Bankr. M.D.N.C.: Oral Ruling Summary – Napper v. Select Portfolio Servicing, Inc. - Denial of 12(b)(6) Motion to Dismiss related to Improper Dual Mortgage Records Ed Boltz Tue, 07/22/2025 - 18:12 Summary: In a thorough oral ruling from the bench (a Google transcription of which is attach- use with caution!), Judge Lena James denied Select Portfolio Servicing, Inc.’s (“SPS”) defense under Rule 12(b)(6), holding that plaintiff Bonita Napper plausibly alleged violations of Bankruptcy Rule 3002.1, the automatic stay under § 362, and the North Carolina Debt Collection Act. The ruling cleared the case to proceed into discovery. 1. Rule 3002.1(i) – Inaccurate Cure Response Judge James rejected SPS’s argument that Rule 3002.1(i) sanctions only apply when no response is filed. Even though SPS had filed a Response to Notice of Final Cure, it was inaccurate and incomplete. The judge emphasized that: “Filing a notice containing incorrect statements can be as damaging as failing to file such notice timely.” Citing Harlow, Ferrell, and other persuasive decisions, Judge James found an implicit requirement of accuracy and transparency in Rule 3002.1(g). She held that Napper plausibly alleged that SPS misrepresented the account’s status and omitted key payment details, triggering remedies under 3002.1(i) including fee-shifting and evidentiary preclusion. 2. § 362(a) Stay Violation – Misapplied Payments & Coercion The Court found the complaint stated a plausible claim for willful violation of the automatic stay. SPS allegedly misapplied plan payments, told the debtor she was behind when she wasn’t, and then used that misrepresentation to try to collect an additional payment. The judge cited Mann v. Chase Manhattan but distinguished it, noting this was no mere internal bookkeeping error: “The defendant acted to exercise improper control over estate property... and communicated the resulting inaccurate balance to the plaintiff.” Judge James further concluded that Napper had also plausibly pled a § 362(a)(6) violation. SPS allegedly told her it would not remove the bankruptcy designation from her mortgage account unless she signed a reaffirmation agreement — a tactic Judge James noted could be considered “sufficiently threatening or coercive” depending on the facts developed in discovery. 3. North Carolina Debt Collection Act Claim While filing a proof of claim alone is not “debt collection,” Judge James ruled that SPS’s direct postpetition communications demanding payment for a month already paid, along with its reaffirmation-related pressure, could support a claim under the NCDCA: “Such direct attempts can constitute an attempt to collect a debt sufficient to meet the required element for a claim under the NCDCA.” Judge James concluded that all claims were sufficiently pled to proceed. She acknowledged that the dollar value of damages might not be high but emphasized the legal sufficiency of the allegations — particularly the seriousness of misapplied payments, misrepresentations to the debtor and the Court, and improper coercive tactics following plan completion. Commentary:   Great work by Craig Shapiro and Wes Schollander!  Keep your fingers crossed for their continued success. In rejecting that defense, Judge James aligned squarely with a powerful recent decision out of her sister court in the Western District: In re Peach (W.D.N.C., March 2025, Judge Laura Beyer). There, Judge Beyer sanctioned Shellpoint Mortgage Servicing for precisely the same pattern of conduct: using vague mortgage statements, hidden fees, and noncompliance with Rule 3002.1 to sow confusion, extract charges, and preserve claims for future collection. As Judge Beyer made clear: “Shellpoint must file an FRBP 3002.1 notice... regardless of whether it intends to collect the fees during the case or at some point in the future. A contrary holding would frustrate the purpose of the rule and be a tremendous disservice to debtors.” — In re Peach, at ¶ 32 That sentiment echoes Judge James’s reasoning in Napper, where she held that an inaccurate or misleading response under Rule 3002.1(g) is not just procedurally insufficient—it strikes at the heart of the Chapter 13 system. Both judges correctly identify that Rule 3002.1 is a transparency tool, not a procedural technicality. With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document bench_ruling_mtd_12b6_denied_mortgage_servicing_violations_2020.05.22.pdf (28.07 KB) Document 2025-05-19_order_incorporating_bench_ruling.pdf (329.81 KB) Document napper_12b6.pdf (298.11 KB) Document napper_oppostion_to_12b6.pdf (769.34 KB) Category Middle District

