and concluding that all statutory requirements were met. The court emphasized that the plan was the product of arms-length negotiations, was supported by all claimants except Truck, preserved going-concern value, and maximized estate recovery—core goals of the Code. The panel rejected Truck’s concerns as speculative and unsupported by concrete evidence of fraud. It also held that the Trust’s entitlement to the Debtors’ equity upon default of a secured note satisfied § 524(g)’s control and funding requirements. Judge Quattlebaum concurred separately, expressing discomfort with the refusal to adopt basic anti-fraud protections for insured claims but agreed that the absence of evidence precluded reversal under the clear error standard. Commentary: Although this case arose in the rarefied world of § 524(g) trusts and asbestos litigation, the Fourth Circuit’s clear-eyed approach to evaluating good faith provides helpful reinforcement of long-standing Chapter 13 principles. For consumer debtors, it affirms that using available legal tools (e.g., exemptions, selective surrender, or even aggressive strip-downs) is not “bad faith” if done transparently and for the purpose of reorganization. When read alongside its recent opinion in Trantham v. Tate (4th Cir. 2002), 301 B.R. 408 (W.D.N.C.), aff’d 52 F. App’x 713 (4th Cir. 2002), the Fourth Circuit’s Truck Insurance decision reinforces a consistent and borrower-protective interpretation of the “good faith” requirement under both § 1325(a)(3) and § 1129(a)(3): namely, that bankruptcy courts must assess good faith under a flexible, case-specific “totality of the circumstances” test, and not rely on categorical rules or creditor-driven narratives of strategic behavior.  It also reinforces the burden on objecting parties—whether creditors or trustees—to substantiate allegations of bad faith with facts and actual provisions of the Bankruptcy Code, not just suspicions  or wistful glances towards standard practices. In both consumer and corporate contexts, good faith remains a fact-intensive inquiry that must ultimately align with the structure and goals of the Bankruptcy Code: fairness, transparency, and the honest but unfortunate debtor’s fresh start. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document truck_insurance_v_kaiser_gypsum.pdf (208.93 KB) Category 4th Circuit Court of Appeals

4th Cir.: Paredes v. Zen Nails-Presumptive Fees Schedules are not Dispositive  Ed Boltz Wed, 04/30/2025 - 22:47 Summary: In this Fair Labor Standards Act (“FLSA”) case, the Fourth Circuit vacated a fee award that slashed plaintiffs' requested attorneys’ fees by more than half, holding that the district court erred by treating the fee guidelines in the District of Maryland’s Local Rules as “presumptively reasonable” and improperly requiring justification for exceeding them. After prevailing at trial, plaintiffs Flor Arriaza de Paredes and Francisco Tejada Lopez sought $343,189.85 in fees, supported by declarations and an inflation-adjusted matrix. The district court awarded just $167,115.49. The key dispute on appeal: whether the court lawfully relied on the Local Rules’ Appendix B fee ranges to cabin hourly rates. The Fourth Circuit found that although district courts may consider local matrices, they cannot elevate them to presumptive status. Doing so effectively replaces the required market-based analysis with a judicially-created baseline untethered from actual prevailing rates. Despite acknowledging plaintiffs’ supporting declarations and complexity of litigation, the district court's repeated reliance on the Local Rule matrix—and its blanket refusal to approve rates above that matrix—tainted the fee determination with legal error. The panel vacated the fee award and remanded, emphasizing that courts must consider a full range of evidence—declarations, prior awards, surveys, and judicial knowledge—without anchoring to a single, static matrix. The Fourth Circuit also took care to reaffirm the district court’s discretion on remand, but warned that overreliance on outdated matrices increasingly invites reversal. Commentary: While this decision does not invalidate presumptive Chapter 13 fees,  it does reaffirm that they are administrative tools—not binding fee caps.   Similarly,  attorneys fees awarded under consumer rights fee shifting provisions,  cannot be dispositively set in stone.    When challenged or exceeded,  courts must instead  assess reasonableness based on the totality of the evidence—not just local tradition or standing orders,   considering  all relevant evidence, including: Affidavits from consumer attorneys, Market surveys or updated fee matrices; Prior fee awards in similar cases, Complexity and skill involved, and The court’s own knowledge. This strengthens the hand of debtor’s counsel seeking higher fees in complex or non-standard cases and may encourage some courts to revisit decade-old fee schedules that lag inflation and market practice. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document paredes_v._zen_nails.pdf (142.28 KB) Category 4th Circuit Court of Appeals

