Law Review: Rafael I. Pardo, Rethinking Antebellum Bankruptcy, 95 U. Colo. L. Rev. __ (2024 forthcoming) Ed Boltz Fri, 03/15/2024 - 19:06 Abstract: Bankruptcy law has been repeatedly reinvented over time in response to changing circumstances. The Bankruptcy Act of 1841—passed by Congress to address the financial ruin caused by the Panic of 1837—constituted a revolutionary break from its immediate predecessor, the Bankruptcy Act of 1800, which was the nation’s first bankruptcy statute. Although Congress repealed the 1841 Act in 1843, the legislation lasted significantly longer than recognized by scholars. The repeal legislation permitted pending bankruptcy cases to be finally resolved pursuant to the Act’s terms. Because debtors flooded the judicially understaffed 1841 Act system with over 46,000 cases, the Act’s administration continued into the 1860s, thereby allowing further development of the law. Importantly, the system operated at a time when the role of the business of slavery in the national economy was increasingly expanding. This Article focuses on two post repeal episodes involving legal innovation under the Act to demonstrate how an expanded periodization of its duration yields fresh insights into understanding the interaction between federal bankruptcy law and slavery: (1) the judicial constitutional settlement of voluntary bankruptcy relief, part of which occurred through a case involving a bankrupt enslaver; and (2) the practice pursuant to which some federal district courts empowered assignees—the federal court officials appointed to administer property surrendered by bankrupts in 1841 Act cases—to operate a bankrupt’s business before liquidating it, as evidenced by certain cases involving plantation owners who sought relief under the Act. Commentary: In revisiting the question,  perhaps last current in regard to the 1841 Bankruptcy Act  but certainly settled by the time of the 1898 Act,  about whether voluntary bankruptcies were  constitutional  or as "insolvencies"  were outside the constitutional grant of authority,  this article may actually have relevance to the contemporaneous issue about whether bankruptcy cases for solvent entities,  see,  for example,  In re Best Wall (blog forthcoming) for a discussion of the Texas-Two Step often used by corporations facing mass tort litigation,  are constitutionally permissible.   See for example how in 1843,  Circuit Justice Catron emphasized the broad power enjoyed by Congress when enacting legislation pursuant to the Bankruptcy Clause:  In considering the question before me, I have not pretended to give a definition, but purposely avoided any attempt to define the mere word “bankruptcy.” It is employed in the constitution in the plural and as part of an expression,—‘the subject of bankruptcies.’ The ideas attached to the word in this connection are numerous and complicated. They form a subject of extensive and complicated legislation. Of this subject congress has general jurisdiction; and the true inquiry is, to what limits is that jurisdiction restricted? I hold it extends to all cases where the law causes to be distributed the property of the debtor among his creditors; this is its least limit. Its greatest is a discharge of the debtor from his contracts. And all intermediate legislation, affecting substance and form, but tending to further the great end of the subject— distribution and discharge—are in the competency and discretion of congress. With the policy of a law, letting in all classes, others as well as traders, and permitting the bankrupt to come in voluntarily, and be discharged without the consent of his creditors, the courts have no concern; it belongs to the law makers. (Emphasis added.) As this article makes clear,  this issue never squarely reached the Supreme Court,  so this 182-year old question of whether "the subject of bankruptcies"  extends to include all debtors,  including those that have sufficient resources to pay creditors,  may remain unanswered. To read a copy of the transcript, please see: Blog comments Attachment Document rethinking_antebellum_bankruptcy_compressed.pdf (854.53 KB) Category Law Reviews & Studies

Law Review: Tavera, Daniel M. - The Unscheduled Creditor in a Chapter 7 Case with Assets, 35 Loy. Consumer L. Rev. 145 Ed Boltz Thu, 03/14/2024 - 17:13 Abstract: This Article analyzes the following question. Is a debt discharged "if the omitted creditor learned of the bankruptcy in time to file a tardy claim that actually was paid the same dividend as timely claims as permitted by § 726(a)(2)(C)?" This Article suggests, in the context of a liquidation, the debt may be discharged. This question is analyzed in three parts. First, this Article reviews the statutes applicable to omitted creditors and the history of the exception to discharge for omitted creditors. Then, this Article examines the case law adopting the plain language approach or the distribution approach. Lastly, before grappling with some implications arising under this split, this Article will address this question of statutory interpretation using principles of statutory construction commonly accepted and frequently cited by the Supreme Court to clarify the issues surrounding the interpretation of the term "timely." Commentary: An excellent survey on the case law in Chapter 7  regarding whether unscheduled debts are discharged.  Largely because many of the cases on this question arose pre-BAPCPA,  when there was more routinely a minimum "good faith"  dividend required to be paid to general unsecured creditors,  there is a dearth of case law or scholarship about whether an unscheduled debt is discharged in Chapter 13.   As it is far more common (and arguably statutorily mandated) that general unsecured  creditors receive the same in Chapter 13  as in Chapter 7,  namely nothing,  in jurisdictions that follow the "distribution approach"   those unscheduled creditors may also be discharged in a 0% Chapter 13 plan.    To read a copy of the transcript, please see: Blog comments Attachment Document the_unscheduled_creditor_in_a_chapter_7_case_with_assets-1_compressed.pdf (787.85 KB) Document the_unscheduled_creditor_in_a_chapter_7_case_with_assets-2_compressed.pdf (868.06 KB) Document the_unscheduled_creditor_in_a_chapter_7_case_with_assets-3_compressed.pdf (370.16 KB) Category Law Reviews & Studies