Working Paper: Papich, Sarah- Do Employer Credit Check Bans Increase Default? (May 05, 2025) Ed Boltz Mon, 07/21/2025 - 19:47 Available at:   https://ssrn.com/abstract=5242161 Abstract Employers often perform credit checks on prospective employees. Twelve states have banned this practice with the goal of improving employment prospects for individuals with poor credit histories. An unintended consequence of these bans is that they reduce the incentive to repay debt. This paper provides the first causal evidence of how pre-employment credit check bans (PECC Bs) affect debt repayment. I find that PECC Bs increase the probability of bankruptcy by 0.9 percentage points on average, equivalent to a 17.6% increase from the mean. The probabilities of past-due accounts and collections are unaffected on average, but heterogeneity by credit score prior to treatment shows that these probabilities increase among all consumers except those with the lowest scores. These findings show that consumers are sensitive to changes in the penalty for default, especially when they are deciding whether to file bankruptcy. Commentary: Sarah Papich’s working paper makes the bold claim that pre-employment credit check bans (PECC Bs) lead to a 17.6% increase in bankruptcy filings. The suggestion is that by removing a potential employment penalty, these bans lower the "cost" of default—encouraging more strategic bankruptcy filings, particularly among consumers with mid- to high-range credit scores. But from a bankruptcy practitioner’s perspective, this analysis leaves out several crucial elements: 1. 11 U.S.C. § 525(b) Already Prohibits Certain Employment Discrimination: Papich’s premise is that PECC Bs uniquely shield job applicants from negative credit information—particularly bankruptcy—being used against them in hiring decisions. But this overlooks the fact that § 525(b) of the Bankruptcy Code already prohibits private employers from terminating or discriminating against an employee solely because they filed for bankruptcy. While the statute doesn’t extend to hiring decisions, its existence undermines the idea that bankruptcy is, across the board, a signal of “irresponsibility” to employers. Congress has already taken steps to prevent such stigma in the workplace—something the paper does not acknowledge. 2. Bankruptcy Is Not Taken Lightly: Characterizing post-PECCB bankruptcies as “strategic” also feels untethered from day-to-day consumer bankruptcy practice  and falls prey to flawed assumptions that debtors are merely  homo economicus,  making perfectly rational, self-interested decisions to consistently maximize their personal gain or utility. Most Chapter 7 and 13 filings arise from life events—job loss, illness, divorce—and a gut-wrenching decision,  not clever calculations about employment incentives. Even if some consumers become slightly more willing to file because the perceived consequences are less dire, that doesn’t make those filings frivolous. It might mean the system is working: consumers finally see a clearer path to both financial and occupational recovery. 3.  Bankruptcy Makes for Better Employees—Even the Military Thinks So Contrary to the stigma, employees who file bankruptcy often become more reliable workers. By shedding the stress and chaos of unmanageable debt—wage garnishments, creditor harassment, and financial stress—filers regain focus and stability. Bankruptcy offers the kind of clean slate that allows people to show up fully in their jobs. Even the Department of Defense recognizes this. Under the Uniform Code of Military Justice, unpaid debts can trigger discipline or loss of security clearance. But filing bankruptcy? That’s often seen as a responsible step toward financial recovery. In fact, DoD clearance adjudicators routinely favor bankruptcy over default.  If the military trusts bankruptcy filers with national security, civilian employers should too. 4.  Bankruptcy Attorneys Should Support PECC Bs Far from being a problem, PECC Bs help reduce the very employment stigma that keeps people trapped in cycles of debt. Consumer bankruptcy attorneys should welcome PECC Bs as public policy that aligns with the core promise of bankruptcy: the fresh start. Bankruptcy isn't just about discharging debt—it’s about restoring access to opportunity. When job applicants are excluded because of credit histories that often reflect structural hardship more than personal failure, it undermines the rehabilitative function of bankruptcy itself. Banning credit checks in hiring expands economic participation and reduces the shame and fear surrounding bankruptcy—making it a more effective tool, not a more reckless one. While this paper’s quantitative rigor is valuable,  its framing risks reinforcing the myth that consumer bankruptcy is driven by gamesmanship rather than necessity. More importantly, it fails to consider that PECC Bs complement, rather than conflict with, the Bankruptcy Code’s protective spirit. For those of us working with debtors every day, that’s not a flaw in the policy—it’s the whole point.   See the attached for States with Pre-Employment Credit Check Bans With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document do_employer_credit_check_bans_increase_default.pdf (3.63 MB) Document peccb_states_list.pdf (2.43 KB) Category Law Reviews & Studies