4th Cir.: Roberts v. Carter-Young- Fair Credit Reporting Act – Reasonable Investigation – Legal vs. Factual Disputes Ed Boltz Wed, 04/30/2025 - 20:56 Summary: The Fourth Circuit vacated and remanded the dismissal of Shelby Roberts’ Fair Credit Reporting Act (“FCRA”) claim against a debt collector, holding that the district court erred in concluding that disputes involving legal issues are categorically outside the scope of the FCRA’s investigation requirements. Roberts disputed a $791 charge from her former landlord, which she alleged stemmed from retaliatory and fabricated damages after she refused to vacate her apartment early. The debt was referred to Carter-Young, Inc., a collection agency, which reported the debt to the credit bureaus. After receiving notice from the credit reporting agencies of Roberts' disputes, Carter-Young conducted no independent investigation and instead simply recertified the debt based on the landlord’s affirmation. Roberts sued under 15 U.S.C. § 1681s-2(b), alleging Carter-Young negligently and willfully failed to conduct a “reasonable investigation.” The district court dismissed her complaint, finding that the dispute was legal in nature—centered on claims of fraud and lease interpretation—and thus not subject to FCRA enforcement. On appeal, the Fourth Circuit rejected this rigid factual/legal dichotomy. Instead, the Court adopted a more nuanced standard, aligning with the Second and Eleventh Circuits: A furnisher’s duty to investigate under the FCRA extends to disputes that allege inaccuracies which are “objectively and readily verifiable,” regardless of whether they stem from legal or factual contentions. The Court explained that furnishers are not required to resolve complex legal disputes or make credibility determinations, but they must investigate when the inaccuracies can be reasonably verified without functioning as a tribunal. Because the district court applied the wrong legal standard in dismissing Roberts’ claim, the case was remanded for further proceedings under the “objectively and readily verifiable” standard. Commentary: This decision is a significant win for consumer advocates and provides an important clarification in the murky intersection of legal disputes and credit reporting obligations under the FCRA. While many debt disputes—particularly in landlord-tenant relationships—involve contractual and legal elements, this ruling ensures that consumers are not left without recourse simply because the underlying facts implicate legal theories. The Court rightly emphasized that debt collectors and furnishers, like Carter-Young, cannot escape their statutory duty to investigate simply by labeling a dispute as “legal.” The key question is whether the claimed inaccuracy can be objectively verified—such as whether a charge was actually incurred, whether a debt was paid, or whether an item was actually replaced (as Roberts disputed about a stove). Furnishers and credit agencies often dismiss discharge disputes by arguing they involve legal determinations—e.g., whether a debt was “actually” discharged in a bankruptcy.  Here the Fourth Circuit has explicitly rejected the legal-vs-factual distinction as a bar to liability. The Court held that even legal disputes can give rise to FCRA claims so long as the underlying facts are objectively and readily verifiable—which is frequently the case with bankruptcy discharges, as the discharge order and schedules are public record and clearly show which debts were included. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document roberts_v._carter-young.pdf (201.34 KB) Category 4th Circuit Court of Appeals

4th Cir.: In Re Star Development- Account is Property of the Estate Despite Assertion of Earmarking and Trust. Ed Boltz Wed, 04/30/2025 - 20:53 Summary: Mukesh Majmudar and Hopkins Hospitality Investors, LLC (HHI) sought to recover $1 million deposited into an account titled in the name of Star Development Group, LLC—the Chapter 7 debtor entity that Majmudar also managed. The funds were originally posted as collateral for a letter of credit related to a mechanic’s lien on a hotel construction project. After Star filed bankruptcy, the Trustee included the account as property of the estate. Majmudar and HHI filed an adversary proceeding, asserting that the funds were not estate property under three theories: (1) the "earmarking" doctrine; (2) a resulting trust for the benefit of the bank; and (3) 11 U.S.C. § 541(b)(1)’s exclusion for powers exercisable solely for the benefit of others. The bankruptcy court (Judge Guttman), affirmed by the district court (Judge Bennett), rejected all three theories on summary judgment. The Fourth Circuit affirmed in a per curiam unpublished opinion by Judge Wynn, joined by Judges Wilkinson and Niemeyer. The Court found that: Earmarking failed because there was no written agreement that the Debtor could only use the funds to pay a specific creditor, nor were the funds actually disbursed to satisfy any antecedent debt. Resulting trust was unsupported because neither the account documents nor Debtor’s sworn filings established any trust relationship, and all records indicated the Debtor was treated as owner. Section 541(b)(1) did not apply, as this was not a “power exercisable solely for the benefit of another,” nor did the circumstances resemble those in T & B Scottdale Contractors, where clear contractual obligations and third-party beneficiaries existed. Commentary: While this case serves as a sharp reminder that even creatively repurposed doctrines like earmarking and implied trusts will not rescue insiders who have blurred entity boundaries and failed to memorialize restrictions on asset control. But that caution may also provide a roadmap  for debtors in bankruptcy to protect funds provided by third-parties  from  unnecessarily being applied towards general unsecured creditors  rather than secured or priority claims.  Earmarking  in bankruptcy would require establishing the following elements: A  third party advances funds to the debtor The funds must come from a third party, not from the debtor’s own resources. The new funds are specifically designated to pay a particular, pre-existing debt There must be an agreement—explicit or implied—among the debtor, the third-party, and perhaps the original creditor that the new funds will be used to pay that specific antecedent debt. The funds are actually used to pay that designated creditor The payment must go  to the old creditor, or at least be used by the debtor for that exact purpose. The debtor does not have control or discretion over the use of the funds If the debtor could use the funds for any purpose (i.e., they are not “earmarked”), then the defense fails. Courts look closely at whether the debtor had authority to disburse the funds to anyone other than the specified creditor. Commentary: With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_star_development.pdf (180.86 KB) Category 4th Circuit Court of Appeals