Law Review Note: Cody Turner, Non-Uniformity is the New Uniformity: Inconsistent Quarterly Fees and Why the Bankruptcy Administrator System Must Go, 40 Emory Bankr. Dev. J. 253 (2024). Ed Boltz Mon, 07/15/2024 - 19:46 Available at: https://scholarlycommons.law.emory.edu/ebdj/vol40/iss2/3 Abstract: The Bankruptcy Clause’s call for uniformity is one of the more mysterious and unstudied constitutional constraints on bankruptcy, yet it is an ever-present policy consideration. It is a flexible guidepost that functions as a minor constraint on bankruptcy law. However, courts have recently allowed this guidepost to bend too much. When the courts upheld a split bankruptcy administration system as constitutionally uniform, it set the stage for needless, avoidable litigation. The most recent examples of such needless litigation are the Supreme Court cases of Siegel v. Fitzgerald and Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC. This Comment analyzes the Bankruptcy Uniformity Clause’s history, the need for its enactment, and its evolution. It also analyzes the circuit split leading to Siegel and John Q. Hammons and the motivations behind the Siegel decision. Next, this Comment examines remedies in post-Siegel cases, and where the future of Bankruptcy Uniformity Clause jurisprudence may be headed. Finally, this Comment argues that the existence of a dual-scheme United States Trustee and Bankruptcy Administrator system is unconstitutional. This Comment proposes that Alabama and North Carolina join the other forty-eight states in the U.S. Trustee system to avoid pointless litigation like Siegel and John Q. Hammons. Commentary: Being published shortly before the Supreme Court decision in UST v. John Q. Hammons, this law review note does not have the benefit seeing that it has become increasingly clear that while the Justices do seem to appreciate having a bankruptcy case or two on their docket every term, since it gives them the opportunity for collegial statutory analysis on a topic over which few outside the bankruptcy bar will get incensed, whatever appetite SCOTUS has for tackling constitutional issues related to bankruptcy have largely been sated. The recommendation by this note that to cure any nonuniformity between the two parallel systems would be to eliminate the Bankruptcy Administrators in favor of the U.S. Trustee program, however, seem largely based on the fact that geographically one exists in 48 state (not counting territories) and the other exists in only 2. That discrepancy has over the last forty years become a reality, so the allowance of geographical non-uniformity by Supreme Court precedent could be an ex post facto basis for the continuation of the dual systems. The note, which by its nature is not conducive to extended research, also does not delve into the actual "on the ground" differences between the U.S. Trustee and Bankruptcy Administrator systems or even speak with stakeholders and interested parties regarding this issue. Those issues include the greater susceptibility of the UST program to the shifting political winds, the conflicts that can arise in BA districts due to judicial oversight of Chapter 13 Trustees, or the discrepancy in resources between the B As and the Department of Justice, which can be most apparent in large Chapter 11 cases. Also unconsidered is the remaining issue of whether either the US Trustee, being part of the executive branch, or the Bankruptcy Administrators, being part of the judicial branch, are constitutional or impinge on the separation of powers. Perhaps this topic merits further research. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document non-uniformity_is_the_new_uniformity_inconsistent_quarterly_fees_and_why_the_bankruptcy_administrator_system_must_go.pdf (884.69 KB) Category Law Reviews & Studies
Book Review: Jacoby, Melissa- Unjust Debts: How Our Bankruptcy System Makes America More Unequal Ed Boltz Mon, 07/15/2024 - 19:42 Available at Amazon: Unjust Debts: How Our Bankruptcy System Makes America More Unequal But purchasing from your local bookstore is certainly better. The first person to ask, will get my copy to read and then pass forward. Summary From the inside cover: Bankruptcy is the busiest federal court in America. In theory, bankruptcy in America exists to cancel or restructure debts for people and companies that have way too many—a safety valve designed to provide a mechanism for restarting lives and businesses when things go wrong financially. In this brilliant and paradigm-shifting book, legal scholar Melissa B. Jacoby shows how