Law Review: Littwin, Angela, Adams, Adrienne and Kennedy, Angie- Bartenwerfer v. Buckley and Coerced Debt Ed Boltz Thu, 05/22/2025 - 15:38 Available at: https://ablj.org/bartenwerfer-v-buckley-and-coerced-debt-vol-99-issue-1-pdf/ Abstract: Bankruptcy professionals may be surprised to learn that debt and domestic violence (DV) are connected. Professors Littwin, Adams, and Kennedy coined the term “coerced debt” to describe debt that the batterer in an abusive relationship incurs in the victim’s name using fraud or duress. The Supreme Court’s holding in Bartenwerfer v. Buckley that § 523(a)(2) can prevent the innocent spouse of someone who committed fraud from discharging debt implicates coerced debt because each coerced debt has two victims: the DV victim and the creditor. Bartenwerfer raised the possibility that creditors could prevent DV victims from discharging coerced debts due to fraud of which they were victims. Bartenwerfer v. Buckley & Coerced Debt analyzes Bartenwerfer and cases under the Nineteenth Century precedent the Court embraced to show that Bartenwerfer is much narrower than it appears. The underlying law of fraud controls, and in every case reviewed, the law of fraud requires that the spouses have a business relationship to transmit fraud liability. The professors also make the normative case that victims of coerced debt deserve discharge, illustrating their arguments with data on business debts from the first in-depth study of coerced debt. Commentary: Consumer bankruptcy courts increasingly face debts arising from financial abuse and coercion, especially with rising awareness of domestic economic abuse. Bartenwerfer poses risks if misapplied, but this article provides the framework for limiting its reach and protecting innocent debtors. For practitioners, the message is clear: be proactive in demanding factual and legal showings of imputation, and be thoughtful about when and how to raise the coercion defense. Where a creditor asserts § 523(a)(2) based on the fraud of a debtor’s spouse, the burden falls on that creditor to prove a qualifying relationship under state partnership or agency law. Many claims will collapse under this scrutiny, including when there may be a business relationship between spouses. In North Carolina, to impute a business relationship, a creditor must show the existence of a partnership under N.C. Gen. Stat. § 59-36, which defines a partnership as “an association of two or more persons to carry on as co-owners of a business for profit.” Courts look at multiple factors to determine whether a partnership exists: Joint ownership of property or business assets; Sharing of profits and losses; Joint decision-making or management; Representations to third parties that both spouses are business partners. Merely owning property together, including as tenants by the entirety, or having a spouse help with incidental tasks, does not create a partnership and the existence of a coercive personal relationship should undercut other evidence. See, e.g., Hines v. Arnold, 103 N.C. App. 31, 34, 404 S.E.2d 179, 181 (1991). As a bit of humor (because, as Mark Twain said, "humor equals tragedy plus time") related to the different contemporary uses of the word "partner"- When I was first admitted to the ICU following my fall in Colorado a year ago, after realizing my that my wife was in North Carolina and would not immediately be able to get to the hospital, the nurses asked if there was anyone more nearby who they could call. When I responded that "My partner, John, is at the Broadmoor Hotel", they were (even to me in battered and bruised condition) practically giddy that my medical emergency suddenly had even juicier aspects. Despite being clearly disappointed when I clarified that he was merely "my law partner", they still provided amazing medical care for which I (and my spouse and also my partner) are very grateful. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document bartenwerfer_v._buckley_and_coerced_debt.pdf (590.88 KB) Category Law Reviews & Studies
Bankr. M.D.N.C.: In re Bryant- Pending Personal Injury Claim is Exempt Ed Boltz Wed, 05/21/2025 - 15:51 Summary: Vermelle Jones Bryant filed a Chapter 7 case in October 2021 but failed to disclose a potential personal injury claim stemming from a medical procedure that occurred just weeks earlier. The case proceeded as a no-asset case, and she received a discharge in early 2022. Nearly three years later, Bryant settled that prepetition claim for $204,000. After the Bankruptcy Administrator moved to reopen the case, the Trustee objected to Bryant’s amended exemption claim under N.C. Gen. Stat. § 1C-1601(a)(8), arguing that because the compensation was not in hand on the petition date, it did not qualify as exempt. Judge Lena James rejected the Trustee’s narrow, literalist reading and instead adopted a broader interpretation consistent with longstanding bankruptcy practice in North Carolina. Finding the statutory term "compensation for personal injury" ambiguous, Judge James applied North Carolina’s principle that exemption statutes must be liberally construed in favor of debtors. The court found that Trustee’s novel argument—that only “funds in hand” as of the petition date are exemptible—was not only unsupported by precedent, but would have led to absurd and inequitable results. As the Court noted, such an interpretation would create arbitrary and punitive distinctions among debtors based solely on the timing of a settlement or the administrative speed of their personal injury lawyer. More troublingly, it would have opened the door to post-discharge clawbacks of recoveries that debtors had never concealed with fraudulent intent. The court refused to read into the statute a temporal restriction that simply isn’t there and instead harmonized the plain text with decades of consistent judicial practice and related legislative amendments. Her invocation of the North Carolina Supreme Court’s