N.C. Ct. of App: Longphre v. KT Fin.- Date for Accrual of Interest Ed Boltz Wed, 03/13/2024 - 22:08 Summary: The Longphres  loaned KT Financial $330,000 by two separate promissory notes with 30% interest  and specified “[a]ll accrued interest and unpaid principal” was due one year after the notes were executed.  The notes also allowed the Longphres to collect attorney's fees pursuant to N.C.G.S. § 6-21.2 if KT Financial defaulted.   Surprise twist-  KT Financial defaulted. The Longphres demanded repayment of principal and accrued interest on the notes for a total of $546,912.32, eventually bringing suit.  KT Financial argued that the notes were interest free during the first year,  with the trial court agreeing and reducing the amount owed to $450,156.16,  but also awarding attorneys fees of 15%  or $67,523.42.   Second surprise twist-  Everybody  appealed The N.C Court of Appeals agreed with the trial court that as the contract was silent as to when interest began to accrue,  N.C.G.S.. § 24-3(1)  controlled and provides that: All bonds, bills, notes, bills of exchange, liquidated and settled accounts shall bear interest from the time they become due . . . unless it is specially expressed that interest is not to accrue until a time mentioned in the said writings or securities. As the date the notes came due was after one year, that is when interest commenced. The NCCOA  rejected KT Financial's argument regarding the award of attorneys fees as without merit. Commentary: While KT Financial's argument regarding the award of attorneys fees was without merit,  since those fees were capped at 15% of the outstanding balance,  raising that argument on appeal was without much risk and would seem to have bled the Longphres.  Presumably their lawyers were still charging for the appeal win or lose. Meaning that even had  the Longphres been successful, the net recovery would have been substantially less than their unrequited desire for $96,756.16  in accrued interest.   To read a copy of the transcript, please see: Blog comments Attachment Document longphre_v._kt_fin._llc.pdf (116.26 KB) Category NC Court of Appeals NC Courts

N.C. Ct. of App.: In re Jones- Validity of Reverse Mortgage not an issue for non-judicial foreclosure Ed Boltz Wed, 03/13/2024 - 04:05 Summary: George Jones qualified for a reverse mortgage on his home with American Advisors Group (AAG) and received the loan counseling  required under N.C.G.S. §53-269 and § 53-270,   with the counselor noting that Mr.  Jones appeared to understand and respond to "most questions".  After Mr.  Jones died,  AAG eventually commenced a non-judicial foreclosure. The Clerk of Court and subsequently the Superior Court denied the foreclosure  finding that the Note was not a valid debt as it failed to satisfy the counseling requirements. The N.C. Court of Appeal  reversed,  finding that  while  “[a] deed executed by an incompetent grantor may be set aside by a suit in equity[.]” In re Godwin, 121 N.C. App. 703, 705, 468 S.E.2d 811, 813 (1996),  that challenge can not be raised in a non-judicial foreclosure hearing,  but must instead  “equitable defenses to the foreclosure . . . should be asserted in an action to enjoin the foreclosure sale under” N.C. Gen. Stat. § 45-21.34.= Commentary: Hopefully  in nearly three years since AAG initiated this non-judicial foreclosure action,  the heirs of Mr.  Jones either commenced their own equitable action in Superior Court to challenge the validity of the note,  found financing to purchase this home  or,  if that has not been decided elsewhere  (meaning there is no Rooker-Feldman bar for the bankruptcy court)  they have considered filing a Chapter 13 bankruptcy and challenging the validity of this mortgage in that venue. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_jones.pdf (100.52 KB) Category NC Court of Appeals NC Courts