Filing for bankruptcy is not exactly a pleasant experience, but it may be necessary for those facing dire financial straits. For some, there may be very little time to file a bankruptcy case if creditors are threatening legal action or foreclosure is imminent. In such circumstances, you may file for emergency bankruptcy to start your case faster and get help sooner. If you do not complete your emergency bankruptcy case, your case may be dismissed. To make matters more complicated, you might not be able to refile the case for a while. There is usually a waiting period of several years, which may vary based on which chapter you file under. If the court believes that allowing you to refile would be an abuse of the system, it may bar you from refiling. Not only that, but if you do not complete the case, your financial situation might become dire. As such, get an attorney to help you file and complete your emergency bankruptcy case. For a free case evaluation, call our Pennsylvania bankruptcy lawyers with Young, Marr, Mallis & Associates at (215) 701-6519. What Happens if You Do Not Complete Emergency Bankruptcy Requirements When you file for emergency bankruptcy, you must file specific paperwork to start the case, and other required paperwork may be filed later. If you fail to take the steps to complete your emergency filing, the whole case may be dismissed. To make matters worse, you might be blocked from refiling right away, depending on the situation. Ordinarily, a person may file for bankruptcy more than once, but there are legally required waiting periods that often last several years. If you fail to complete your emergency bankruptcy case, it might be quite some time before you can file it again. It is also possible that the court will block you from filing again because it believes you are abusing the system. In that case, our Pennsylvania bankruptcy attorneys might have to prove to the court that your emergency is genuine and that your failure to complete the case is due to circumstances beyond your control. What is Emergency Bankruptcy? An emergency bankruptcy starts much faster than a standard case. Normally, there are various documents you must submit, and the whole petition may take some time to complete. An emergency filing allows you to start your case with only a few essential documents, but the rest must be filed shortly. Once you file the initial paperwork to start your emergency bankruptcy petition, you have about 14 days to submit everything else. If you do not, the case may be dismissed, according to 11 U.S.C. § 707(a)(3). If you cannot complete your emergency petition paperwork within this time due to circumstances beyond your control, your attorney may help you explain things to the court. Depending on the situation, the court might show leniency, although this is not guaranteed. Filing for emergency bankruptcy may be helpful if you need an automatic stay put in place immediately. The automatic stay, under 11 U.S.C. § 362(a), prevents creditors and lenders from initiating legal action while your bankruptcy case is pending. If any legal action has already been initiated, it must be halted immediately. When You Should Consider Filing for Emergency Bankruptcy in Pennsylvania Bankruptcy is one of the things people tend to resist until they have no other choice, and by then, time might be running out. Below are a few common reasons for emergency bankruptcy petitions, although your case might differ. Many file for emergency bankruptcy because their home is in foreclosure. Fortunately, the automatic stay halts the foreclosure process until your bankruptcy case is over, and some people even avoid foreclosure as a result. However, if time is running short, an emergency petition may be necessary. Many others file for emergency bankruptcy because they are facing eviction. The automatic stay can put the eviction process on pause in many cases, and this could give you time to get your debts and finances under control and catch up on missed rent payments. If you have already received an eviction notice, now might be the time to consider filing an emergency bankruptcy petition. Emergency bankruptcy may also help those facing repossession or lawsuits from creditors. Again, since the automatic stay puts a stop to this kind of thing, at least temporarily, an emergency bankruptcy petition may allow you to keep your property and avoid lawsuits. How to File for Emergency Bankruptcy in Pennsylvania When filing an emergency bankruptcy petition, you only need the bare bones of required paperwork and documentation. However, depending on which chapter you file under, you must present the remainder of any required information within 14 days. To begin an emergency bankruptcy, you will need the petition, information about your creditors, a credit counseling certificate or a waiver of counseling, and Form 121 that identifies all the Social Security numbers or other IRS identifiers you have used. Again, you must be ready to file everything else within 14 days. Your attorney should help you determine exactly what you need to file the emergency bankruptcy petition and what else you must file later so you can complete the case. How Can an Attorney Help You File for Emergency Bankruptcy? An emergency bankruptcy petition may be necessary if creditors are currently trying to initiate legal action against you, and you need the automatic stay immediately. It is best to get immediate help from an experienced attorney. First, your attorney can help you gather the documents required to file the emergency petition. Your lawyer should review these documents and make sure everything is filled out accurately and correctly. Even minor mistakes might cost you precious time that you do not have. Once your case is filed, your attorney should start preparing to file everything else you need within 14 days. Preparations should begin almost immediately, and your lawyer should help streamline the process to minimize delays. Speak to Our Pennsylvania Bankruptcy Attorneys for Help with Your Case For a free case evaluation, call our Pennsylvania bankruptcy lawyers with Young, Marr, Mallis & Associates at (215) 701-6519.