bankruptcy has also become an escape hatch for powerful individuals, corporations, and governments, contributing in unseen and poorly understood ways to race, gender, and class inequality in America. When cities go bankrupt, for example, police unions enjoy added leverage while police brutality victims are denied a seat at the negotiating table; the system is more forgiving of civil rights abuses than of the parking tickets disproportionately distributed in African American neighborhoods. Across a broad range of crucial issues, Unjust Debts reveals the hidden mechanisms by which bankruptcy impacts everything from sexual harassment to health care, police violence to employment discrimination, and the opioid crisis to gun violence. In the tradition of Matthew Desmond’s groundbreaking Evicted, Unjust Debts is a riveting and original work of accessible scholarship with huge implications for ordinary people and will set the terms of debate for this vital subject. Table of Contents: Bankruptcy for Real People Race Disparities in Bankruptcy for Real People Bankruptcy for Fake People Civil Rights in a Bankrupt City My Money, My Rules From Overindebtedness to Liability Management Beyond the Victory Lap Commentary: From the perspective of the consumer debtor's bar, the overwhelming benefits that Chapter 11 debtors receive compared to Chapter 13 debtors. These include the "front-loaded" discharge at confirmation, the absence of a trustee, third-party releases (contrast the Sacklers and their modest contributions to the plan with the requirement in Chapter 13 that co-signed debts require payment in full to grant just a stay and not a discharge), longer periods over which to pay secured and priority debts, binding creditors with misleading voting, the broad deference given to "non-standard" plan provisions, etc. (Many of these Chapter11 benefits would be available to consumers through the Chapter 10 envisioned in Sen. Elizabeth Warren's Consumer Bankruptcy Reform Act.) But Chapter 11 is available to individuals as well... The main reason that individuals don't file Chapter 11 cases is the expense, the lack of expertise in the consumer debtor's bar, and that regular Chapter 11 attorneys don't want to deal with the unwashed masses. (Otherwise you might see them handle a pro bono SLAP every now and then.) So what if, in addition to excellent public-facing scholarship such as this, law school professors also helped teach law students and practicing attorneys how to file simple "pre-packaged" or "cookie cutter" Chapter 11 cases for everyday people? Dumb it down, give consumer form pleadings, Best Case for Chapter 11 and call it "Chapter 24" (11+13), so that can churn these out, even if we're not $2500/hr Tall Building Lawyers. Not only would real people start to get the same advantages that fake people (i.e. corporations) have long taken advantage of in Chapter 11, but the courts and Congress might, under a sudden groaning burden of regular folks sloppily filing disclosure statements and appearing on first day orders, start to consider rebalancing the bankruptcy system. (Not to mention the terror-filled response that the consumer financial services industry would have.) Heck, for less than $10 consumers could get a Post Office Box in Wilmington, Delaware and take advantage of that court's vaunted bankruptcy expertise. Other reviews and interviews: Publisher's Weekly: Fake People, Real Obligations: PW Talks with Melissa B. Jacoby Kirkus Reviews: Unjust Debts- An impassioned plea for confining bankruptcy to its core purpose of resolving just debts justly. Blog comments Category Book Reviews
4th Cir.: U.S. ex rel Oberg v. Nelnet- Improperly Sealed Pleadings violate the First Amendment Ed Boltz Mon, 07/15/2024 - 18:30 Summary: Jon Oberg filed a False Claims Act lawsuit in 2007 against various student-loan companies, alleging they submitted false claims to the Department of Education. The companies moved to file summary judgment materials under seal, which was temporarily granted. The case eventually settled, and the sealed documents were not revisited. In 2023, Michael Camoin, a documentary filmmaker, later requested access to these sealed documents, claiming a right to access under the First Amendment, but the magistrate judge denied Mr. Camoin’s request, concluding that the documents did not play an adjudicative role since the case settled before summary judgment was decided. On appeal, the Fourth Circuit held that the First Amendment right of access applies to documents filed in connection with summary judgment motions, regardless