Bankr. E.D.N.C.: In re Grand Valley MHP- Appointment of Chapter 11 Trustee Ed Boltz Fri, 11/08/2024 - 15:57 Summary: The bankruptcy court appointed an interim Chapter 11 trustee, John C. Bircher III, to oversee the bankruptcy cases of several entities owned by Neil Carmichael Bender II. The decision follows concerns about mismanagement, conflicts of interest, and the complex financial entanglement among Bender's companies. The court found that Bender’s management practices, including fund transfers between entities without clear accountability and his substantial personal withdrawals amid financial strain, indicated gross mismanagement. Creditors supported appointing a trustee, citing concerns about Bender’s transparency and the companies’ unsound financial practices. The court held that appointing a trustee was both warranted by cause and in the best interest of creditors and the estate, noting that Bender’s operational decisions compromised the entities' reorganization potential. The trustee will assess whether separate trustees are necessary to address possible conflicts between the estates. Bender’s continued control was deemed unsuitable to fulfill fiduciary responsibilities essential for fair debt management and reorganization, and Bircher’s appointment may become permanent after further assessment. With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document in_re_grand_valley_mhp_et_al.pdf (339.31 KB) Category Eastern District

Bankr. M.D.N.C.: In re Autry- Denial of Debtors' Motion to Convert Ed Boltz Fri, 11/08/2024 - 15:55 Summary: The bankruptcy court denied Russell and Mildred Autry's motion to convert their Chapter 7 bankruptcy case to Chapter 13, citing their bad faith. The Bankruptcy Administrator had objected to the conversion, presenting evidence that the Autrys had concealed their ownership of a property in Ocean Isle Beach, North Carolina, which they had purchased with proceeds from the sale of another property in Tennessee. The Autrys failed to disclose this property in their initial filings, inaccurately stated that they resided in a travel trailer, and omitted other relevant financial information, such as homeowners' insurance and real estate taxes. Despite the Autrys amending their schedules after the § 341 meeting of creditors, the court found their explanations for the omissions lacking in credibility. The court concluded that their consistent concealment of the Ocean Isle property and related misrepresentations showed bad faith, which justified denying their request to convert to Chapter 13 under the principles established in Marrama v. Citizens Bank of Mass. Thus, the court upheld the Bankruptcy Administrator’s objection, denying the motion to convert. Commentary: It would not be a wild guess to assume that the Trustee, as indicated by his questions (transcribed into the opinion) at the Meeting  of Creditors,  was fully aware of the Ocean Isle beach  property and merely gave the Autrys one last opportunity to honestly disclose this asset (and enough rope to hang themselves.)   This is likely because the cost of detailed asset and liability searches,  through such programs as WestLaw PeopleMap, have become much less expensive.  Failing to use this or similar services going forward by consumer debtor attorneys may be tantamount to malpractice. With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document in_re_autry.pdf (470.6 KB) Category Middle District

Economics Review: Greene, Claire, Perry, and Julian, Stavins, Joanna- Consumer Payment Behavior by Income and Demographics Ed Boltz Fri, 11/08/2024 - 15:53 Available at:  https://www.bostonfed.org/publications/research-department-working-paper/2024/consumer-payment-behavior-by-income-and-demographics.aspx Abstract: Despite the introduction of an array of innovations and new payment options for consumers over the last decade, income and demographics remain significant predictors of payment behavior. Using data from a 2023 consumer payments diary, we find that income, age, and education are significant predictors of which payment instruments consumers adopt and use. These associations hold not only for traditional payment instruments—cards and paper—but also for innovations such as mobile apps; buy now, pay later (BNPL); and cryptocurrency. In 2023, less educated consumers were significantly less likely than other consumers to adopt any payment instrument, especially checks and electronic payments, even when we control for income and employment. After controlling for education, we find that high-income consumers used credit cards significantly more relative to other consumers. Younger and more educated consumers were most likely to adopt mobile payment apps. Women, Black and Latino consumers, and those who had filed for bankruptcy in the previous year were significantly more likely to have used BNPL. Men were nearly three times as likely as women to adopt cryptocurrency. Key Findings: The most significant factors affecting the adoption and use of any payment instrument in 2023 were income, age, education, and credit scores—the same factors that were important a decade ago. Consumers’ assessments of the characteristics of a payment instrument also influenced their decision on whether to adopt that instrument. Consumers’ choices concerning payment innovations, including the use of mobile payment apps, BNPL, and cryptocurrency, were affected by demographic and financial attributes. In addition to age, education, and income, race affected BNPL use and the acquisition of cryptocurrency. Higher self-reported FICO scores were associated with a higher likelihood of adopting a checking account and using credit cards, and with a lower likelihood of using cash and debit cards.  Implications: Patterns in the adoption and use of payment instruments that were identified in studies from more than a decade ago have persisted: Age, education, and income remain the most important determinants for the adoption and use of paper, card, and electronic payment instruments. The same demographic and financial factors also significantly affect the adoption and use of new payment options, including mobile apps and BNPL. Commentary: The significantly higher likelihood that women, Black and Latino consumers and those who had filed bankruptcy use "Buy Now, Pay Later" (BNPL) payment methods,  might also be a part of the explanation,  in addition to the "debt sweatbox",  implicit racial biases in steering debtors' chapter choice,  and others,  for why members of those demographic groups tend to choose Chapter 13,  which is often a BNPL bankruptcy,  over  Chapter 7,  with its upfront costs. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document consumer_payment_behavior_by_income_and_demographics.pdf (851.87 KB) Category Book Reviews