4th Cir.: Tiber Creek Partners v. Ellume USA- Bankruptcy in the Land Down Under Ed Boltz Fri, 07/18/2025 - 18:20 Summary: Tiber Creek Partners, a Virginia-based consulting firm, helped Ellume Ltd.—an Australian biotech company—and its U.S. subsidiary secure over $260 million in COVID testing contracts from Uncle Sam. When Ellume didn’t pay up, Tiber Creek sued in its home forum, the Eastern District of Virginia. But the district court dismissed the case on forum non conveniens grounds, and the Fourth Circuit just affirmed, sending the whole affair packing to Australia faster than you can sing “Waltzing Matilda.” Tiber Creek filed two suits: Ellume I: A breach of contract action against Ellume USA Ellume II: A fraud case alleging that Ellume and its execs improperly shifted liability to the insolvent parent The catch? Ellume Ltd. had entered voluntary administration (Australia’s version of Chapter 11 and definitely not a Kangaroo Court), and Tiber Creek had already filed a claim there. Most of the key witnesses, documents, and dirty laundry were in the land down under. Plus, several of the relevant contracts—including a Deed of Variation and a 2022 Services Agreement—were governed by Australian law and designated Australian courts as the forum of choice. The district court said, essentially, “This is an Australian matter for Australian courts,” and dismissed both suits without prejudice. The Fourth Circuit agreed: even though Tiber Creek sued in its home forum (which generally gets strong deference), the ties to Australia were just too strong to ignore. Otherwise, they reasoned, you’d have courts on two continents litigating overlapping issues. And if that’s not a logistical Foster’s-fueled headache, what is? Tiber Creek protested that it was being ousted from its own backyard and that Ellume USA was a domestic defendant. But the majority wasn’t buying it. Instead, they held that consolidating both cases in Australia was the more efficient and fair approach—even if it meant the Virginia-based plaintiff got knocked down. In dissent, Judge Richardson channeled his inner Crocodile Dundee and scoffed at the majority’s “that’s not a forum—this is a forum” analysis. He emphasized that a citizen suing in its home court should only be bounced if keeping the case would be truly oppressive to the defendants, not merely less convenient. He summed it up as “a result that defies common sense”—like drinking tea without milk or calling flip-flops “thongs.” Commentary: The court’s holding is a walkabout through some thorny terrain of international contracts, forum selection clauses, and foreign insolvency. Though unpublished, this opinion quietly broadens the power of forum non conveniens when foreign bankruptcy is lurking in the background—even without Chapter 15 recognition. The court treated the Australian voluntary administration (and later liquidation) as a meaningful factor, despite no formal recognition of it under U.S. law. Apparently, if you come from a land down under, that’s jurisdiction enough. Also notable: the panel relied heavily on the contractual terms pointing toward Australia, even though Tiber Creek tried to sue only the U.S. subsidiary. Moral of the story? If your consulting agreement is vague about who owes you money, and you’ve signed later documents governed by foreign law, don’t be shocked if the judge tells you to take your invoice walk 500 hundred miles (and then walk 500 more). Yet perhaps the real legacy of this case lies in its narrative arc. After all, Tiber Creek thought it was collecting U.S. taxpayer money from a U.S. company, in a U.S. court. So with the dismissal being without prejudice, there’s still a chance Tiber Creek reboots the fight in Australia. So  don’t count them out just yet since in the immortal words of Chumbawamba they might “get knocked down, but .. get up again, you're never gonna keep me down...”  With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document tiber_creek_partners_v._ellume_usa.pdf (180.11 KB) Category 4th Circuit Court of Appeals

4th Cir. : Jackson v. Bankruptcy Administrator- Dismissal of Pro See Appeal Ed Boltz Thu, 07/17/2025 - 16:31 Summary: Carlos Andre Jackson, a pro se debtor, inexplicably filed a full-blown Chapter 11  without a lawyer  in March 2024. The filing was defective from the start: he failed to complete prepetition credit counseling  (violating § 109(h)), filed incomplete schedules, didn’t comply with § 343 at the § 341 meeting, and missed reporting deadlines. Despite numerous continuances and leniency from the court, he never retained counsel or cured the deficiencies. On June 11, 2024, the bankruptcy court dismissed the case with prejudice and barred Jackson from refiling for 180 days from that date, citing bad faith and likely refiling. Jackson appealed, but the Fourth Circuit dismissed the appeal for lack of jurisdiction. Commentary: Here’s the catch: the 180-day bar expired on December 8, 2024. Since the court didn’t tie the bar to the outcome of appeals, the restriction appears to have lapsed—even though Jackson was still litigating in mid-2025. Takeaway: While the court aimed to curb abuse, it could have extended the bar through the conclusion of appeals. As it stands, Jackson may now be eligible to refile—though any new case would certainly face serious scrutiny.  That said,  any creditors that have slept on their rights (since there was no stay pending appeal) for more than a year,  so perhaps Mr.  Jackson could propose, with the assistance of counsel, a Chapter 13 case. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_jackson-_dismissal_with_prejudice.pdf (171.32 KB) Document jackson_v._bankruptcy_administrator_circuit.pdf (109.99 KB) Document jackson_v._bankruptcy_administrator_district.pdf (125.81 KB) Category 4th Circuit Court of Appeals