of whether the court ruled on the motions. This right of access attaches upon the filing of the documents and is intended to ensure transparency and public understanding of judicial proceedings. Commentary: Oh, no! Now the release of these documents might suddenly make the public think badly of Nelnet and other student loan servicers. This also implicates the sealing of documents in bankruptcy cases, including for example the special proceeding(s) related to BB&T/Truist ( see MDNC case number in 23-mp-00401), which was sealed in 2023 and remains so, despite assurances that such documents would be unsealed before the end of that year. All too often it seems that the temporary nature of such protection is forgotten and misdeeds are permanently hidden from public view. See also Legal Newsline v. Garlock Sealing Technology, where the district court, after castigating both itself and the bankruptcy court, set out standards for taking the extraordinary measure for maintaining documents under seal. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document us_ex_rel_oberg_v_nelnet.pdf (205.87 KB) Category 4th Circuit Court of Appeals
Bankr. E.D.N.C.: In re Wireless Solutions & E.D.N.C.: Gross v. Smartsky Networks- The Automatic Stay Continues to Protect Abandoned Property Ed Boltz Mon, 07/15/2024 - 18:23 Summary: These decisions have proceeded in parallel matters, first the bankruptcy case of Wireless Solutions and then the lawsuit brought in federal district court individually by Mr. and Mrs. Gross, the owners of Wireless Solutions, against Smartsky Networks. In the bankruptcy case, Smartsky sought a finding of contempt and an award of sanctions against Mr. and Mrs. Gross for bringing suit in federal court against it as individuals, when such causes of action belonged to the bankruptcy estate of Wireless Solutions. Mr. and Mrs. Gross, however, contend that they control the potential claims following the abandonment of those by the Chapter 7 Trustee (which returned those claims to Wireless Solutions) and their assignment by Wireless Solutions to Mr. and Mrs. Gross. Smartsky countered that the abandonment excluded the intellectual property of Wireless Solutions, to which these claims were inseparably tied. The bankruptcy court agreed that the claims were related to the Intellectual Property of WSS, which was specifically excluded from the abandonment by the Trustee., and that the Grosses had failed to demonstrate a valid transfer of these claims under state law, making the purported transfer document invalid. Even had the abandonment and transfer been complete and utter, the court held that Wireless Solutions as the debtor held interests that continued to be subject to the automatic stay, preventing the Grosses from asserting them without obtaining relief from the stay. Accordingly, the court ordered the Grosses to cease pursuing any claims in the District Court Action that belong to WSS or involve its Intellectual Property, but declined to hold them in contempt or impose monetary sanctions, as there had been was a "fair ground of doubt" about the wrongfulness of their conduct and no clear evidence of harm to SmartSky directly related to this bankruptcy case. In the parallel appeal, after SmartSky Networks, LLC successfully obtained a judgment declaring a $2.5 million arbitration award against Mr. Gross to be non-dischargeable as a willful and malicious injury. Mr. Gross then filed a motion for a new trial based on new evidence, which the bankruptcy court denied and he appealed, arguing that new evidence warranted a new trial. The district court reviewed the bankruptcy court’s order under the standards of Rule 59, which allows for a new trial in cases of newly discovered evidence, an intervening change in law, or to correct clear error or prevent manifest injustice, but found that Mr. Gross did not present new evidence in his initial motion to the bankruptcy court, rendering the motion deficient. Commentary: It is worth noting that the "willful and malicious injury" that was declared non-dischargeable against Mr. Gross in Chapter 7 pursuant to 11 U.S.C. . § 523(a) (6) would, since it appears to have been for willful and malicious injury to the (intellectual) property of a corporation. Had Mr. Gross instead filed Chapter 13 (back when he might have squeaked in under the now expired debt limit), under 11 U.S.C. § 1328(a)(4) that obligation would have been dischargeable, both because he caused a property injury and not personal injury, but also because only injuries to individuals and NOT corporations are nondischargeable