Mental illness can be a contributing factor to bankruptcy. Adrienne Woods, Esq.

While bankruptcy subject matter jurisdiction is broad, sometimes an order can just go too far as shown by the recent opinion from the U.S. District Court for the Eastern District of Virginia in Patterson v. Mahway Bergen  Retail Group, Inc., 2022 U.S. Dist. LEXIS 7431 (E.D. Va. 2022).The Three Types of JurisdictionBankruptcy practitioners can usually recite the three types of bankruptcy jurisdiction in their sleep: arising in, arising under and related to. Of these, related to is the broadest. In the Fifth Circuit, related to jurisdiction is present if the matter being addressed could have a conceivable effect on the debtor or the bankruptcy estate. Thus, if the debtor owned a store at the bottom of a hill and a property owner had allowed a boulder at the top of the hill to work precariously loose, an adversary proceeding to force the other property owner to secure the boulder would have a conceivable effect on the bankruptcy estate and related to jurisdiction would be present. Why is this? If the boulder rolled down the hill, it could smash the debtor's store. On a more mundane note, there is related to jurisdiction to collect accounts receivable owed to the debtor because collecting money would make it easier to reorganize.In the past, there were many arguments about whether bankruptcy courts had jurisdiction to grant third-party releases. The Supreme Court put this controversy to rest in United Student Aid Funds v. Espinosa, 559 U.S. 260 (2010). In that case, the Supreme Court drew a distinction between having statutory authority to take an action and having jurisdiction to do so. The Bankruptcy Code does not allow a court to grant a hardship discharge on a student loan without filing an adversary proceeding. However, there is clearly jurisdiction to do so because granting the discharge would have a conceivable effect on the debtor. What this means is that if a plan contains a provision which should not be approved, the parties have to challenge it directly as opposed to coming back years later and saying that there was no jurisdiction to approve the provision.A Broad ReleaseAs broad as bankruptcy court jurisdiction is, it is hard to find something that could conceivably come up in a bankruptcy case that would not have a conceivable effect on the debtor or the estate. However, the opinion in the Mahway Bergen case found just such a provision. The provision was included among the third-party releases in the plan. Under the plan, these releases were binding on anyone who either voted in favor of the plan or who voted against or abstained from voting but didn't object to the plan or affirmatively opt-out.  The release released any and all claims, known or unknown, related to the Debtors (including the management, ownership or operation thereof), the purchase, sale, or rescission of any Security of the Debtors or the Reorganized Debtors, the subject matter of, or the transactions or events giving rise to, any Claim or Interest that is treated in the Plan, the business or contractual arrangements between any Debtor and any Released Party, the Debtors' in- or out-of-court restructuring efforts, intercompany transactions, the ABL Credit Agreement, the Term Loan Credit Agreement, the Chapter 11 Cases, the Restructuring Support Agreement and related prepetition transactions, the Backstop Commitment Letter, the Disclosure Statement, the New Corporate Governance Documents, the Exit Facilities, the Plan (including, for the avoidance of doubt, providing any legal opinion requested by any Entity regarding any transaction, contract, instrument, document, or other agreement contemplated by the Plan or the reliance by any Released Party on the Plan or the Confirmation Order in lieu of such legal opinion), the filing of the Chapter 11 Cases, the pursuit of Confirmation, the pursuit of Consummation, the administration and implementation of the Plan, including the issuance or distribution of Securities pursuant to the Plan, or the distribution of property under the Plan or any other related agreement, or upon any other act, omission, transaction, agreement, event, or other occurrence (in each case, related to any of the foregoing) taking place on or before the Effective Date.In the District Court’s view, the Bankruptcy Court clearly lacked jurisdiction over some of the releases.Although the Court cannot determine precisely which Released Claims the Bankruptcy Court could have adjudicated, it takes only a cursory review of the Third-Party Releases and the Releasing Parties to find released claims that the Bankruptcy Court lacked the authority to adjudicate. The universe of released claims includes claims between non-debtors which may have no connection to the property of Mahwah's bankruptcy estate or the administration of the Bankruptcy Proceeding. For example, the Third-Party Release would bar securities claims, such as those brought by the Securities Plaintiffs, against former directors and officers of Mahwah, even if the claims arose before Mahwah filed for bankruptcy and those directors and officers had no involvement in the Bankruptcy Proceeding. And it bears noting that "federal courts disfavor indemnity for federal securities law violations, calling into question the enforceability of these obligations."(citation omitted). Thus, the only type of released claim that the Bankruptcy Court actually considered finds antipathy in the case law. 2022 Bankr. LEXIS at *46-47.What Does It Mean?This is a case of drafting that was too clever by half. The author threw in lots of specific things that were subject to the release and were clearly related to the plan process. However, the very first line released all claims related to "the Debtors (including the management, ownership or operation thereof)." Thus, if a forklift operator at one of the debtor's warehouses dropped a pallet on the foot of another employee of the debtor that would be a claim arising from the operation of the Debtors and hence subject to the release. Reading between the lines, the intent here may have been to cut off securities liability for the Debtor's officers and former officers. I suggest this because the release specifically included claims arising from "the purchase, sale, or rescission of any Security of the Debtors." Additionally, one of the appellants in the case was the putative class representative in a securities law class action. Elsewhere in the opinion, the District Court pointed out that the release officers and directors were getting more relief than they could have received in their own bankruptcy proceedings since securities fraud claims are non-dischargeable under 11 U.S.C. Sec. 523(a)(19). Ironically, there probably was jurisdiction to release these claims since the officers and directors might have had indemnity rights against the debtors or perhaps the debtors would have had to pay deductibles on D & O insurance. However, if the intent was to cut off the securities litigation, debtor's counsel used a nuclear bomb to swat a fly.The lesson from this opinion is that although bankruptcy jurisdiction is broad, it is not all-encompassing. Sometimes there will be grounds to object to subject matter jurisdiction.  On a related note, this is the second district court opinion in six months to find fault with third-party releases. The same thing happened in the Purdue Pharma case. This may be a case of District Judges diligently discharging their responsibility as first level appellate judges in bankruptcy cases. However, it might also signal that at least some Article III judges feel like the Article I bankruptcy judges are getting a little bit too big for their britches. Reading the language in this opinion and the Purdue Pharma opinion, there is a palpable sense that mega bankruptcy cases have become an anything goes free-for-all.  This is troubling because there have been two Supreme Court cases dealing with the power of the Article I courts: Marathon Pipeline and Stern v. Marshall. Each of these decisions brought chaos to the bankruptcy world. If Chief Justice Roberts is watching this issue, we may be in line for a third smackdown on the power of the bankruptcy courts.