distinction between assignable proceeds and unassignable causes of action further bolstered the logic that a debtor holds a protectable interest in “compensation” even when it has not yet been quantified or received. She concluded that the statute permits the exemption of compensation received postpetition so long as the underlying injury—and hence the legal right to recover for it—occurred prepetition. The Court emphasized that North Carolina law recognizes a debtor’s prepetition property interest not only in a personal injury claim but also in the prospective proceeds of that claim. The opinion also noted that the General Assembly has not altered the language of the statute despite decades of consistent bankruptcy court interpretations allowing exemptions in such scenarios. Commentary: Judge James’ well-reasoned and thorough opinion in In re Bryant squarely reaffirms a debtor-friendly principle that has long animated North Carolina bankruptcy practice: that a prepetition personal injury, even if unliquidated and undisclosed, gives rise to a property interest in potential compensation which the debtor may later exempt under N.C. Gen. Stat. § 1C-1601(a)(8). This is particularly as, unlike the federal exemption for personal injury claims, North Carolina exemption is not only for an unlimited amount, but also protects emotional distress damages, not just bodily injuries. Further, in light of Judge Flanagan from the Eastern District Court in Alston v. NCR that FDCPA claims are personal tort claims, debtors should clearly be entitled to retain all of these causes of action. As a practical aside, the Court also advised debtors’ attorneys to use the statutory phrase “compensation for personal injury” in their exemption schedules rather than the colloquial but legally muddier term “personal injury claim” and disclose the amount as "Unknown" or for an estimated amount. This clarity could help avoid future litigation over the scope of claimed exemptions, but might require some changes to the Local Form 91-C to more clearly accommodate that Lastly, a great job by Koury Hicks and Erica NeSmith but also everyone that has worked to compile the scattered and obscure legislative history regarding North Carolina exemptions, particularly as Judge James specifically "commends the efforts of several members of North Carolina’s bankruptcy bar to gather and publicly disseminate the limited legislative history available for N.C. Gen. Stat. § 1C-1601 and its later amendments." Much of that can be found at North Carolina Exemptions Legislative History with special thanks to Travis Sasser, Kelly Newcomb, Erica NeSmith and others for their contributions. If anyone has more, please let me know, so those can be added. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_bryant.pdf (688.31 KB) Category Middle District
N.C. Ct. of App.: Fine Line Homes v. Luthera- Materialman's Lien Invalid due to Absent Date in Claim of Lien Ed Boltz Tue, 05/20/2025 - 16:00 Summary: In this case out of Davidson County, Fine Line Homes, LP filed a mechanic’s lien in the amount of $44,554.77 against property jointly owned by Anita Luthra and Sarina Steinbacher following a dispute over construction work at a residential home. Fine Line had a written contract with Luthra, but not with Steinbacher. After Luthra terminated Fine Line’s services and declined to pay the outstanding balance, the contractor filed a claim of lien and then brought a lawsuit to enforce the lien or, in the alternative, recover under quantum meruit. Both defendants responded pro se, raising factual and legal defenses. Most significantly, Luthra alleged that the lien was defective because it lacked a critical statutory requirement—the date of last furnishing of labor or materials. The trial court agreed and dismissed the lien enforcement action with prejudice, holding that the omission of the “last furnishing” date rendered the lien invalid. Relying on the plain language of N.C. Gen. Stat. § 44A-12 and longstanding case law, the trial court concluded that the date of last furnishing is a mandatory statutory element that determines the validity and enforceability of a lien. While § 44A-12(c) allows for “substantial” compliance with the lien form, the court found that omitting the date of last furnishing was a fatal error, not a mere technicality. The trial court denied dismissal of the quantum meruit claim and allowed certain counterclaims by Luthra to proceed. Fine Line Homes appealed, arguing that the trial court improperly required strict compliance with the statute. The Court of Appeals affirmed the dismissal. Citing Brown v. Middleton, 86 N.C. App. 63 (1987), the Court reiterated that the 1977 amendment to § 44A-12 expressly requires the inclusion of the last date of furnishing. The appellate panel emphasized that this date is essential not only for public notice purposes but also to determine whether the lien was timely perfected and enforced under §§ 44A-12(b) and 44A-13(a). As the omission of this date made it impossible to evaluate the lien’s timeliness, the claim was defective on its face. Commentary: This case is a sharp reminder that even where courts tolerate some technical lapses under the doctrine of “substantial compliance,” certain statutory elements remain non-negotiable. North Carolina’s lien statutes strike a careful balance between protecting contractors’ rights and preserving the clarity of title for property owners and creditors. The date of last furnishing is not merely a procedural nicety; it serves as the linchpin for the 120-day lien filing and 180-day enforcement windows. While the Court of Appeals refrained from drawing a bright line between substantial and strict compliance, Fine Line Homes reinforces that there are “substantially required” elements—and the accurate first AND last furnishing dates are one of them. Contractors and construction counsel must treat lien preparation with the same rigor as filing a civil complaint. A missing line on a form could, as here, forfeit a claim worth tens of thousands of dollars. Those dates should be verified (including through discovery) with both the homeowner, the installer and the lienholder, a claim of lien includes a verification is recognized under N.C. Gen. Stat. § 14-209 as being made under penalty of perjury, opening erroneous claims of lien to not only potential UDTPA claims (with treble damages) but also criminal prosecution. Consumer-side practitioners should also note how this decision preserves defenses against improperly filed liens and highlights the potential exposure contractors face to counterclaims, including fraud and unfair trade practices, when liens are filed carelessly. The validation of interlocutory appeal here under the "substantial rights" doctrine also underscores how critical lien priority is in construction disputes. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document fine_homes_v._luthera.pdf (118.77 KB) Category NC Court of Appeals
4th Cir.: Navient v. Loman- TCPA and Sham Litigation Ed Boltz Mon, 05/19/2025 - 16:24 Summary: In this high-profile litigation, Navient Solutions, LLC—a major student loan servicer—sued a group of lawyers, debt-relief companies, and associated individuals, alleging they orchestrated a fraudulent scheme that encouraged borrowers to cease loan payments and file meritless lawsuits under the Telephone Consumer Protection Act (TCPA). Navient’s theory was that the defendants manufactured sham TCPA claims in order to generate settlements and debt forgiveness, thereby violating RICO and committing fraud and tortious interference. At trial, Navient prevailed with a jury award of over $2 million. But the district court later granted Rule 50(b) motions for judgment as a matter of law, setting aside the verdict. The Fourth Circuit affirmed, holding that the TCPA litigation filed by the defendants was not “sham litigation” and was therefore protected by the First Amendment under the Noerr–Pennington doctrine. Because Navient’s damages were solely tied to the costs of defending those lawsuits (and not any independent wrongful acts), and because the suits themselves were not objectively baseless, Navient could not recover. Key to the Fourth Circuit’s ruling was its application of Waugh Chapel South, LLC v. UFCW Local 27, 728 F.3d 354 (4th Cir. 2013), adopting the California Motor “series of lawsuits” standard for determining whether a pattern of litigation constitutes a sham. The court found that the TCPA actions—though possibly coordinated for economic gain—raised legitimate legal issues, especially considering the pre-Facebook v. Duguid (2021) uncertainty over what constituted an automatic telephone dialing system (ATDS). Navient had itself acknowledged the unsettled nature of the law and settled many of the suits. The panel declined to opine on the broader questions of whether Noerr–Pennington immunity extends to private arbitration, pre-suit conduct, or to non-litigant participants, finding that Navient had waived those arguments or sought no damages stemming from such activity. Commentary: While not a bankruptcy case, Navient v. Lohman offers a revealing look at how far courts will stretch the Noerr–Pennington doctrine to protect even aggressive and perhaps morally dubious litigation strategies. The Fourth Circuit made clear that First Amendment protections for petitioning the government extend to serial TCPA filings—even if those suits were ginned up by debt-relief outfits coaching borrowers to manufacture claims—so long as the underlying legal issues are debatable. For consumer bankruptcy practitioners, this case indirectly bolsters the ability of debtors’ attorneys to bring novel or coordinated legal actions without fear of RICO retaliation, provided their claims are grounded in real legal uncertainty. It may offer comfort to those involved in consumer advocacy against large creditors or servicers, particularly in areas where statutory interpretation remains in flux. However, the opinion stops short of giving blanket immunity to all conduct surrounding such litigation. Practitioners should take note that if Navient had better quantified harm outside the litigation itself—say, through economic losses tied to broader marketing or pre-litigation conduct—the outcome might have been different. In short, courts remain protective of access to legal process—even if used repeatedly, creatively, or for profit. But they may not look kindly on poorly framed damage theories or waived appellate issues. Practice Tip: In Chapter 13 bankruptcy case, especially for nondischargeable debts, debtors might include the following: Nonstandard Plan Provision – Revocation of Consent to Receive Autodialed or Prerecorded Calls Pursuant to 47 U.S.C. § 227 and applicable law, the Debtor(s) hereby revoke any and all prior express consent, whether written, oral, or implied, previously given to any creditor or their agents, servicers, debt collectors, or attorneys, to call or text any telephone number associated with the Debtor(s) using an automatic telephone dialing system (“ATDS”), artificial voice, or prerecorded voice. This revocation applies to: All telephone numbers previously provided to creditors, including but not limited to mobile, landline, and VOIP numbers; All creditors listed in this plan and/or schedules, including successors and assigns, whether or not such creditors have filed a proof of claim; All calls or texts placed in connection with any debt, including but not limited to student loans, credit cards, auto loans, and mortgage obligations. For the avoidance of doubt, this provision constitutes a permanent and unequivocal revocation of consent under the TCPA. Creditors who place ATDS, prerecorded, or artificial voice calls to the Debtor(s) after the effective date of plan confirmation may be subject to damages under the TCPA. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document navient_v._loman.pdf (162.87 KB) Category 4th Circuit Court of Appeals