in Chapter 13. Perhaps this is one of the rare unicorn examples of the Bankruptcy Code treating real people better than fake people. (Since I have been disabused of my success in spotting such a fantastical beast several times now by the author of that distinction, I will wait for her opinion before being too confident.) As can occasionally happen in bankruptcy cases, witness the Hamilton v. Lanning case years ago, the regular positions of parties in bankruptcy cases can be reversed from what would normally be expected. Here a creditor was seeking enforcement of the automatic stay, not the debtor, but such decisions, while helpful for the Smartsky in this particular case, can have unintended consequences for creditors in other cases. This decision shows that while abandonment terminates the automatic stay as to property of the estate, it is not, pursuant to 11 U.S.C. 362(c)(2), actually terminated as to the property of the debtor until the earliest of the closure, dismissal or denial of discharge. This also leads to the question of whether consumer debtors, seeking to bring cause of action against creditors or even personal injury, divorce or other legal actions, are required to file a Motion for Relief from Stay in their own bankruptcy case before proceeding. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document gross_v_smartsky.pdf (439.63 KB) Document in_re_wireless_systems_solutions.pdf (280.35 KB) Category Eastern District
Law Review N Ote: John Ellison, Disillusionment of Discharge: The FRESH START Through Bankruptcy Act, 40 Emory Bankr. Dev. J. 291 (2024). Ed Boltz Mon, 07/15/2024 - 18:20 Available at: https://scholarlycommons.law.emory.edu/ebdj/vol40/iss2/4/ Abstract: Although its roots precede the twenty-first century, the student loan debt “issue” in America has evolved in recent years into a full-blown “crisis.” Recently surpassing credit cards and auto loans, student loan debt is the second-largest type of consumer debt in the United States, behind only mortgage debt. Prior to the Higher Education Amendments of 1976, bankruptcy provided an avenue through which student loan debt could be discharged. A series of legislative amendments, however, led to the imposition of 11 U.S.C. § 523(a)(8), which bars the discharge of student loan debt absent a showing of “undue hardship.” Courts have constructed the “undue hardship” standard into a major hurdle for student debtors seeking a fresh start through bankruptcy. For most courts, demonstrating “undue hardship” requires a debtor to satisfy three prongs of a strict elements test. Referred to by some in the judiciary as the “certainty of hopelessness” standard, the test has come under scrutiny in the legal community. Many, including federal judges, the American Bar Association, and the American Bankruptcy Institute, have called for reform to better effectuate the relief sought by student loan debtors. This Comment posits that the proposed FRESH START Through Bankruptcy Act of 2021 is the most viable solution to the student loan crisis and would address it in two primary ways. First, it would eliminate the need for student loan borrowers to satisfy the “undue hardship” standard, and would make discharge attainable—provided the debtor has already been in repayment for at least ten years. Second, it would address the underlying issues of “credentialism” and increased tuition costs, at least in part, through a “clawback” provision aimed to increase institutional accountability. Commentary: This law review note provides a very thorough history of student loans and bankruptcy before discussing the FRESH START through Bankruptcy Act introduced first in 2021 by Senators Durbin (D-IL), Cornyn (R-TX) and Hawley (R-MO) and could serve as a primer and white paper for efforts supporting that bi-partisan legislation. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document disillusionment_of_discharge_the_fresh_start_through_bankruptcy_act.pdf (896.68 KB) Category Law Reviews & Studies
