4th Cir.: CCWB Asset Investments v. EBC Asset Investment- Distribution Methods in Federal Receivership Ed Boltz Tue, 10/01/2024 - 16:46 Summary: The case involves a court-appointed receiver tasked with distributing assets recovered from a Ponzi scheme involving over 230 investors who were defrauded by Kevin Merrill, Jay Ledford, and Cameron Jezierski. The appellants, two groups of investors (the Dean Investors and the Connaughton Investors), challenged the district court's approval of the receiver's plan to distribute the recovered assets. The receiver proposed to use the "Rising Tide" method to distribute funds.  The Rising Tide method: The Rising Tide method deducts from that recovery pre-Receivership withdrawals and distributions—unless they are rolled over. For instance, suppose A invests $100 in a Ponzi scheme but withdraws $50 before the scheme crumbles. Under the Rising Tide method, the receiver counts that $50-withdrawal as partial compensation for A’s loss, meaning A will receive less from the receiver’s distribution of the assets. Because the Rising Tide method requires subtracting previous withdrawals from an investor’s receivership recovery, investors who make withdrawals fare worse under that method than those who withdraw nothing. The Dean Investors, however, advocated for the "Maximum Balance" approach, which would not count reinvested withdrawals against their recovery. The court rejected this approach, stating that it had no precedent, was administratively difficult, and that the investors had benefited from the withdrawals, however small. The Connaughton Investors objected to the "Collateral Offset Provision," which reduced their distribution by amounts they had already recovered from third-party settlements. They argued this discouraged settlements, but the court upheld the provision, ensuring equitable recovery for all investors. Commentary: I would be interested in hearing from others about if and how both these concepts from federal receivership of Rising Tide and Collateral Offset  might apply in a bankruptcy case.  For example,  would either of these impact the distribution allowed to a unsecured creditor that received preferential payments prior to the bankruptcy? With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document ccwb_asset_investments_v._milligan.pdf (157.53 KB) Category 4th Circuit Court of Appeals

N.C. Ct. of App.: Adventure Trail of Cherokee v. Owens-Parole Evidence for Lease Ed Boltz Mon, 09/30/2024 - 19:22 Summary: The dispute arose over a lease agreement between the plaintiff and the mother of the defendant, William Fredrick Owens. The key issue involved whether the lease continued after the mother’s death in 2019 and if Mr.  Owens had any rights under the lease. Owens argued that the lease’s phrase "survivor of the Lessee" granted him rights to continue occupying the property. However, the trial court found that the phrase was ambiguous and a scrivener’s error, meaning it was mistakenly included. The court used parole evidence, which while normally prohibited to " to vary, add to, or contradict” language within a contract" can be used to understand “an ambiguous term may be explained or construed with the aid of parol evidence.” Drake v. Hance, 195 N.C. App. 588, 591, 673 S.E.2d 411, 413 (2009),  concluding that the lease terminated upon the mother's death and Owens had no continuing rights under it. Commentary: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 amended the Protecting Tenants at Foreclosure Act (PTFA)  notice to "successor in interest" tenants 90 days before requiring them to vacate the property and also allows those successor tenants with leases to remain in the property until the end of the lease term.    With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document adventure_trail_of_cherokee_v._owens.pdf (129.38 KB) Category NC Court of Appeals

W.D.N.C.: Vitalia v. Experian- FCRA Complaint failed to Plead Inaccuracies Ed Boltz Mon, 09/30/2024 - 18:18 Summary: Papa G. Vitalia filed a complaint against several defendants, including Early Warning Services, LLC (EWS), under the Fair Credit Reporting Act (FCRA). Vitalia alleged that EWS reported inaccurate information on his credit report, after once previously deleting that information, which resulted in him being denied credit from several banks. EWS filed a motion to dismiss the complaint, arguing that Vitalia did not provide enough factual details to support his claims. Specifically, EWS contended that: Vitalia did not sufficiently show what inaccurate information was reported; Vitalia failed to allege that EWS did not follow reasonable procedures to ensure accuracy; EWS does not provide credit reports, so any claims of credit denials were unrelated to EWS; The court agreed with EWS, finding that Vitalia's complaint lacked specific factual allegations to support his claims of inaccuracies and unreasonable procedures. As a result, the court recommended dismissing the complaint. Additionally, Vitalia’s claim of improper reinsertion of inaccurate information under 15 U.S.C. § 1681i(a)(5) also failed due to insufficient pleading. The court recommended that EWS’s motion to dismiss be granted. Vitalia was given 14 days to file objections to the recommendation. With proper attribution,  please share this post.  To read a copy of the transcript, please see:   Blog comments Attachment Document vitalia_v._experian_district_court.pdf (110.04 KB) Document vitalia_v._experian.pdf (199.76 KB) Category Western District