After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness There’s very little bankruptcy law can do to help people with student loans. But as a bankruptcy lawyer, I can at least give people good advice.   Since 2017, I started steering people who seemed eligible to Public Service Student Loan Debt […] The post After Paying for Ten Years, Nina Got Public Service Student Loan Debt Forgiveness by Robert Weed appeared first on Northern VA Bankruptcy Lawyer Robert Weed.

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The no man’s land between the mortgage due date and late payment is a persistent trouble spot for Chapter 13 practitioners: Are there arrears when the case is filed during the grace period and the payment made before it was late? In Borre, Judge Ronald Sargis of ED CA said no. He held that the […] The post Between the 1st and the 15th: Is Mortgage Current? appeared first on Bankruptcy Mastery.

Although I enjoyed associating with the law firm Silverman/Thompson/Slutkin/White, it was time to return to Timonium- my clients did not want to go downtown anymore & they certainly did not want to pay for parking.  I always have tried to be accessible to clients- being available after regular business hours, having a 24 hour return phone call policy, meeting with clients on weekends as necessary.  Now I have free parking right in front of the building, covered parking for inclement weather and I am right off the expressway (I-83 North, Padonia Road exit).  Come see me & I will take you to lunch at Liberatore’s Restaurant downstairs!!The post I’M BACK IN TIMONIUM! HERE IS MY NEW ADDRESS- 9515 DEERECO RD, STE 407, TIMONIUM MD 21093 first appeared on Scholnick Law.

Law Review: Simmons, Joseph, Reconstructing the Bankruptcy Power: An Originalist Approach (October 31, 2021). 131 Yale L.J. 306 (2021) Ed Boltz Mon, 01/24/2022 - 03:23 Abstract: This Note responds to two distinct difficulties in the constitutional law of bankruptcy. First, many bankruptcy scholars and practitioners intuit that the Thirteenth Amendment places important limitations on the law of personal bankruptcy, but this intuition is difficult to cash out in a convincing legal argument. Second, modern bankruptcy law requires an expansive construction of the bankruptcy power, but such a construction is difficult to ground in the meaning of the Bankruptcy Clause in 1789. This Note resolves both difficulties by showing how the proper legal construction of the bankruptcy power changed during Reconstruction with the ratification of the Thirteenth Amendment in 1865. Before Reconstruction, the bankruptcy power was limited to the creation of collective-creditor remedies against merchants who committed acts of insolvency. The Thirteenth Amendment both granted Congress new powers to legislate against relations of economic domination, including relations between creditors and insolvent debtors, and altered the function that the bankruptcy power plays within the Constitution. These changes amounted to a reconstruction of the bankruptcy power, such that bankruptcy law now has as its primary purpose the provision of a “fresh start” to the honest unfortunate debtor. This argument helps ground the constitutionality of both voluntary bankruptcy and corporate bankruptcy, but its most important implications are for consumer bankruptcy law, particularly the status of the debtor’s fresh start and the grounds on which it can be denied. Commentary: An obvious missed opportunity would have been to include Abraham Lincoln's quote from the Gettysburg Address, which together with his Second Inaugural Address are foundational to the new understanding of the entire Constitution that followed his death in the Reconstruction Amendments, by noting that the bankruptcy clause as reconstructed by the 13th Amendment provided that debtors too would "have a new birth of freedom." The discussion in this article of how the term "uniform" in the Bankruptcy Clause relates to the parallel term in the naturalization powers granted to the federal government is very pertinent to the case of Siegel v. Fitzgerald, which is currently pending in the Supreme Court, and concerns whether the two systems of bankruptcy oversight, the Bankruptcy Administrators in North Carolina and Alabama and the U.S. Trustee Program in the rest of the country, are uniform. As discussed by James Madison in the Federalist No. 42, the uniformity in the naturalization power was meant to prevent the "very serious embarrassment" of states racing to the bottom in easing immigration. Similarly, the uniformity requirement in the bankruptcy clause should be seen as a tacit and tactful rebuke to the forum shopping between states in regards to debt relief. The uniformity was meant less to apply to federal choices regarding bankruptcy. Further, this article makes clear that advocates for student loan debt relief, rather than grounding their arguments on the Bankruptcy Clause, which was originally meant as a right creditors had to force debtors into bankruptcy, would be on firmer ground viewing the Bankruptcy Clause as reconstructed through the lens of the 13th Amendment prohibition on "involuntary servitude." Then the question becomes whether a student loan repayment scheme, such as an Income Driven Repayment plan, is so coercive that it becomes "involuntary servitude." That coercion becomes clear when the debtor is insolvent and cannot repay. While ID Rs do not generally consider a debtor's assets, the lack of both those and any ability to meaningfully repay the student loans could be seen as unconstitutional involuntary servitude. The article does in fact argue that the "undue hardship" standard for allowing discharge of student loans fails this and is "in a constitutional sense, not ... bankruptcy at all." For a copy of this article, please see: Reconstructing the Bankruptcy Power: An Originalist Approach Blog comments Category Law Reviews & Studies