Chapter 7 Trustee Lauren Friend McKelvey Lauren Friend McKelvey is the newest of the four Chapter 7 trustees in the Alexandria, Virginia, Bankruptcy court. When you file a bankruptcy case in Alexandria, the computer assigns you to one of the four trustees. Lawyers work part-time as Chapter 7 trustees. Ms. Friend McKelvey is a partner in Reitler, a New York-based law firm that does business law, with a focus on venture capital. Business debt and bankruptcy have been part of her work with the Reister law firm, where she has done corporate law generally. Earlier, she was general counsel for a successful corporate start-up. (Chapter 7 trustees here mostly deal with simple consumer bankruptcies, so her heavy background in corporate and business law is unusual.) As a Chapter 7 Trustee, she has two sets of bosses. The US Justice Department, through the Office of the United States Trustee. And the two Bankruptcy Judges here, Judge Brian F. Kenney and Judge Klinette H. Kindred. We paid a $338.00 filing fee when we filed your bankruptcy case. Sixty dollars of that went to Trustee McKelvey. For each case, including yours, she is paid an additional $60.00 that is indirectly collected from Chapter 11 bankruptcies. (Congress thinks the bankruptcy courts to raise enough in fees to pay for themselves. No other part of the federal court system does that.) What Does a Chapter 7 Trustee Do? Chapter 7 bankruptcy trustee Lauren Friend McKelvey As your Chapter 7 Trustee, Lauren Friend McKelvey is in charge of your bankruptcy hearing, which is called the “meeting of creditors.” There are very, very rarely any creditors at the meeting of creditors. So the Chapter 7 Trustee asks the questions. (Because the trustee is not a judge, she should be called “ma’am,” not “your honor.”) She will ask routine questions about your I Ds, whether you went over your papers when you signed them, and do you have any valuable assets she can sell. Most people don’t have any valuable assets the trustee can sell, so the hearing is pretty routine. The bankruptcy court computer schedules fourteen hearings an hour. That’s just over four minutes per case. Most don’t take that long. Bankruptcy Hearings in Alexandria are By Zoom Trustee hearings for Ms Friend McKelvey are usually scheduled for Thursdays at 10:00 AM, 11: AM, and 12:00 PM. You attend by Zoom. You enter her Zoom hearings by using these codes. Meeting ID 535 852 2867, Passcode 8330439029 If, you’re not an experienced Zoomer, here’s some help on how to join using a meeting ID and passcode. That’s her permanent Zoom ID and passcode. You can test it out any evening and it will take you to her Trustee waiting room. That way, you’ll be sure you’ll know what to do on your hearing date. This is what you’ll see when you Zoom into the Trustee waiting room. (Except you won’t see my picture in the corner.) The post Chapter 7 Trustee Lauren Friend McKelvey appeared first on Robert Weed Bankruptcy Attorney.
The legal chatter is full of the promise of Artificial Intelligence to revolutionize the practice of law. It can write your letters, your briefs and your website, they say. But there’s a catch here (other than the fact that AI sometimes makes stuff up, including case law, out of whole cloth.): ChatGPT and its ilk […] The post Use your authentic voice to humanize yourself and the law appeared first on Bankruptcy Mastery.
Shocking Results: Credit Scores Drop the First Year After Bankruptcy A couple of years after filing for bankruptcy, many people find their credit scores are worse than the day the bankruptcy was approved. I was shocked when I saw that. According to LendingTree, most people see a boost of about 69 points when they file, but their scores typically drop back down by 29 points within a year. The good news is, your credit score will improve if you follow these tips. Here’s How to Rebuild Your Credit As soon as the bankrupycy is discharged, you’ll be able to get approved for credit cards, with a very small limit. Get one. Start charing one tank of gas a month and pay it in full. After maybe six months, you’ll sdtart getting approved for higher limit cards; get maybe three of those. Charge a tank of gas on each once a month, and pay them all in full. If you get offers to raise the limits on your cards, go for it! But don’t charge any more. You want to increase your limits, but don’t increase your charging; stick to the one-gas-tank rule. (Some people talk about credit builder loans where you deposit money and borrow against it, but I’m not sure that’s any better than charging gas. Our biggest local credit unions, PenFed and Apple, don’t offer those loans.) Why Credit Scores Might Drop Again There are a couple of mistakes that can cause scores to drop after bankruptcy. First, some folks avoid credit cards altogether, but it’s essential to keep building your credit history. You don’t want bankruptcy to be the most recent thing on your credit report. (Making timely car payments doesn’t usually help your score much.) Second, some people max out their new cards. Your credit utilization—how much of your available credit you use—matters a lot. If you’re close to your limit, your score will drop. Keep to my simple strategy: Charge one tank of gas on each card each month and pay it off in full. For Some People, Life Keeps Happening Some people carefully rebuild their credit, and then, bam!, something hits them. Life can throw curveballs like job loss or health issues. People end up with ruined credit for no fault of their own. If you find yourself back in a tight spot—like facing wage garnishment—feel free to reach out for help! For More Info For more info, see my blog on Five Websites to Check After Your Discharge. PS Please Give Me A Review. If this article is helpful, please give me a review. The post Will Your Credit Score Improve a Year After Bankruptcy appeared first on Robert Weed Bankruptcy Attorney.