Law Review: Nosal, Jaromir and Stefania, Albanesi, Consumer Default After the 2005 Bankruptcy Reform (June 18, 2024). Ed Boltz Mon, 09/30/2024 - 18:13 Available at:   https://ssrn.com/abstract=4870978 or http://dx.doi.org/10.2139/ssrn.4870978 Summary: The 2005 Bankruptcy Abuse Prevention and Consumer Protection Act is the most important reform of personal bankruptcy in the United States in recent years. This law left benefits of filing for bankruptcy mostly unchanged, but increased the monetary costs of filing, both for Chapter 7 and Chapter 13 bankruptcy. Using administrative credit bureau data from a nationally representative panel, we quantify the effects of the rise in filing costs exploiting geographical variation in this increase. We show that the increase in filing costs reduced Chapter 7 bankruptcy rates by 15% for newly financially distressed borrowers, but had no statistically significant effect on Chapter 13. We argue that this differential is consistent with binding liquidity constraints driving the response to the reform. Additionally, we find that the missing Chapter 7 bankruptcies lead to an increase in long term financial distress but also a limited rise in the rate consumers return to being current, while there is no evidence of substitution from Chapter 7 bankruptcy to Chapter 13 filing or foreclosure Commentary: This article "estimates ... that the average increase in attorney fees reduced...  Chapter 7 bankruptcy filing by 15% from the pre-[BAPCPA] ..., whereas there is no statistically significant effect for Chapter 13 filing."  And while many,  especially in the academic community, have bemoaned that consumers  file Chapter 13 cases,  often with a substantially reduced likelihood of discharge, instead of Chapter 7,  it has become  apparent that the increased cost of filing bankruptcy was  the true oblique goal of BAPCPA.   This does also call into question the likelihood that bankruptcy reform legislation,  most notably Sen. Warren's  Consumer Bankruptcy Reform Act,  which, while front-loading the discharge like in Chapter 7,  expands and adds truly admirable  options  for dealing with secured debt (almost a  "super Chapter 13"),  would result in more consumers actually being able to obtain relief.  All of these options  (smooshed into a single chapter)  could end up complicating the choices faced by consumers and their attorneys like some very expensive Ptolemaic orrery: And I know this is a heliocentric orrery-no one can build a Ptolemaic one nor a bankruptcy system that perfectly relieves debts while paying consumer attorneys their true worth either. As grappled with in multiple other forums and venues,  including the ABI Consumer Bankruptcy Report, court decisions regarding "bifurcated"  fee arrangements and Attorney Fee Only Chapter 13 cases,  the suggestion that attorney fees for Chapter 7 be allowed to be paid after the filing of the bankruptcy,  is a hollow solution.  Merely making the attorney's fees non-dischargeable does not mean those fees will be paid,  particularly as consumer bankruptcy attorneys would be loath to risk bar complaints and the even worse negative Google reviews,  by taking any action, let alone filing suit and seeking garnishment,  for those fees.  Nondischargeable does not mean paid.  With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document consumer_default_after_the_2005_bankruptcy_reform.pdf (572.28 KB) Category Law Reviews & Studies

Law Review: Foohey, Pamela and Lawless, Robert M. and Thorne, Deborah- Debt on the Ground: The Scholarly Discourse of Bankruptcy and Financial Precarity (May 09, 2024). Annual Review of Law and Social Science Ed Boltz Sat, 09/28/2024 - 18:39 Available at: https://ssrn.com/abstract=4891322 Summary: A rich literature uses law and social science methods to better understand household financial distress and overindebtedness both inside and outside of bankruptcy. This scholarship contributes to several ongoing scholarly conversations, such as those on income and wealth disparities across race and class, how people live in circumstances of financial precarity, why people turn to the legal system to solve their problems, and how to improve access to justice so people can get the help they need. We first review the current literature about who files bankruptcy, the contributors to people's need to file bankruptcy, what happens to them in bankruptcy court, and what happens after their bankruptcy cases conclude. We then outline a research agenda of "low-hanging fruit" that will contribute to broader sociological and socio legal research agendas, including economic mobility, aging, gender studies, health studies, family studies, social psychology, and policy work. Commentary: This article contains a good compilation  of other studies (but would benefit from an Table of Contents or some other structure to make finding particular details easier),  but is overtly  a challenge for other to do research in bankruptcy on other topics, including: Mobility Studies Aging Studies  Gender Studies  Family Studies  Health Studies  Social Psychology Studies  Access to Justice Studies  Policy Studies   Hopefully not only will more academics take up this gauntlet,  but that they will also not only look at the dry petitions available on PACER actually engage with debtors, debtors' attorneys,  trustees and other boots-on-the-ground  participants in the bankruptcy system,  both in conducting and understanding their topics but also in constructively helping those stakeholders  provide more  meaningful representation and assistance to those in financial distress.  That's harder and  isn't something often valued by tenure committees,  so it's perhaps unlikely. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document debt_on_the_ground_the_scholarly_discourse_of_bankruptcy_and_financial_precarity.pdf (277.29 KB) Category Law Reviews & Studies