Article: Moran, Cathy- Tracking Down the Illusive Mortgage Interest Deduction Ed Boltz Mon, 03/11/2024 - 16:25 There's an argument that Chapter 13 Trustees should, at least in  some plans,  be sending debtors  1098s.   From the IRS instructions: ________ Collection agents. Generally, if you receive reportable interest payments (other than points) on behalf of someone else and you are the first person to receive the interest, such as a servicing bank collecting payments for a lender, you must file this form. Enter your name, address, TIN, and telephone number in the recipient entity area. You must file this form even though you do not include the interest received in your income but you merely transfer it to another person. If you wish, you may enter the name of the person for whom you collected the interest in box 10. The person for whom you collected the interest need not file Form 1098.   However, there is an exception to this rule for any period that (a) the first person to receive or collect the interest does not have the information needed to report on Form 1098, and (b) the person for whom the interest is received or collected would receive the interest in its trade or business if the interest were paid directly to such person. If (a) and (b) apply, the person on whose behalf the interest is received or collected is required to report on Form 1098. If interest is received or collected on behalf of another person other than an individual, such person is presumed to receive the interest in a trade or business.   ______ Governmental unit. A governmental unit (or any subsidiary agency) receiving mortgage interest from an individual of $600 or more must file this form. (Red emphasis added above.) _______ When its a simple cure and maintain  plan,  regardless of whether the on-going payment is made directly or through a conduit,  the trustee meets both criteria for the exception,  namely she  doesn't have the month by month break down of the interest and principal and the mortgage servicer, for whom the payment is collected, would better be able to provide that 1098 to the debtor/homeowner/taxpayer. But when the home mortgage is being paid in full or crammed down during the plan,  since the Trustee is presumably paying the Till rate,  which is likely different from the contract rate,  on the claim,  she's the one that  knows which portions of disbursements are for interest.  It doesn't require much skepticism about the competence of mortgage servicers to question whether 1098s  in these cases would accurately report interest paid. I don't know how common that is in San Francisco, where the author is,  but in North Carolina and elsewhere,  plans regularly have mobile homes  or modest 2nd mortgages that get paid either in full  or   FMV.  Failing to send Debtors a 1098 could not only be problematic under the IRC,  but also fail to maximize tax refunds for the benefit of the debtor and,  more importantly from the Trustee's perspective,  the estate. Even further would be the question of whether,  when paying interest to unsecured creditors, because the non-exempt equity in the debtor's home requires a 100% dividend,  whether that plan in  effect "secures"  those creditors making that interest deductible and a 1098 appropriate. To read a copy of the transcript, please see: Blog comments Attachment Document tracking_down_the_illusive_mortgage_interest_deduction_-_the_academy.pdf (525.45 KB) Document i1098.pdf (165.51 KB) Category Law Reviews & Studies

U.S. Seeks to Collect on Up to $20 Billion in Delinquent Covid LoansThe Wall Street Journal is reporting in an article dated March 7, 2024 that the U.S. is seeking to collect $20 Billion in  delinquent SBA EIDL Covid loans from small businesses and not for profit entities. The article can be found at https://www.wsj.com/business/u-s-seeks-to-collect-on-up-to-20-billion-in-delinquent-covid-loans-96dd36c6?mod=business_lead_storyThe SBA announced that  delinquent Covid EIDL loans with balances of $100,000 or less will be sent to the Treasury Department for collection.The referral is sent to Treasury Direct, which can seize government benefits such as portions of Social Security payments and tax refunds.Additionally, in our experience Treasury Direct can and will assess a 30% penalty on the unpaid balance of defaulted SBA EIDL loans (a point not covered in the article).Moreover, borrowers who default may have to recognize Cancellation of Debt income, which is ordinary income under section 108 of the Internal Revenue Code (another point not covered in the article).Many small businesses never intended to repay the loans, hoping they would be forgiven like PPP loans; however, this is not the case.Borrowers with questions about defaulted SBA EIDL loans should contact Jim Shenwick, Esq. Jim has an LLM in Taxation from NYU law school and he is familiar with the Cancellation of Debt tax issues. Jim Shenwick, Esq  917 363 3391  [email protected] Please click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15minWe held individuals & businesses with too much debt!---Jim Shenwick, Esq Blog SBA EIDL Posts:SBA EIDL Loan Charge Offshttps://shenwick.blogspot.com/2024/02/sba-eidl-loan-charge-offs.htmlSBA EIDL LOANS & CIVIL & CRIMINAL PENALTIES & BANKRUPTCY FILING Shttps://shenwick.blogspot.com/2024/01/sba-eidl-loans-civil-criminal-penalties.htmlDefaulted SBA EIDL Loans: In Reversal, U.S. to Heighten Efforts to Collect Billions in Unpaid Covid Loanshttps://shenwick.blogspot.com/2023/12/defaulted-sba-eidl-loans-in-reversal-us.htmlSBA EIDL Loan Defaults and the Statute of Limitations 12-24-2023https://shenwick.blogspot.com/2023/12/sba-eidl-loan-defaults-and-statute-of.htmlSBA EIDL Penalties if an SBA EIDL Loan is Not Repaidhttps://shenwick.blogspot.com/2023/12/sba-eidl-penalties-if-sba-eidl-loan-is.htmlMisuse or Misapply SBA EIDL Loan Proceeds and Chapter 7 Bankruptcy Filingshttps://shenwick.blogspot.com/2023/08/misuse-or-misapply-sba-eidl-loan.htmlSBA EIDL HARDSHIP PROGRA Mhttps://shenwick.blogspot.com/2023/07/sba-eidl-hardship-program.htmlDefaulted SBA EIDL Loans, Limited Liability Company (LLC) and Cancellation of Debt Income (COD) under Section 108 of the Internal Revenue Codehttps://shenwick.blogspot.com/2023/07/defaulted-sba-eidl-loans-limited.htmlOffers In Compromise ("OIC") for Defaulted SBA EIDL loans and Section 108 of the Internal Revenue Code ("IRC"), Relief of Indebted Income, a Trap for the Unwary!https://shenwick.blogspot.com/2023/05/offers-in-compromise-oic-for-defaulted.htmlEIDL LOAN WORKOUTS AND BANKRUPTCY    https://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.htmlEIDL Loan Default Questions & Answers https://shenwick.blogspot.com/2022/10/eidl-loan-default-questions-answers.htmlEIDL LOAN DEFAULT DOCUMENT REVIEW, WORKOUT, BANKRUPTCY FILING & OFFER IN COMPROMIS Ehttps://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.htmlEIDL Defaulted Loanshttps://shenwick.blogspot.com/2022/07/eidl-defaulted-loans.htmlNew Relief Program for SBA EIDL Borrowers Who are Having Difficulty Repaying EIDL Loans " Hardship Accommodation Plan"https://shenwick.blogspot.com/2023/05/new-relief-program-for-sba-eidl.htmlEIDL LOANS and SBA OFFER IN COMPROMISE PROGRA Mhttps://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.htmlPPP & EIDL Fraudhttps://shenwick.blogspot.com/2022/08/ppp-eidl-fraud.htmlBetter to connect-What small business owners need to know about repaying loans tied to pandemic relief from the SBA EIDL Loanshttps://shenwick.blogspot.com/2022/11/better-to-connect-what-small-business.html