Shocking Results: Credit Scores Drop the First Year After Bankruptcy A couple of years after filing for bankruptcy, many people find their credit scores are worse than the day the bankruptcy was approved. I was shocked when I saw that. According to LendingTree, most people see a boost of about 69 points when they file, but their scores typically drop back down by 29 points within a year. The good news is, your credit score will improve if you follow these tips. Here’s How to Rebuild Your Credit As soon as the bankrupycy is discharged, you’ll be able to get approved for credit cards, with a very small limit. Get one. Start charing one tank of gas a month and pay it in full. After maybe six months, you’ll sdtart getting approved for higher limit cards; get maybe three of those. Charge a tank of gas on each once a month, and pay them all in full. If you get offers to raise the limits on your cards, go for it! But don’t charge any more. You want to increase your limits, but don’t increase your charging; stick to the one-gas-tank rule. (Some people talk about credit builder loans where you deposit money and borrow against it, but I’m not sure that’s any better than charging gas. Our biggest local credit unions, PenFed and Apple, don’t offer those loans.) Why Credit Scores Might Drop Again There are a couple of mistakes that can cause scores to drop after bankruptcy. First, some folks avoid credit cards altogether, but it’s essential to keep building your credit history. You don’t want bankruptcy to be the most recent thing on your credit report. (Making timely car payments doesn’t usually help your score much.) Second, some people max out their new cards. Your credit utilization—how much of your available credit you use—matters a lot. If you’re close to your limit, your score will drop. Keep to my simple strategy: Charge one tank of gas on each card each month and pay it off in full. For Some People, Life Keeps Happening Some people carefully rebuild their credit, and then, bam!, something hits them. Life can throw curveballs like job loss or health issues. People end up with ruined credit for no fault of their own. If you find yourself back in a tight spot—like facing wage garnishment—feel free to reach out for help! For More Info For more info, see my blog on Five Websites to Check After Your Discharge. PS Please Give Me A Review. If this article is helpful, please give me a review. The post Will Your Credit Score Improve a Year After Bankruptcy appeared first on Robert Weed Bankruptcy Attorney.
TV lawyers are constantly heading into trial, sometimes after seeing the file for the first time that morning. On television, the clients never seem to worry about how they are going to pay their lawyers to go to trial. The reality is different in real life, especially when dealing with consumer bankruptcy cases. A consumer debtor seeks a fresh start because their finances are at their breaking point. When a litigation matter pops up, it stands in the way of the fresh start. Consider the following scenarios:• Chapter 13 debtor files bankruptcy to save the family homestead. The loan has gone through five different servicers in the past three years. The current servicer claims arrears of $20,000.00 while the Debtor swears that she is only two payments behind.• A home remodeling contactor files bankruptcy. A customer files a non-dischargeability action claiming that hundreds of thousands of dollars were diverted to other projects. The contractor’s records are less than pristine but he claims all of the funds went project and that it was the change orders that caused the job to go over budget.• A debtor moves to Texas and invests $2.5 million in a lakefront home. 1,210 days later, his former attorney who he stiffed for hundreds of thousands of dollars in legal fees files an involuntary bankruptcy petition against him seeking to take advantage of the limitation on homesteads acquired within 1,215 days under 11 U.S.C. §522(p). The Debtor claims that he has more than twelve creditors so that a single creditor cannot put him into bankruptcy. However, a contractor who he stiffed on building his boat dock and the cable company join in the involuntary petition. The debtor disputes both of these debts.• A once successful businessman becomes enmired in litigation after he kills a child in an accident that occurred when he looked down to send a text on his phone. His insurance carrier provides a defense but under a reservation of rights. As the litigation drags on, he sells off his non-exempt assets to business associates and relatives on favorable terms. He then agrees to a divorce where his wife gets the remainder of his valuable assets, and he is left with only over encumbered assets. The U.S. Trustee objects to the discharge under 11 U.S.C. §727.These scenarios illustrate some common circumstances which arise when consumer cases are a good fit for mediation:• One or both parties lack funds to litigate a case.• The facts or the law do not allow for an easy resolution, such as submitting the case to the court on stipulated facts.• The consequences of a loss may be devastating to one party or both.• Collection may be difficult without the other party’s cooperation.• There may be overlapping business and consumer issues, such as when a business owner files bankruptcy after a business failure. • There may be intense emotions involved such as when a consumer believes that they were swindled by a building contractor, or a loan servicer can’t or won’t account for payments made.When is a consumer dispute appropriate for mediation? Mediation is a possible means to avoid a trial. If a dispute can be easily resolved, there is not a strong need for mediation. There also need to be parties willing to bargain in good faith. Usually this means that both parties understand that there is an element of risk to the case. Sometimes it may be too early to mediate a case if both parties are convinced, they have a 100% chance of winning. Good lawyers can help to counsel their clients to prepare them for mediation. There are some difficulties with mediating an objection to discharge under section 727. Those will be discussed in a separate topic. The special problem of section 727. Mediating a complaint to deny or revoke a discharge requires special consideration. Some courts have held that an objection to discharge cannot be settled. As one early case stated:Nothing in the Bankruptcy Code authorizes a trustee to seek funds from a debtor or to release a non-debtor entity as a price for giving up on a discharge complaint. Discharges are not property of the estate and are not for sale. It is against public policy to sell discharges.In re Vickers, 176 B.R. 287, 290 (Bankr. N.D. Ga. 1994). It is a violation of criminal law if a person “knowingly and fraudulently gives, offers, receives, or attempts to obtain any money or property, remuneration, compensation, reward, advantage, or promise thereof for acting or forbearing to act in a case under title 11.” 