Bankr. E.D.N.C.: In re Bowen- Illegal Bankruptcy Petition Preparer Ed Boltz Fri, 09/27/2024 - 19:04 Summary: In an action brought by the Bankruptcy Administrator,  the bankruptcy court sanctioned Informational Services Group, Inc. (ISG), TNT Rapid Refund, LLC (TNT), and Berdina and Talia Wright for illegal bankruptcy petition preparation and debt relief services provided to James Davis Bowen, Jr. The court found that the Wrights filed a bankruptcy petition on Bowen's behalf without his consent, failed to inform him of necessary filings, and did not comply with various legal requirements for petition preparers and debt relief agencies. The Respondents misled Bowen into thinking they would help with his mortgage delinquency but instead filed an unauthorized bankruptcy petition, causing further financial harm. The court imposed several penalties on the Wrights and their business entities: Fines of $15,000 for violating bankruptcy code requirements. Ordered them to return $1,720 in fees and pay $10,434.30 in sanctions to Bowen for actual damages and additional penalties. A $10,000 civil penalty for violations of debt relief agency laws. A permanent injunction preventing them from preparing petitions or providing debt relief services in the district. As noted by Judge Warren,  this is far from the first time the Wrights have been sanctioned for this.  See In re Farrow, No. 19-04431-5-JNC, ECF 94 (Bankr. E.D.N.C. Nov. 16, 2020); Gargula v. Wright (In re Alexander), No. 20-04002-JTL, ECF 18 (Bankr. M.D. Ga. Apr. 9, 2020); Gargula v. Wright (In re Mills), No. 17-01025-SDB, ECF 123 (Bankr. S.D. Ga. May 14, 2019); McDermott v. Wright (In re Mahone), No. 18-04016-JTL, ECF 8, 9 (Bankr. M.D. Ga. Nov. 5, 2018). (All attached.) Commentary: This matter is scheduled for a Show Cause Hearing  next week on September 30th,  as the Wrights do not seem to have paid the sanctions awards (totalling $37,154.30), so further updates may follow. And  for the convenience of any members of the North Carolina bar that happen to read this,  since we all may now have an obligation to report the Wrights to the North Carolina State Bar for investigation and potential criminal prosecution for the unauthorized practice of law,  I've attached a copy of the NC State Bar Authorized Practice Complaint Form that you  can submit to thale@ncbar.gov with the Wright's addresses already included.  This is a Class 1 misdemeanor pursuant to N.C.G.S. § 84‑8 and give the continued actions by the Wrights,  both in North Carolina,  Georgia and, one might guess,  elsewhere,  perhaps prosecution is long past due.   With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_bowen.pdf (386.11 KB) Document wright_berdina_talia_upl_complaint_form.pdf (335.57 KB) Document mcdermott_v._wright_in_re_mahone_compressed.pdf (232.9 KB) Document gargula_v._wright_in_re_mills.pdf (406.58 KB) Document in_re_farrow.pdf (66.24 KB) Category Eastern District

Bankr. E.D.N.C.: In re Dupree Farms- Administrative Exhaustion Ed Boltz Thu, 09/26/2024 - 17:37 Summary: The decision centers on a dispute over a crop insurance policy, with Dupree Farms alleging that ProAg misrepresented insurance coverage, leading to reduced payouts. Dupree Farms sought damages for negligent misrepresentation, intentional misrepresentation, and other claims. The court found that federal crop insurance regulations preempted state law claims, and Dupree Farms had not obtained the necessary determination of non-compliance from the Federal Crop Insurance Corporation (FCIC), which is a prerequisite for seeking extra-contractual damages. The FCIC had issued a "No Authority Finding," meaning it could not issue such a determination under the policy in question. As Dupree Farms had not met this requirement, the court granted ProAg’s motion for summary judgment, dismissing Dupree Farms' claims.  Commentary: This seems to  be in the same vein as many other cases which require some form of administrative exhaustion  before seeking judicial review,  including in consumer litigation,  see Brown v. Western Sky regarding Tribal Exhaustion, or bankruptcy. Following the Loper Bright decision by the SCOTUS overturning the Chevron deference,   a closer look at whether the regulations,  such as in this case at 7 C.F.R. Part 400 Subpart P,  creating an obligation to first proceed through "administrative exhaustion"  comply with actual statutory grants. For more regarding this case,  see also Bankr. E.D.N.C: Dupree Farms v. Producers Ag- Jurisdiction for Post-Confirmation Disputes With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document dupree_farms_v_._producers_agriculture_insurance.pdf (324.62 KB) Category Eastern District