M.D.N.C.: Keller v. Experian- Reinvestigation by CRA under FCRA Ed Boltz Mon, 07/15/2024 - 18:14 Summary: Eric Keller initiated a lawsuit against Experian Information Solutions, Inc. ("Experian"), alleging willful and negligent violations of the Fair Credit Reporting Act (FCRA). The dispute arose after Keller financed a vehicle and later refinanced it through Truist Bank, which first sent duplicate payments to the original lienholder, and, after receiving a refund for one of those payments, mistakenly credited his account and released the lien and refused to accept further payments. Truist Bank reported the loan as paid off, but then reported him as delinquent when the error was discovered. Mr. Keller's attempts to correct his credit report, including by sending dispute letters through his attorney, were unsuccessful, leading to his filing a dispute with Experian. When that dispute also proved unavailing, Mr. Keller brought suit against Experian alleging that it failed to conduct a reinvestigation ( or that any reinvestigation was unreasonable) and that it reported information it could not verify under the FCRA. The district court found that under its Suspicious Mail Policy (SMP), Experian may terminate a reinvestigation if a dispute letter appears to come from a third party. In assessing the sufficiency of the complaint, the district court held, however, that Mr. Keller's factual allegations, including sending a dispute letter authorized by him but through his attorney, support a reasonable inference that Experian's policy could lead to failure to comply with the FCRA. As to the allegations that it had conducted an unreasonable Reinvestigation and reported unverifiable information, the district court dismissed those causes of action, holding that FCRA only required Experian to conduct reasonable investigations regarding factual disputes. Because the Fourth Circuit "has articulated its 'concern' about collateral attacks" against the underlying debt, see Saunders v. Branch Banking & Tr. Co. off Va., 526 F.3d 142 (4th Cir. 2008), the district court dismissed these causes of action as a legal and not factual dispute. See also, Perry. v. Toyota Motor Credit Corp., where the district court in the Western District of Virginia held that inaccurate credit reporting of a debt discharged in bankruptcy failed to state a claim under FCRA. Still pending is Experian's motion for judgment on the pleadings, as it argues that with the dismissal of the latter two causes of action, the first cannot survive. Commentary: It also seems surprising in this case that Mr. Keller had completely separate and apparently unrelated attorneys than in his parallel case filed against Truist Bank and Equifax, even though both were filed the same day. Following a successful mediation, however, Truist, Equifax and Mr. Keller appears to have resolved their disputes, with the case being dismissed after payment by Truist and/or Equifax of an undisclosed amount. What is not surprising is that Experian seems to be primarily interested in either minimizing its own obligations (including and probably especially ignoring disputes filed through the assistance of an attorney) regarding reinvestigations or not questioning creditors, rather than providing truly accurate credit reports, let alone providing any protection to consumers. Perhaps this is why the federal government has found that one in five people have an error on at least one of their credit reports. This may also be why it makes sense to bring FCRA suits first against the creditor for providing inaccurate information and then only then (and with caution) against the CRA. It should be noted that Perry v. Toyota Motor Credit Corp. involved the rather complicated and arcane bankruptcy question of whether the assumption of a lease in a bankruptcy case also reestablished personal liability for that debt without a separate reaffirmation agreement. (There Perry would have likely benefited from first seeking a clarifying order of judgment from the bankruptcy court and then including such in the FCRA dispute.) The question here of whether Truist accurately reported a delinquency, after its own mistakes led it to refuse to accept payments, certainly appears less complicated and completely factual. Also not surprising is that , while courts and Congress overwhelmingly prefer that most disputes be handled through the less judicial avenue of arbitration rather than lawsuits, the non-judicial mechanism for resolving credit report errors under the FCRA is so disfavored that only the most patently factual disputes are covered, leaving consumers with the slower and more expensive course of first seeking judicial findings of fact such that Experian and other recalcitrant credit reporting agencies must even perform the slightest of reinvestigations. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document keller_v._experian.pdf (215.02 KB) Document keller_v._truist_notice_of_settlement.pdf (131.93 KB) Document keller_v._truist_mediators_report.pdf (394.24 KB) Document keller_v._experian_memorandum_of_law_in_support_of_motion_for_judgment_on_the_pleadings.pdf (169.79 KB) Document keller_v._experian_plaintiffs_opposition_to_defendants_motion_for_judgment.pdf (263.56 KB) Category Middle District