4th Cir.: Fernandez v. Rentgrow- Standing for FCRA Violation Requries Evidence that Misleading Information was read and understood Ed Boltz Fri, 11/08/2024 - 15:52 Summary: In Fernandez v. RentGrow, Inc., the Fourth Circuit Court of Appeals vacated and remanded the district court’s class certification in a case where plaintiff Marco Fernandez sued RentGrow under the Fair Credit Reporting Act (FCRA). Fernandez alleged that RentGrow included misleading Office of Foreign Assets Control (OFAC) alerts (flagging potential matches to a U.S. Treasury list of criminals) in its tenant screening reports without adequate accuracy procedures, harming his reputation. The district court certified a class, reasoning that all affected individuals suffered harm simply from the dissemination of inaccurate information. The Fourth Circuit disagreed, holding that concrete reputational harm for Article III standing requires more than just disseminating a report; the recipient must read and understand the misleading information. Evidence showed the property manager reviewing Fernandez’s report did not comprehend the OFAC alert, meaning no reputational harm occurred. Since Fernandez lacked standing, the court ordered the lower court to re-evaluate class certification based on this understanding of harm and standing requirements. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document fernandez_v_rentgrow.pdf (176.89 KB) Category 4th Circuit Court of Appeals

   A Bloomberg article https://news.bloomberglaw.com/bankruptcy-law/senate-proposal-would-grow-small-business-bankruptcy- eligibility  is reporting that a new Senate proposal aims to increase the debt limits for Subchapter V bankruptcy eligibility for small businesses. This proposal would restore the higher debt limit of $7.5 million for Subchapter V filings, up from the current limit of about $3 million. The expansion would allow more businesses to take advantage of Subchapter V's benefits, which include a more streamlined and cost-effective restructuring process compared to traditional Chapter 11 bankruptcies. The potential revival of the higher debt limit comes after a significant drop in small business bankruptcy filings following the expiration of the previous $7.5 million threshold. Subchapter V, introduced in 2019, initially applied to businesses with less than $2.7 million in debt but was expanded to $7.5 million in 2020 as part of COVID-era business relief. This expansion was extended in 2022 but eventually expired, reverting the eligibility requirement to about $3 million. We are monitoring these developments and will continue to report on updates to Subchapter V.  We help individuals and businesses who have too much debt!Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com  Please click the link to schedule a telephone call with me. https://calendly.com/james-shenwick/15min We help individuals & businesses with too much debt! 

Law Review Note: Reilly, Jack- The Timing of a Debtor's Petition for Bankruptcy can Determine if a Pending Title Pawn Contract becomes Property of a Debtor's Estate Ed Boltz Thu, 11/07/2024 - 19:27 Available at:   https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?article=1365&context=bankruptcy_research_library Abstract: Section 541 of title 11 of the United States Code (the "Bankruptcy Code") determines whether property comes into a debtor's bankruptcy estate falling under the protection of the automatic stay afforded by section 362 of the Bankruptcy Code. Bankruptcy Code section 541 defines property of the estate as "all legal or equitable interests of the debtor in property as of the commencement of the case[.]" What constitutes a debtor's "legal or equitable interest" in property is determined by state property law, making state law the determining factor in whether a debtor's interest in a specific property constitutes property of the estate. The state law inquiry of whether property is property of the estate has led to divergent outcomes in factually similar or identical bankruptcy cases in different jurisdictions. In cases involving the debtor pawning an item of value and subsequently filing a bankruptcy petition, these differing outcomes are not always due to the differences in state pawn statutes. This memorandum examines how bankruptcy courts determine whether pledged property in a title pawn transaction enters a debtor's bankruptcy estate. Section I gives a brief overview of the transaction which is the title pawning of an item. Section II details three Bankruptcy Code sections that are relevant to the determination as to whether a title pawned item constitutes property of the estate. Section III analyses the timeline of a title pawn contract to demonstrate how the time of filing for bankruptcy impacts whether the pledged collateral is placed in the debtor's bankruptcy estate or is forfeited to the pawnbroker. Commentary: This note recognizes that because under California law,  a title lender is required to provide notice to the debtor before obtaining legal title to a vehicle,  with the filing of a bankruptcy,  the automatic stay prevents the title lender from sending that notice.  This is contrasted with Georgia,  where title to automatically passes upon the failure of the debtor to timely redeem the property.  But  the automatic stay of §362(a)  applies to "all entities",  which  includes  the debtor also.  And although  City of Chicago v. Fulton established that merely maintaining the status quo did not violate the automatic stay,  the failure to act is itself an act. So isn't the debtor's  failure to redeem  itself a violation of the automatic stay and hence void, with the pledged collateral remaining an asset of the estate until the court grants relief to the debtor to not redeem? With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document the_timing_of_a_debtors_petition_for_bankruptcy_can_determine_if.pdf (346.43 KB) Category Law Reviews & Studies