Law Review: Argyle, Bronson, Indarte, Sasha, Iverson, Benjamin and Palmer Christopher- Explaining Racial Disparities in Personal Bankruptcy Outcomes Ed Boltz Mon, 09/23/2024 - 18:37 Available at:  http://web.mit.edu/cjpalmer/www/AIIP-Bankruptcy-Bias.pdf Abstract: We document substantial racial disparities in consumer bankruptcy outcomes and investigate  the role of racial bias in contributing to these disparities. Using data on the near universe of US bankruptcy cases and deep-learning imputed measures of race, we show that Black filers are 16 and 3 percentage points (pp) more likely to have their bankruptcy cases dismissed without any debt relief in Chapters 13 and 7, respectively. We uncover strong evidence of racial homophily in Chapter 13: Black filers are 7 pp more likely to be dismissed when randomly assigned to a White bankruptcy trustee. To interpret our findings, we develop a general decision model and new identification results relating homophily to bias. Our homophily approach is particularly useful in settings where traditional outcomes tests for bias are not feasible because the decision-maker’s objective is not well defined or the decision-relevant outcome is unobserved. Using this framework and our homophily estimate, we conclude that at least 37% of the 16 pp dismissal gap is due to either taste-based or inaccurate statistical racial discrimination. Commentary: To start with,  it is necessary  to bear in mind that these findings do not assert that bankruptcy judges or Chapter 13 Trustees are systematically and overtly racist, but subject to the same implicit biases, racial and otherwise, as the rest of us humans.   The authors instead identify at least three possible implicit and often subconscious bases for these statistical gaps: Taste-based Racial Bias:  This can arise if the race of the filer alters the utility she receives when a particular outcome is realized,  e.g., a trustee dislikes fraud more when committed by a Black filer).  Inaccurate  Statistical Discrimination: This can result in dismissals if decision makers have inaccurate beliefs about how a filer’s race predicts the outcomes they care about.  Accurate Statistical Discrimination: Here, while a filer's race may accurately predict differential likelihoods of outcomes, decision makers value any statistical discrimination remains potentially problematic given that the non-race characteristics used in statistical discrimination models are themselves often the product of historical discrimination. This is a long need supplement to the earlier finding by  Jean Braucher, Dov Cohen, and Robert M Lawless in “Race, attorney influence, and bankruptcy chapter choice,” Journal of Empirical Legal Studies, 2012, 9 (3), 393–429,  which found that the the implicit racial biases of consumer debtor attorneys influence the chapter choices made by debtors, with a key difference being that  this paper "focus[es] on documenting disparities after an individual has entered bankruptcy while holding constant all filer characteristics that existed at the time of the bankruptcy filing."   As such, the racial differences found "arise mostly due to the bankruptcy system itself rather than choices that consumers make prior to filing."  These differences can include, for example,  White trustees exercising their discretion in part by allowing lower expenses by Black filers, leading to requiring higher required payments to creditors. It is,  however,  worth noting that the authors, in assessing when any implicit racial biases might come into play in a Chapter 13 case,  do inaccurately assert that Chapter 13 cases "require a confirmation hearing to approve the Chapter 13 plan",  when, in fact the vast majority of Chapter 13 cases are confirmed without an actual hearing,  especially one where the debtor appears personally before the bankruptcy judge.  Additionally,  the article assumes that it is  the Means Test  or structural barriers that deter debtors from filing Chapter 7 instead of Chapter 13,  when in most cases Chapter 13 cases are filed either to cure delinquencies on home and vehicle loans (which cannot easily be done in Chapter 7) or because property exemptions are insufficient.  Repeating my regular refrain,  the academic authors of this article would certainly have benefited from direct engagement with the various boots on the ground actors in the bankruptcy system. Also, as always with my posts regarding math-heavy law review articles such as this,  I plead complete ignorance regarding the statistical analyses,  especially as in this article,  deep-learning AI was extensively used to both identify the race of debtors, judges and trustees,  but also to evaluate outcome.  I leave to others more competent to parse and dissect that most important aspect of this research. Ultimately,  while the authors do conclude with several policy recommendations,  including increasing diversity in among trustees and judges and collecting more direct and clear debtor demographics (a long sought dream in the Ivory Tower) to better diagnose disparities of all types,  the vital first real step would be the recognition by those trustees and judges that they are not immune to implicit biases and must confront and struggle against these, just as we all must.   With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document explaining_racial_disparities_in_personal_bankruptcy_outcomes.pdf (729.98 KB) Document explaining_racial_disparities_in_personal_bankruptcy_outcomes_presentation_to_cfpb.pdf (193.09 KB)