18 U.S.C, §152(6). Thus, if a creditor brought a complaint to deny discharge and offered to dismiss the case if the debtor paid him $50,000, that would be a criminal act. The fact that the offer was made in the context of a mediation would not change that. However, there are circumstances where a case can be settled at mediation after a complaint to deny discharge has been brought. The most common is where a creditor brings both a complaint to determine non-dischargeability and a complaint to deny discharge. If the creditor settles the non-dischargeability case, it will have little motivation to continue to pursue an objection to discharge for the benefit of the other creditors. In this instance, it is permissible for the original creditor to dismiss the objection to discharge provided that other creditors are given a reasonable opportunity to step in and pursue the complaint. Hass v. Hass (In re Hass), 273 B.R. 45 (Bankr. S.D. N.Y. 2002). Another court found that a trustee could compromise a claim to deny discharge where the trustee would have difficulty proving the complaint and the settlement was in the public interest. In re Myers, 2015 Bankr. LEXIS 2935 (Bankr. N.D. Ohio 2015). On the other hand, the court denied a proposed compromise where the allegations were serious and could be proven by the trustee. The Court stated:Compromises of § 727 claims are viewed with heightened scrutiny. Section "727(a) is directed toward protecting the integrity of the bankruptcy system by denying discharge to debtors who engaged in objectionable conduct that is of a magnitude and effect broader and more pervasive than a fraud on . . . a single creditor." Accordingly, some courts have held that § 727 claims may never be compromised. At the very least, courts view compromises of § 727 claims with heightened scrutiny. In re Roquemore, 393 B.R. 474, 483-84 (Bankr. S.D. Tex. 2008). Another way to settle a complaint to deny discharge is to deny the discharge with the agreement that the trustee would not object to a subsequent attempt to discharge the debt in chapter 13 if a significant amount was to be paid to creditors. A person who has been denied a discharge in chapter 7 would not be prohibited from seeking a discharge in a subsequent chapter 13 case as shown by the fact that the chapter 13 discharge does not contain an exception for debts excluded from discharge in a prior chapter 7 case. Under 11 U.S.C. §523(a)(10), the discharge does not extend to a debt that was or could have been listed or scheduled by the debtor in a case in which the debtor waived or was denied a discharge. The chapter 13 discharge under 11 U.S.C. §1328(a) excludes various debts from its scope, including debts which are non-dischargeable under 11 U.S.C. §523(a)(1), (2), (3), (4), (5), (8) and (9) but does not cover section 523(a)(10). See In re Ault, 271 B.R. 617 (Bankr. E. D. Ark. 2002)(holding that prior denial of discharge in chapter 7 was not grounds for denying confirmation of chapter 13 plan based on lack of good faith). Is court approval necessary to conduct mediation? As a general rule, private parties do not need court permission to mediate. A requirement to mediate may also be part of a scheduling order so that no further approval would be necessary. However, there are other circumstances where court approval is required. If the parties intend to use a sitting judge as a mediator, it will be necessary to obtain an order appointing a judicial mediator. If the trustee is going to be a party to a mediation, it is good practice to seek permission, especially if the trustee will be paying a share of the mediator’s fee. The parties should also seek court permission to mediate if it requires changing an existing scheduling order. Finally, it is good practice to request permission to mediate if a particular judge is skeptical of mediation as occurred in the attached article “Over my dead body” bears out.Selecting a mediator. If the parties cannot afford to litigate, they may not be able to afford an expensive mediator. Additionally, when mediating bankruptcy issues, a good general litigator may be out of his depth. In many districts, sitting bankruptcy judges will agree to mediate for their colleagues. This has the advantage of providing a mediator for no additional charge since the judge is already receiving a federal salary. A sitting judge brings gravitas to the mediation. Also, in many cases, there is a strong need for a client to tell their story. Being able to tell your story to a judicial mediator may provide catharsis to a party and make settlement possible. If a bankruptcy judge is not available, an experienced and respected consumer practitioner may be willing to act as mediator on a pro bono basis. There are some cases which may require a paid mediator. For example, in a national consumer class action against a sophisticated creditor, a highly skilled and well-paid mediator may be absolutely necessary. There are other circumstances where a client will take the mediation more seriously if they are paying something to mediate. Preparing for the mediation. The pre-mediation conference between the mediator and the attorneys and the mediation statement can be very helpful in preparing for mediation. Difficult lawyers and difficult clients can make for a difficult mediation. The mediator can use the pre-mediation conference to gauge the ability of the attorneys to work together cooperatively. While many attorneys like to use their mediation statement to litigate their case, this is of limited benefit to the mediator (other than perhaps