If you are considering filing for bankruptcy, there are steps to take before you file.  You should call a lawyer early on in the process and talk to them about whether bankruptcy is right for you in the first place.  Then you must meet the requirements for credit counseling and other mandatory classes. Credit counseling and debtor education are both required for bankruptcy cases, and credit counseling comes before you can even file for bankruptcy in Pennsylvania.  They are usually low-cost classes you only have to take once, and you can typically sign up for a course and schedule it very quickly when you need to take it. For help with your potential case, call our Pennsylvania bankruptcy lawyers at Young, Marr, Mallis & Associates today at (215) 701-6519. What Credit Counseling Courses Are Required for Bankruptcy? Credit counseling is required for basically everyone applying for bankruptcy.  This must be completed before you can even file. The agency you do credit counseling with has to be approved by the Executive Office for U.S. Trustees, so you can essentially trust any approved agency to have a course that meets the requirements.  It is not on you to go through the available courses and check if they meet all the requirements. What Happens at Credit Counseling? Credit counseling gives you the information you need to make an informed decision about your debt, credit, bankruptcy, and the process ahead of you.  This is a complex issue to deal with, and the requirement to attend credit counseling helps prevent issues down the road. One goal is to simply prevent people from failing out of bankruptcy later.  If you get neck deep in a process you are not prepared for, it might push you to give up and potentially try again later.  In the meantime, that takes up your time as well as court time and resources, so limiting these issues is important. This education can also help you succeed in your bankruptcy petition and avoid future excessive debt. Classes are typically around an hour. When Do I Take Credit Counseling? Credit counseling must be done within 180 days before filing your bankruptcy petition.  When you call a Pennsylvania bankruptcy lawyer, we cannot file your petition until after you complete the required education, so this will be one of the things we discuss with you before filing. If you have taken credit counseling before, it doesn’t count if it was earlier than 180 days before you file.  This means you should usually call a lawyer first rather than taking the initiative to do your credit counseling on your own, just in case there are delays in filing your case. You can get the court’s permission to do your counseling after you file only if you meet all of these three requirements: You have “exigent circumstances” justifying a waiver of this 180-day rule. You applied with an approved agency but could not get the services within 7 days of your request. The court approves your excuses. We can file the proper certifications if you need to take advantage of this delay.  If you are in dire need of an automatic stay because you are about to lose your house or something similar, it might qualify.  However, the Eastern District of Pennsylvania’s Bankruptcy Court warns that counseling is quite readily available, so it is rare that you cannot get the counseling you need within a week. How Do I Find an Approved Credit Counseling Agency? You can find an approved credit counseling agency on the Treasury Department website. To use their lookup tool, you need to know which district you are in.  Pennsylvania has three judicial districts: the Western District, the Middle District, and the Eastern District.  The links above either show a map or list of the counties in each district, so you can find out which district you live in. From there, you just put the information into the Treasury Department website, and you can locate an agency near you. Can I Do Credit Counseling Online or By Phone? Most agencies do have options available for in-person, online, or phone counseling.  These convenient methods often allow you to get scheduled quickly and complete your credit counseling without delay. Is Credit Counseling Offered in Other Languages? Even if you can read our website, you might not be prepared to do credit counseling in English.  A number of agencies offer counseling in a broad range of languages, so you can take the courses in whatever language you understand best. What Debtor Education is Required for Bankruptcy? Debtor education is a separate class requirement.  Instead of coming before you file (like your credit counseling), debtor education comes after you file. The goal of this program is to set you up for success after your discharge with tips on handling money and debt so you avoid future bankruptcy. When Do I Do Debtor Education? Debtor education comes after your filing but before your discharge.  Technically, it has to be done within 45 days of the first creditors’ meeting, but our lawyers can guide you through the requirements. Can I Do Debtor Education at the Same Time as Credit Counseling? Credit counseling usually has to be done before you file, and debtor education has to be done after, so you cannot do them at the same time.  However, many agencies offer both programs, so you can do them with the same agency. Who Pays for Credit Counseling and Debtor Education? Usually, the debtor applying for bankruptcy pays, but you are typically allowed to have someone else pay for you if they are willing. How Much Does Credit Counseling and Debtor Education Cost? Fees are usually reasonable for both courses.  Usually, you won’t pay more than $50 for either course, and some are half that cost. If you are filing with a spouse, you can often take the course together for one price; you don’t necessarily need to each pay for your own course. Many people filing for bankruptcy simply cannot afford this, and you can often get the fee waived if your income is under 150% of the poverty line.  Our lawyers can help you calculate that value, as it depends on some factors like household size. Call Our Pennsylvania Bankruptcy Lawyers for Help Today For your free case review, call the Allentown, PA bankruptcy lawyers at Young, Marr, Mallis & Associates at (215) 701-6519.