Summary: The Trustee sought to avoid two transfers, in the total amount of $30,000, made by the Debtor from his wholly owned corporation to Michael Campbell. The only issue in the avoidance action was whether the Debtor received less than … Bankr. M.D.N.C.- Angell v. Tarlton Polk (In re Ewert)- Avoidable Transfers Read More » The post Bankr. M.D.N.C.- Angell v. Tarlton Polk (In re Ewert)- Avoidable Transfers appeared first on .

4th Circuit: Alexander v. Carrington Mortgage- "Collector" under Maryland Consumer Protection Laws Contrasted with "Debt Collector" under the FDCPA Ed Boltz Mon, 01/24/2022 - 00:15 Summary: In a suit brought against Carrington Mortgage Services, LLC, the borrowers alleged that Carrington violated the Maryland Consumer Debt Collection Act (MCDCA), which largely incorporates the Fair Debt Collection Practices Act (FDCPA), and the Maryland Consumer Protection Act (MCPA) by charging $5 convenience fees to borrowers who paid monthly mortgage bills online or by phone. The district court dismissed the case, but as the Fourth Circuit found Carrington to be a “collector” which under the pursuant to Md. Code Ann., Com. Law § 14-201(b) is defined as “a person collecting or attempting to collect an alleged debt arising out of a consumer transaction.” This contrasts with the definition of "debt collector" under the FDCPA at 15 U.S. Code § 1692a(6), which among other this includes the requirement that the debt be in default. That the Maryland legislature chose to incorporate the "substantive provisions" of the FDCPA found in sections 80 through 812, but not the definitions in section 803, thereby providing greater protections to Maryland consumers is a policy choice that Maryland or any other state is free to make. Accordingly, the $5 convenience fee, which was not permitted by law, violated Maryland law. Commentary: While North Carolina was not as explicit in its incorporation of the FDCPA in N.C.G.S. §75-50 et seq., its definition of a "debt collector" as "any person engaging, directly or indirectly, in debt collection from a consumer except those persons subject to the provisions of Article 70, Chapter 58 of the General Statutes" is similarly broad and encompasses original creditors, subsequent assignees, regardless of whether the debt is in default. It did not help Carrington Mortgage that Judge Wilkinson questioned how it made sense for Carrington Mortgage to process paper checks for free, when that cost it as much as $4, but charged $5 for online payments less that 50¢ . For a copy of the opinion, please see: Alexander-v.-Carrington-MortgageDownload Blog comments Category 4th Circuit Court of Appeals

Bankr. M.D.N.C.- Angell v. Tarlton Polk (In re Ewert)- Avoidable Transfers Ed Boltz Sun, 01/23/2022 - 23:45 Summary: The Trustee sought to avoid two transfers, in the total amount of $30,000, made by the Debtor from his wholly owned corporation to Michael Campbell. The only issue in the avoidance action was whether the Debtor received less than equivalent value for the transfers. The Trustee asserted these were gifts and the Debtor that they were loans. The Trustee brought a Motion for Summary Judgment. Michael Campbell presented ambiguous testimony, stating at one point in in his deposition that "No, he didn't loan me money. I worked for it." but then later "No gift, never a gift. I worked for it." Further evidence showed that the transfers were repaid through work Mr. Campbell performed for the Debtor. With "evidence that cuts in both directions", but viewing such in the light most favorable to the Debtor, the bankruptcy court denied the motion. Commentary: Michael Campbell as Walt Whitman- "Do I contradict myself? Very well then I contradict myself, (I am large, I contain multitudes.)" For a copy of the opinion, please see: Angell-v.-Tarlton-Polk-PLLC Download Blog comments Category North Carolina Bankruptcy Cases Middle District