revealing where one side has unrealistic expectations). Instead, a mediation statement which explores the strengths and weaknesses of the case as well as the personal dynamics of the parties will be much more useful. The pre-mediation session is also useful in setting expectations for the mediation. If one party has childcare issues, it is better to have talked this through ahead of time rather than having one party leave midway through. General Sessions. Mediators differ on whether general sessions can be helpful. In a case where one attorney insists on posturing, a general session may cause the other side to become defensive and resistant to making a deal. One of the most difficult mediations I ever participated in involved a trustee’s attorney who gave a two-hour PowerPoint explaining how the debtor had already lost the case and should prepare to give up while my client and I glared at him. Where there is a high level of animosity between the parties (or even the attorneys) putting them together in the same room may cause conflict and set back the ability to bargain. There are some cases where a joint opening session may be useful. Where one party wishes to make a sincere apology and the other side is not likely to react with disgust or disbelief, a joint session may be helpful. The same may be true where the aggrieved party has a deep-seated need to tell the other party how they have been hurt and the harming party is willing to listen respectfully. Of course, this is fraught with peril and should require the consent of both lawyers. When in doubt it is better to skip the joint session. Conducting the mediation. In most respects consumer mediation is like any other mediation. A mediator will use the tools to their advantage to help the parties achieve a solution. Some of the skills a mediator may use include:• Finding out the true interests. While the parties may lay out their goals in the mediation statement, this may not be the same as their interests. In a dispute between family members, the aggrieved party’s interest might be in repairing feelings that mom liked the black sheep son better and that a piece of jewelry given to the daughter-in-law may be highly emotional. In a case where the husband’s liability is pretty certain, the husband’s interest may be in protecting his wife (or vice versa). • Setting expectations. If a creditor believes that a non-dischargeable judgment means that the judge will “make” the defendant pay, discussing what it means to have a judgment may be useful. • Exploring BATNA. In any mediation, there is a choice between making a deal or not making a deal. This involves looking at the Best Alternative to No Agreement. If the creditor’s best alternative to no agreement is foreclosing on a home with serious deferred maintenance in a bad neighborhood, it might be more inclined to make a deal where the debtor keeps the home. If a retiree’s best alternative to no agreement is that the creditor will take a judgment that will be uncollectible because all of the debtor’s assets are exempt and his income comes from social security, liquidating non-exempt property to avoid a judgment may not be a good bet.• Exploring options. Parties entering a mediation may be laser focused on how the dispute can be resolved. However, if they start to hit dead ends, encouraging the parties to think creatively about other options may be helpful. Sometimes the parties or the attorneys may think of an option that wasn’t apparent when the mediation started. Other times, the solution that one party thought was obvious might not interest their opponent and it may be necessary to consider other possibilities. • Getting the parties to bargain. Mediation where the parties spend the first eight hours fuming at the mediator may not be a case that is going to settle. The sooner the parties can begin exchanging offers, the sooner the mediator and the parties can tell how much ground they have to cover. There is a rhythm to mediation. When parties being exchanging offers, they may start to see the possibility of an agreement. A resolution that was unthinkable at 9:00 a.m. may be a possibility once the parties have covered some ground. Writing up the agreement. Writing up the agreement is the most important part of the mediation. As one mediator put it, “an agreement that’s not in writing isn’t worth the paper it isn’t written on.” Letting the parties leave the mediation with an agreement in principle is an invitation for seller’s regret or bad faith attempts to retrade the deal. Experienced mediators will often have a template for an agreement that can be filled in with the specific terms of the deal. There are some basics that will apply in all agreements, such as that the parties mediated, whether the agreement will be subject to court approval and what law will govern the agreement. Once a draft agreement is prepared, all of the attorneys and parties need to take the time to review it and offer comments. Drafting the agreement will often bring to light details that the parties haven’t thought about and need to discuss further in order to get a binding agreement. The mediator needs to take the agreement through as many drafts as it takes to get approval in writing from all of the parties. One issue to consider in drafting an agreement is whether it will require court approval. An agreement to settle a non-dischargeability complaint in a chapter 7 case should not require court approval since it only involves claims between private parties. The following disputes will require court approval at a minimum: • Any action to which the trustee is a party.• Any action which affects the creditors generally, such as whether to grant or deny a discharge or allowance of exemptions.• Any agreement which will be incorporated into a plan (although the plan approval process should be sufficient without a separate motion to compromise).If an agreement requires court approval, the written settlement agreement should provide that the parties are bound to the agreement subject to court approval and that the parties are required to seek court approval. Otherwise, a bad faith actor could use the requirement of court approval to attempt to re-trade the deal. This paper was originally presented to the ABI Spring Meeting in April 2024.