Bankr. W.D.Va.: In re Sorrells- Modification of Chapter 13 plan following Inhertitance Stafford Patterson Tue, 07/15/2025 - 17:50 Summary: Steven and Christina Sorrells were near the end of their 50-month Chapter 13 plan, having made regular payments totaling a 39% dividend to unsecured creditors. After Steven Sorrells received a net $26,236 from an inherited IRA—funds he intended to use to pay off the plan early—the Chapter 13 trustee instead moved to modify the plan to require a 100% dividend to unsecured creditors, citing a substantial and unanticipated improvement in the debtors’ financial condition. The Bankruptcy Court, applying In re Murphy, 474 F.3d 143 (4th Cir. 2007), partially granted the trustee’s motion. The court found that receipt of the IRA funds was indeed a substantial and unanticipated change in financial condition, piercing the res judicata effect of the confirmed plan. However, the court rejected the trustee’s argument that the debtors’ unliquidated claim to a future inheritance also justified modification. Notably, the court did not rubber-stamp the trustee’s request for the full $30,000 lump sum. Recognizing the debtors’ modest lifestyle, deferred home maintenance, and legitimate household needs, the court limited the required modification to $14,986—deducting $11,250 for necessary repairs (truck inspection, furnace replacement, driveway repair) from the IRA funds. Commentary: In a decision that balances fidelity to the Bankruptcy Code with practical realism, Judge Connelly provides a nuanced roadmap for post-confirmation plan modifications under § 1329. While reaffirming Murphy’s substantial-and-unanticipated-change test, the court carefully distinguishes between liquid and illiquid post-confirmation assets—declining to modify the plan based on a mere inchoate expectancy in a probate estate. Of particular note is the court’s insistence that feasibility under §1325(a)(6) cannot be met through hypothetical access to assets. For example, the court noted that if the Sorrells "had the IRA remained in an illiquid form, it would not render the same effect on his financial condition". (Virginia,  unlike North Carolina,  does not appear to allow the   exemption of inherited IR As.  See  In re Hall, 559 B.R. 679 (Bankr. W.D. Va. 2016) versus N.C.G.S. § 1C-1601(a)(9) and In re Brooks.)  By crediting the debtors' actual household needs—car repairs, heat in winter, and safe ingress/egress—the court offers a reminder that bankruptcy is meant to rehabilitate, not punish. The opinion does also include a caution for Chapter 13 trustees,  as Judge Connelly (herself having served as a Chapter 13 Trustee before taking the bench)  describes the tenor of the Chapter 13 trustee's argument as "disproportionate to the facts".  While in this case that rhetoric did not cross the line,  it was still evaluated for whether it violated the obligation under  §1325(a)(3)  that a motion to modify be brought in good faith.  That expectation of good faith  applies to Trustees, not just debtors. Consumer bankruptcy practitioners should also take heed of this footnote-worthy clarification: § 1327 vests property in the debtor free and clear of claims, meaning postconfirmation asset acquisition does not ipso facto trigger modification. In rejecting the trustee’s overreach, the court reaffirms the Chapter 13 bargain—creditors get their due, but debtors retain some hope of financial stability. This case offers an excellent example of how careful recordkeeping, transparency, and updated schedules (even mid-plan) can inoculate debtors from trustee accusations of bad faith or nondisclosure. Debtor’s counsel did well to preserve credibility, enabling the court to adopt a measured approach rather than imposing the draconian remedy sought by the trustee.  It follows the logic from In re Adams,  where the debtors were, in addition to their exemptions,  entitled to keep the portion of the proceeds from the sale of their home resulting from the pay-down of the mortgage during their Chapter 13 case. It also offers a persuasive counterweight to Carroll v. Logan, 735 F.3d 147 (4th Cir. 2013), distinguishing between property-of-the-estate status and feasibility or necessity of modification. This is a valuable decision for Chapter 13 attorneys navigating the increasingly common terrain of post-confirmation inheritances and other windfalls. The court's refusal to apply a blanket rule in favor of 100% plan funding from such assets will resonate with consumer practitioners throughout the Fourth Circuit. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_sorrells.pdf (857.5 KB) Category Western District