E.D.N.C.: Conway v. Palczuk- Law of the Case Doctrine Ed Boltz Mon, 09/23/2024 - 18:34 Summary: The District Court affirmed a bankruptcy court's judgment, which held that the Conways, through their lawsuit, violated the discharge injunction protecting John and Karen Palczuk after their Chapter 11 bankruptcy discharge. The Palczuks had filed for Chapter 11 bankruptcy in 2011 and were discharged in 2012. The Conways did not participate in the bankruptcy process, but in 2018, they sued the Palczuks in state court regarding a failed business venture that predated the bankruptcy, arguing the debt was nondischargeable under 11 U.S.C. § 523(a)(19), which pertains to securities law violations. The bankruptcy court ruled that the Conways’ lawsuit violated the discharge injunction, which protects the debtor from post-discharge collection actions. The Conways appealed, claiming that their claims were not discharged under § 523(a)(19). The District Court, however, held that the “law of the case” doctrine,  which provides that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case.  As applicable  in this case, meant that the bankruptcy court had already ruled on the dischargeability issue in a prior 2022 decision.  The district court rejected the Conways' arguments that the 2002 decision was clearly erroneous  as it may decline to follow the law of the case only where:  A subsequent trial produces substantially different evidence; A controlling authority has since made a contrary decision of law applicable to the issue; or  The prior decision was clearly erroneous and would work a manifest injustice.  As the Conways violated the discharge injunction by asserting a securities violation,  not a §523(a)(19) claim,  the 2022 decision was not clearly erroneous and the bankruptcy court's sanctions award against the Conways for violating the discharge injunction was affirmed Commentary: Whether this law of the case analysis would help or hurt in appeals pending in the wake of Trantham v. Tate  regarding non-standard provisions that contradict local rules may be addressed in cases currently pending at the Fourth Circuit. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document conway_v._palczuk.pdf (182.74 KB) Category Eastern District

Law Review: Langston, Nicole, Welfare Debt (June 27, 2024). Forthcoming, 113 California Law Review (2025), Vanderbilt Law Research Paper No. 24-30 Ed Boltz Mon, 09/23/2024 - 16:54 Available at:  https://ssrn.com/abstract=4878756  Summary: Past-due child support debt cannot be forgiven, or discharged, in bankruptcy. This policy is grounded in the assumption that all child support debt goes to a parent taking care of a child. However, billions of dollars of unpaid child support debt are not owed to the parent, but instead to the government. The government is owed this debt through a welfare cost recovery system which requires custodial parents that file for welfare benefits to pursue child support from noncustodial parents and assign those rights to the government. This debt, which I coin "welfare debt," oftentimes results in an increased interaction with the criminal justice system, including a cycle of incarceration and criminal fines and fees. The individuals that are stuck in this welfare debt-incarceration cycle follow recognizable racial and socioeconomic lines of vulnerability and marginalization. For the bankruptcy system to uphold its normative principle of forgiving burdensome debt for the most economically vulnerable individuals, welfare debt must be forgiven. Commentary: This article pairs with and continues the discussion of  more generally discharging government debt by Prof. Langston in Discharging Government Debt. Unmentioned,  however, in this article is that pursuant to 11 U.S.C. § 1322(a)(4), a Chapter 13 may provide that domestic support obligations (DSO) assigned to a government unit under 11 U.S.C.  §507(a)(1)(B),  while remaining priority and non-dischargeable claims,  need not be paid in full or at all during the 60-months of the case.  This falls well short of the author's argument for allowing the discharge of these assigned DSO claims held by government units on the same terms as taxes, but it does often allow a debtor, without harm to his or her children,  to defer repayment of these amounts to the government for as long as five years, which may afford time to both resolve the other debts (usually secured claims for mortgage arrearages or delinquencies on  vehicle loans) and hopefully see an increase in the debtor's income. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document welfare_debt.pdf (730.29 KB) Category Law Reviews & Studies