Bankr. E.D.N.C.- In re Dawson- Valuation of a Mobile Home Ed Boltz Fri, 05/16/2025 - 16:38 Summary: In In re Dawson, the bankruptcy court faced a familiar but fact-intensive confirmation dispute over the value of a 1998 Fleetwood 76’x14’ manufactured home serving as the debtor's primary residence. Debtor Classie Dawson purchased the home in 2016 and sought to "cram down" the secured claim of 21st Mortgage Corporation—who holds a lien noted only on the certificate of title but did not file a UCC-1—to the asserted value of $4,890. 21st Mortgage objected, contending that the replacement value of the mobile home far exceeded the debtor’s figure. After a hearing involving both debtor testimony and expert appraisal, Judge Callaway ultimately sided with neither party fully, instead crafting a final valuation figure of $11,485.30, requiring Dawson to file an amended Chapter 13 plan or face dismissal. Key Issues: Replacement Value Standard Applies: As required by 11 U.S.C. § 506(a)(2), the court reiterated that “replacement value” governs cramdown valuations in Chapter 13 cases, not resale or liquidation value. This means the value a retail merchant would charge, considering the item’s age and condition. Scope of 21st Mortgage’s Lien: The court distinguished between affixed “accessions” and unattached personal property. While 21st Mortgage had a perfected lien on the manufactured home via certificate of title, it failed to perfect its interest in any unattached items—like an outdoor porch, AC unit, or refrigerator—by not filing a UCC-1. Thus, those items were excluded from the collateral’s value. Appraisal Disputed, Rebutted, and Revised: The court accepted testimony and an appraisal from 21st Mortgage’s expert, Robert Keck, but found numerous errors and overstatements. Debtor’s photographs and testimony rebutted the appraisal’s assumptions about the home’s condition. Notably, Judge Callaway identified improper double-counting, credits for missing or damaged items, and unsupported add-ons like a “wind zone” adjustment. Final Valuation: After adjusting downward for unpermitted collateral, flawed credits, and additional needed repairs (even estimating $750 worth of repairs not specified in the appraisal), the court arrived at a value of $11,485.30 as of the petition date. Commentary: This decision offers a thorough and practical template for litigating mobile home cramdown valuations in Chapter 13. It also serves as a cautionary tale to both debtor and creditor counsel. On the debtor’s side, relying solely on ad valorem tax values and “gut” replacement guesses won’t cut it. Judge Callaway rightly emphasized the debtor bears the burden of proving a plan-confirmation-appropriate value under § 1325(a)(5)(B). Yet, the court was notably patient with Ms. Dawson’s lay testimony, using her photos and homegrown estimates to challenge an overzealous appraisal. For creditors like 21st Mortgage, the opinion underscores the importance of precision in appraisals and perfection in lien documentation. Attempting to include non-affixed items in collateral value—without filing a UCC-1—was a losing strategy here. Moreover, the inclusion of speculative or duplicative value enhancements in the appraisal (e.g., double-counting a tow bar or assuming repairs weren’t needed) only served to undermine credibility. The court's methodology—relying in part on its own experience with mobile home valuations—highlights a pragmatic, fact-intensive approach often necessary in Chapter 13 confirmation proceedings. The resulting valuation, more than double the debtor’s original estimate but significantly below the creditor’s, demonstrates how judicial scrutiny can land on a middle ground that demands more realism from both sides. Practice Tip #1: Counsel should not treat manufactured home valuations as “boilerplate” issues. Both factual rigor (photos, receipts, inspection reports) and legal accuracy (on lien perfection and accession law) are essential to either defend or attack a proposed cramdown. As Dawson shows, unchallenged appraisals are not always accepted, and well-documented rebuttal testimony can be surprisingly persuasive. Practice Tip #2: Rather than merely allowing an expert for the mobile home lender to testify, it is important to make sure that any basis for a valuation is tested and documented. This can include: Improper Disclosures: In light of the 4th Circuit decision in Alig v. Quicken Loans verifying that the mobile home lender did not improperly disclose valuation amounts to the appraiser. Providing such estimates is "explicitly forbidden- and viewed as unethical" parties should not only refrain from providing those estimates, which would include details in the bankruptcy petition, but also, since appraisers are sophisticated professionals, amounts owed on liens, etc., as those could point the appraiser in the desired direction. Appraisers should be questioned about what information was provided in advance, since that can not only indicate a predetermined bias, but undermine the ethics and competence of the appraiser. Discovery: As a valuation hearing is a contested matter, debtors' attorneys should strongly consider submitting discovery requests to mobile home lenders in particular, to ensure that the "replacement value" accurately reflects the "commercially reasonable" amounts for which that lender sells repossessed vehicles. Contact me and I can provide a set of interrogatories, requests of production of document and for admissions, that have previously proved successful in encouraging mobile home lenders, often very protective of releasing information about their business practices to the public, in finding reasonable accommodations in these valuation battles. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_dawson.pdf (226.01 KB) Category Eastern District