Bankr. E.D.N.C: In re Ross-DeSantos- Homestead Exemption Allowed for Real Property Located outside of North Carolina Ed Boltz Fri, 07/11/2025 - 22:41 Summary: Judge Pamela McAfee overruled a Chapter 7 trustee’s objection to a North Carolina debtor’s homestead exemption claimed in real estate located not in Wake County, but in Corentyne Berbice, Guyana. The case highlights two recurring issues in exemption law:  (1) whether a spouse living abroad may qualify as a “dependent” for purposes of N.C.G.S. § 1C-1601(a)(1), and  (2) whether North Carolina’s homestead exemption applies extraterritorially. The debtor, Natoya Ross-DeSantos, filed Chapter 7 in the Eastern District of North Carolina, claiming a $30,000 homestead exemption in her interest in a property in Guyana, which she jointly owns with her non-filing spouse. While she lives in North Carolina as a public school teacher on a J-1 visa, her spouse and her mother (who pays the mortgage) reside in the Guyanese home, along with her minor nephew. The trustee objected, arguing (1) the spouse was not a “dependent” and (2) the exemption could not apply to property outside North Carolina. The court overruled the two bases for trustee’s objection, holding: Dependency Met – The debtor’s uncontroverted testimony that she sends financial support “when she can,” and that her husband is unemployed and living in the home due to medical issues, was sufficient to show “actual substantial dependence,” adopting the standard for a "dependent spouse" as  articulated in Suggs, Preston, and under N.C.G.S. § 50-16.1A(2). Dependency was determined based on actual financial and emotional support as of the petition date, not mere technical definitions or speculative future plans. Extraterritorial Application Allowed – The court found no language in § 1C-1601 limiting the exemption to in-state property and emphasized the statutory mandate to interpret exemptions liberally in favor of the debtor. Since the debtor resides in North Carolina and is the one claiming the exemption, the location of the property abroad was not disqualifying. Notably, the court cited Crawford and Davila as examples where the location of the homestead outside North Carolina had not precluded application of the state’s exemption. Commentary: Excellent job by Phillip Sasser,  particularly in the face of John Bircher's solid,  but fair and respectful,  objection. This decision is a well-grounded affirmation of the debtor-protective policies behind North Carolina’s exemption laws and demonstrates the flexibility bankruptcy courts maintain in evaluating real-life family and financial dynamics. In substance, Judge McAfee recognized that modern households — especially those involving immigration, work visas, and international families — may not conform neatly to the traditional “white picket fence” model. The court took a pragmatic approach: focusing not on the theoretical legal domicile or the ZIP code of the property, but on the reality of who lived there and who depended on whom. Dependency Doesn't Require Formal Support Agreements – Informal but credible testimony about support, even irregular remittances and non-monetary arrangements, may suffice to establish a spouse as a dependent for exemption purposes.   Having found most easily that Mr.  Ross-DeSantos met the statutory definition of a dependent spouse,  the court did not directly address whether Ms.  Ross-DeSantos'  mother and/or minor nephew were also dependents.  That notwithstanding,  it would seem that the standard for other asserted dependents  should be evaluated under the same standard as anyone  "who  is actually substantially dependent ... for his or her maintenance and support or is substantially in need of maintenance and support...."  (Emphasis added.) This should not require finding that the person meets the higher  IRS standard for a dependent but instead that the person is substantially  dependent on support and needs that support.  Allowing them to live in the house could by itself be sufficient to show the support,  although the debtor would need to show the need for that support. No Territorial Limitation in § 1C-1601(a)(1) – Until the North Carolina appellate courts say otherwise, nothing in the statute prevents the homestead exemption from being claimed in property outside the state, provided the debtor resides in North Carolina. Anticipate Equity Issues – Though the court noted the trustee's uncertainty about whether the Republic Bank of Guyana held a perfected lien, the trustee wisely sought a ruling on the exemption issue first. Practitioners should similarly bifurcate legal questions where valuation or enforceability is uncertain. In re Ross-DeSantos will likely become a citation staple for North Carolina debtors and their counsel facing objections based on “residence” and “dependency,” especially in cross-border or nontraditional family situations. It serves as a reminder that bankruptcy courts, even while operating under rigid statutes, can and do account for the lived realities of their debtors. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_ross-desantos.pdf (261.27 KB) Category Eastern District

In law enforcement, BOLO stands for Be On the Look Out. But even outside of law enforcement, BOLO alerts operate. In this case, we as bankruptcy lawyers need to be on the look out for community property. It’s easy to think that community property is an issue only for practitioners in the 9 community property […] The post BOLO Alert: Community Property in Unexpected Places appeared first on Bankruptcy Mastery.