Bankr. E.D.N.C: Dupree Farms v. Producers Ag- Jurisdiction for Post-Confirmation Disputes Ed Boltz Mon, 07/15/2024 - 18:08 Summary: Dupree Farms, LLC filed for Chapter 11 bankruptcy on January 16, 2018 and subsequently obtained a Whole-Farm Revenue Protection (WFRP) policy from ProAg in February 2018. After first initiating arbitration, which held in favor of ProAg, Dupree Farms then filed an adversary proceeding on November 11, 2019, asserting state law claims for negligent and intentional misrepresentation, unfair trade practices, and punitive damages, asserting both that the policy should cover losses at an "Expanded Operations Factor" of 1.35 (where ProAg calculated coverage at 1.17) and contending it was owed $1,226,720 not the $691,557 paid. ProAg argued the bankruptcy court lacked jurisdiction because the claims arose post-confirmation, with the court applying the six-factor test from [http://Avado Brands, Inc. v. Dupree et al, 358 B.R. 868, 878 (Bankr. N.D. Tex. 2006)]Avado Brands, Inc. v. Dupree et al, 358 B.R. 868, 878 (Bankr. N.D. Tex. 2006) to determine whether the claims had a "close nexus" to the bankruptcy case and plan, which is necessary for post-confirmation jurisdiction: when the claim at issue arose; what provisions in the confirmed plan exist for resolving disputes and whether there are provisions in the plan retaining jurisdiction for trying these suits; whether the plan has been substantially consummated; the nature of the parties involved; whether state law or bankruptcy law applies; and indices of forum shopping. The court denied ProAg's motion finding that the claims arose during the bankruptcy and were discussed during the plan confirmation process, indicating creditors relied on the potential recovery, the plan included provisions for resolving disputes and retained jurisdiction over relevant matters and had not been substantially consummated when the adversary proceeding was filed. Commentary: While perhaps more applicable for after discharge in a Chapter 13 case, which has little that is otherwise comparable to the "substantial consummation" milestone in Chapter 11, the bankruptcy plan in Chapter 13 should ideally include explicit retention of jurisdiction for any disputes that are likely to arise post-discharge, including for example mortgage litigation issues. (Which are at least partially preserved by 11 U.S.C. § 524(i).) With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document dupree_famrs_v_producers_agriculture_insurance.pdf (280 KB) Category Eastern District
W.D.N.C.: Biddle v. Grain Technology- Delinquent Credit Reporting due to Failure to Accept Payments by Creditor is an Impermissible Legal Dispute under FCRA Ed Boltz Mon, 07/15/2024 - 17:41 Summary: After Grain Technologies locked all of its borrowers from making payment through its app (or by any other means), it then began to report that Damon Biddle was delinquent on payments. After filing unsuccessful disputes showing that any delinquencies were due to the failure of Grain Technologies to accept payments, Mr. Biddle brought suit pursuant to FCRA against Grain Technologies and several credit reporting agencies. The magistrate court, in an opinion adopted by the district court, held that Mr. Biddles' dispute questioned the validity of the underlying debt and that such a "collateral attack" on the debt was an impermissible legal dispute and not a factual dispute as contemplated by FCRA. Commentary: It would seem that to the Big Brother credit reporting agencies, every dispute is a legal question under FCRA and not factual to such an extent that they would even contend that since 2+2 can equal 5, since, depending on the legal regime under which one lives (just like "War is Peace, Freedom is Slavery, Ignorance is Strength"), that could be true. To read a copy of the transcript, please see: Blog comments Attachment Document biddle_v._grain_technologies.pdf (140.88 KB) Category Western District