Bankr. E.D.N.C.: In re McKenzie- Involuntary Conversion to Chapter 7 following Undisclosed Bequest Ed Boltz Thu, 11/07/2024 - 19:25 Summary: The bankruptcy court granted a motion to convert the debtors' Chapter 13 case to Chapter 7 after they failed to disclose a $350,000 gift received post-petition. The Bankruptcy Administrator (BA) sought the conversion, citing the debtors' lack of good faith due to their failure to notify the Chapter 13 trustee of this substantial financial change, as required by court orders. The court noted that the debtors did not contest the conversion in writing and did not appear to testify at the hearing. The BA argued that if this financial information had been disclosed earlier, it would have likely led to objections to the Chapter 13 plan. The court found the nondisclosure showed a lack of good faith, constituting "cause" under 11 U.S.C. § 1307(c) for conversion to Chapter 7. The court determined conversion was in the best interest of creditors and the estate, allowing a Chapter 7 trustee to retain control over the funds and investigate their disposition. Commentary: It is worth noting that Mr.  McKenzie received this gift (or,  using the term from  §541(a)(5)(A),  a bequest)   only 81 days after the filing of this bankruptcy case.  Accordingly,  even without a finding of bad faith conversion under §348(f)(2),  that bequest received within 180-days of filing becomes an asset of the Chapter 7 estate.  (It was an asset under §1306 and  Carroll v. Logan.)  This might not actually be the result if here,  however,  if the bequest had been made more than 180-days after the filing of the case: §348(f)(2) provides that:   If the debtor converts a case under chapter 13 of this title to a case under another chapter under this title in bad faith, the property of the estate in the converted case shall consist of the property of the estate as of the date of conversion.  (Emphasis added.)   Here,  however,  it was not the debtors who converted to Chapter 7,  but the Bankruptcy Administrator who moved for that conversion.  Congress could have provided for the more expansive result with a passive tense "is converted" but,  likely in preserving the right of debtors to voluntarily dismiss their Chapter 13 cases (which springs from the 13th Amendment prohibition on debt slavery),  instead limited the broadening of the Chapter 7 estate to only apply when the debtor actively converts. Further, as noted by others,  while there is a  statutory good faith requirement for filing Chapter 13 and confirmation of a plan,  there is no explicit  good faith requirement for remaining in a Chapter 13. Following Law v. Siegel,  the court is not given unfettered authority to craft remedies for the misdeeds of parties,  including failure to comply with orders of the court.  And while the court seemed troubled that dismissal instead of conversion of this case would have been to the detriment of creditors,  those creditors would still have the non-bankruptcy collection options (including commencing an involuntary bankruptcy against the debtor.) Lastly,  this is also an example of where,  had the debtor or his very generous father first consulted with an attorney before making this bequest,  the debtor would not necessarily have had to pay little or any of these funds to his creditors.  This could have been accomplished either by the father creating a spendthrift trust  or by first approaching the Chapter 13 trustee to negotiate how much   would need to be paid to general unsecured creditors  for this contingent gift to be made.   With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_mckenzie.pdf (217.03 KB) Category Eastern District