Bankr. E.D.N.C.- In re J Smith- Arbitration in Bankruptcy Ed Boltz Wed, 07/09/2025 - 17:10 Summary: In this post-confirmation Chapter 11 dispute, the Bankruptcy Court for the Eastern District of North Carolina granted a motion by Fourth Elm Construction, LLC to compel arbitration and stay the adversary proceeding brought by the debtor, J Smith Civil, LLC. The adversary complaint asserted state-law claims for breach of contract and quantum meruit arising from a terminated subcontracting agreement. Fourth Elm relied on the contract’s Article 24 arbitration clause, invoking Section 3 of the Federal Arbitration Act (FAA). J Smith Civil resisted arbitration, arguing first that the contract’s damage-limiting clause (Article 22) rendered the arbitration agreement void under Lischwe v. Clearone Advantage (In re Erwin), a case involving impermissible waivers of claims under North Carolina’s UDTPA. Judge Callaway distinguished Erwin, finding that no such statutory or fraud claims were actually alleged—only garden-variety breach and quasi-contract. J Smith’s second argument—that compelling arbitration would impair bankruptcy case administration—also failed, as the claims did not arise under the Bankruptcy Code and were not core proceedings. The Court compelled arbitration but explicitly warned Fourth Elm that it could not file any counterclaims or assert a §553 setoff in the arbitration without first obtaining stay relief. Fourth Elm, through counsel, disavowed any intent to seek such relief, and the Court noted it would enforce that commitment under pain of sanctions. Commentary: This decision highlights the entrenched enforceability of arbitration clauses in bankruptcy, particularly when the debtor brings state-law claims post-confirmation and the dispute lacks any core bankruptcy component. Judge Callaway’s ruling reflects a straightforward application of the Federal Arbitration Act (FAA), even in the Chapter 11 context, and follows the familiar maxim that “[a]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” But what about in the consumer Chapter 13 context, where debtors frequently interact with contracts that contain arbitration clauses—credit card agreements, auto loans, rent-to-own contracts, and debt relief services? Unlike in business cases, a unique opportunity may exist for consumer debtors to proactively address arbitration in their Chapter 13 plan. Specifically, a nonstandard Chapter 13 plan provision may be used to expressly reject or eliminate arbitration clauses in executory contracts or to declare that the debtor does not consent to arbitration of any disputes related to a given agreement. Because Chapter 13 plans function as binding contracts between the debtor, creditors, and the trustee upon confirmation, and because 11 U.S.C. § 1322(b)(2), (b)(6), and (b)(11) permit substantial flexibility in how a debtor restructures obligations and provides for treatment of claims, courts may allow debtors to include such provisions. While not all courts will enforce such plan terms (and some creditors may object), there is a growing recognition that plan provisions may alter dispute resolution rights where the arbitration clause is part of a contract the debtor is assuming, modifying, or curing under the plan. In this way, the plan operates as both shield and sword, binding creditors who fail to object and thus creating a limited window to neutralize otherwise enforceable arbitration rights. Moreover, if a creditor fails to timely object to confirmation, courts may hold it bound by the plan under §1327(a), and therefore estopped from later enforcing arbitration provisions in an attempt to derail claims administration or fair debt relief remedies under the Code. Practice Tip for Consumer Debtors: Practitioners should consider whether their standard Chapter 13 plan templates adequately address arbitration—and if not, propose a nonstandard provision rejecting arbitration clauses in applicable agreements. For example: “Any arbitration provision in any prepetition agreement between the Debtor and any creditor is expressly rejected and shall be of no force or effect with respect to any dispute arising during the pendency of this bankruptcy case or relating to any claim provided for under this Plan." This may be particularly valuable where the debtor has viable claims under state consumer protection laws (e.g., UDTPA, FDCPA) or disputes related to vehicle repossession or predatory lending. It also reduces the risk of post-confirmation motion practice or removed arbitrations that sap the estate’s resources. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_jsmith.pdf (279.94 KB) Category Eastern District