M.D.N.C.: Scott v. Full House Marketing- FCRA and Employment Decisions Ed Boltz Mon, 07/15/2024 - 17:37 Summary: Derrick Perez Scott was denied employment by Full House Marketing after it obtained a credit report which inaccurately included the criminal convictions of Derrick Lee Scott. Mr. Scott subsequently brought suit against Full House Marketing under the Fair Credit Reporting Act, asserting that it had failed to provide him with a copy of that credit report before declining to hire him. In a lengthy 57-page decision, full of detailed findings of fact and multiple evidentiary rulings, the district court, while FCRA requires that employers must provide a job applicant consumer with a copy of their consumer report and a description of their rights before taking adverse action based on that report, denied the competing motions for summary judgment brought by both Mr. Scott and Full House Marketing, finding that conflicting testimony left genuine issues of material fact for the jury. Commentary: The jury eventually reached a verdict (attached) finding that while the provider of the inaccurate credit report, Resolve Partners, L.L.C., had violated 15 U.S.C. §1681e(b) by failing to "follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates" and awarded Mr. Scott $2,500 in compensatory damages, it found that Full House Marketing had not violated 15 U.S.C. §1681b(b)(3)(A) by failing to provide a copy of the credit report. This case does also present the unfortunate circumstance of attorneys for opposing sides, all of whom have, at least until recently, been members of the consumer bar, alleging violations of Rule 11 and (unsuccessfully) seeking sanctions against their colleagues. Beyond any implications for this case for consumer rights, this case does serve as a warning for all employers (which most of us are) that use of credit reports, while perhaps valuable to evaluate potential employees, does under FCRA oblige employers to provide opportunities to review those reports before the employer makes adverse decisions. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document scott_v._full_house_marketing.pdf (276.03 KB) Document scott_v._full_house_marketing_jury_verdict.pdf (115.67 KB) Category Middle District
4th. Cir.: Feyijinmi v. Maryland- Nondischargeability of Restitution without Conviction Ed Boltz Mon, 07/15/2024 - 17:29 Summary: Dedre Feyijinmi was found guilty of welfare fraud and ordered to pay $14,487 in restitution. The state court deferred the entry of her conviction, placing her on probation. After completing her probation, her criminal records were expunged but her restitution obligation remained. Ms. Feyijinmi filed for Chapter 13 bankruptcy, and Maryland filed a proof of claim for the restitution debt, inaccurately labeling it as "court fees." Ms. Feyijinmi brought an Adversary Proceeding seeking a determination that this debt was discharged, but that was rejected by the bankruptcy and district courts. On appeal, the Fourth Circuit began its analysis with the interpretation of the term "conviction" under 11 U.S.C. § 1328(a)(3), relying on the Supreme Court's decision in Dickerson v. New Banner Institute, Inc., which held that a guilty plea followed by probation qualifies as a conviction, even when no formal judgment is entered. The court determined that Feyijinmi's probation before judgment, which required a guilty finding, constituted a conviction under federal law. The court concluded that "sentence" , as used in § 1328(a)(3), includes any penal consequences resulting from a determination of guilt, such as probation and restitution. Finally, the court rejected Ms. Feyijinmi's argument that the mischaracterization of the debt as "court fees" on the proof of claim affected its dischargeability. As restitution debts are nondischargeable without any action by the creditor and that the proof of claim and any characterization of the debt did not change its nature. The court also found no evidence of bad faith or unreasonable delay that could have prejudiced Feyijinmi. Commentary: In regards to the characterization by Maryland in its Proof of Claim, it should be noted that the Court of Appeals held "that to the extent that the proof of claim was ambiguous, it was cleared up by the attached restitution order" (Emphasis added) and a restitution order is nondischargeable without any action by the creditor. While this would likely mean that an adequately documented Proof of Claim that failed to accurately characterize a debt as child support would remain a priority, nondischargeable claim, but that a secured creditor that included no evidence of a lien and affirmatively stated that it held an unsecured claim might not find the same protection. See also: Rochelle's Daily Wire- Fourth Circuit Broadly Defines Restitutions that Aren’t Discharged in Chapter 13 NACBA filed an amicus brief in support of the Debtor/Appellant- In re Feyijinmi - NACB As Amicus Brief In Support of Appellant With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document feyijinmi_v_maryland.pdf (205.43 KB) Category 4th Circuit Court of Appeals