Law Review Note: Xenakis, Panayiotis- Innocent-Spouse Relief and Other Tax Remedies in Bankruptcy Ed Boltz Thu, 11/07/2024 - 19:21 Available at:  https://scholarship.law.stjohns.edu/bankruptcy_research_library/368/ Abstract: Innocent-spouse relief is an equitable remedy provided by Internal Revenue Code section 6015(f), where the Secretary of the Treasury may "relieve [an] individual of . . . liability" if "taking into account all the facts and circumstances, it is inequitable to hold the individual liable for any unpaid tax or any deficiency . . . ." Essentially, it provides a joint-filer who normally is jointly and severally liable for the tax liabilities of his or her spouse relief from liability if it would be inequitable to do otherwise. This memorandum addresses:  (1) the limits of a bankruptcy court’s jurisdiction over innocent-spouse and other tax claims under Bankruptcy Code section 505, with regard to  (a) the bankruptcy court’s lack of initial subject matter jurisdiction over innocent-spouse relief claims, and  (b) the preclusion towards adjudicating a tax dispute that has been finally concluded; and  (2) a recent decision from the Western District of Pennsylvania which denied bankruptcy court jurisdiction over innocent-spouse claims. The decision appears to be an outlier and will not likely be followed by other jurisdictions. Commentary: A debtor's ability to have the bankruptcy court  review for innocent spouse relief in the Fourth Circuit  would seem to require both that he or she first attempts to utilize the IRS processes and also that there had not been a final pre-petition adjudication of that claim.   It would seem then that many Chapter 13 debtors would benefit from seeking this innocent spouse relief  if: The Debtor  filed a joint return with his or her spouse\ The Debtor's taxes were understated due to errors on your return The Debtor  didn't know about the errors,  or The Debtor lives in a community property state Errors that cause understated taxes include: Unreported income Incorrect deductions or credits Incorrect values given for assets The question then for consumer debtor attorneys is whether this is an additional service that they can provide for their clients  (with reasonable compensation) or if it should be referred to another lawyer or tax professional.   For  related questions about Offers in Compromise in bankruptcy,  see Bankr. E.D.N.C.: In re Mead- Validity of Pre-Petition Offer in Compromise of IRS Claim With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document innocent-spouse_relief_and_other_tax_remedies_in_bankruptcy.pdf (326.27 KB) Document f8857.pdf (158.45 KB) Category Law Reviews & Studies

Law Review Note: Kleinman, Michael- Interest Rate Determination Methods in Bankruptcy Chapters 11, 12, and 13 Ed Boltz Thu, 11/07/2024 - 19:18 Available at:   https://scholarship.law.stjohns.edu/bankruptcy_research_library/359/ Abstract: The United States Supreme Court's decision in Till v. SCS Credit Corp. established a formula approach for determining interest rates in cases filed under chapter 13 of title 11 of the United States Code (the "Bankruptcy Code"). The Till decision implemented the formula approach, requiring the national prime rate to be augmented by a risk premium to account for the debtor's heightened nonpayment risk. Till is limited to chapter 13 cases, however, courts have applied the Till test in chapter 11 and 12 cases. This memorandum examines the different methods utilized in bankruptcy to determine appropriate interest rates. Section I outlines the legal framework for determining interest rates in bankruptcy under the Bankruptcy Code. Section II examines the impact of the Till decision on interest rate strategies across chapters 11, 12, and 13  Commentary: This note takes  as a clear  premise that Till v. SCS Credit Corp applies to all reorganization chapters in bankruptcy,  but unfortunately at the time  it was wending through the appellate process to the Supreme Court,  the Chapter 11 debtor's bar  failed to recognize (yet again)  that  lowly consumer cases  have dramatic impacts on lofty corporate reorganizations.  For that reason alone,  those attorneys and law firms should be stolid and regular donors to National Consumer Bankruptcy Rights Center,  as it is one of the few organizations that regularly appears as an amici on behalf of debtors in bankruptcy appeals. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document interest_rate_determination_methods_in_bankruptcy_chapters_11_12_13.pdf (314.07 KB) Category Law Reviews & Studies

E.D.N.C.: Johnson v. Experian- FCRA and Cares Act Ed Boltz Thu, 11/07/2024 - 19:16 Summary: In a pro se suit under the Fair Credit Reporting Act (FCRA),  Johnson alleged that Experian failed to accurately update his credit report to reflect an accommodation provided by his creditor during the COVID-19 pandemic.  The court dismissed Johnson's claim under FCRA § 1681s-2, which applies to information furnishers, not credit reporting agencies like Experian. However, it allowed Johnson's claim under § 1681i, which requires credit reporting agencies to conduct a reasonable investigation into disputed information. Despite Experian’s objections, the court found that Johnson had sufficiently alleged that his credit report remained inaccurate, warranting further investigation. The case will proceed with the § 1681i claim. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document johnson_v._experian.pdf (140.61 KB) Category Eastern District