N.C. Ct. of App.: Jhang v. Temple- Sufficiency of Service Ed Boltz Sun, 03/10/2024 - 00:13 Summary: On appeal, Templeton University  asserted that service of a lawsuit  was improper because it was not made to the appropriate office of an officer, director, or managing agent nor to an actual officer, director, or managing agent.  The N.C. Court of Appeals rejected this,  as service "does not require that the person upon whom summons is served be in fact in charge of the office of the officer, director or managing agent of the corporation, merely that the person be ‘apparently in charge’” with the evidence showing such apparent authority.  Further,  the responses filed by a non-attorney director for Templeton University were insufficient to contest service,  as “a corporation must be represented by a duly admitted and licensed attorney-at-law and cannot proceed pro se. . . .” LexisNexis, Div. of Reed Elsevier, Inc. v. Travishan Corp., 155 N.C. App. 205, 209, 573 S.E.2d 547, 549 (2002). To read a copy of the transcript, please see: Blog comments Attachment Document jhang_v._templeton_univ.pdf (141.48 KB) Category NC Court of Appeals NC Courts

4th Cir.: Protopas v. Travelers- Subject Matter Jurisdiction for State Receivership Ed Boltz Sat, 03/09/2024 - 23:04 Summary: A South Carolina court-appointed receiver for Payne & Keller Co, a defunct construction company facing asbestos litigation, brought an action against Travelers Casualty and Surety Company and other insurers, alleging breaches of insurance policies issued to a defunct company within a state receivership. Travelers removed the action to federal court, asserting diversity jurisdiction,  but  the district court granted the receiver’s motion to remand the case back to state court holding  that it lacked subject-matter jurisdiction because  The case involved property of a state receivership exclusively under the jurisdiction of the state court (based on the doctrine articulated in Barton v. Barbour), and  The removal lacked unanimous consent of all defendants due to a forum selection clause in some of the insurance policies issued to the defunct company. Upon appeal, the United States Court of Appeals for the Fourth Circuit  affirmed. Commentary: Again,  another in the recent trend of cases that were placed in state court receivership rather than filing a bankruptcy, involuntary or otherwise.  Since Payne & Keller was actually a Texas corporation,  it is disappointing that it failed to dance the Texas Two-Step like most other companies seem to do when facing this type of litigation, especially since Charlotte,  the Queen City of Asbestos Bankruptcy,  was barely a stone's throw away from Columbia.   To read a copy of the transcript, please see: Blog comments Attachment Document protopas_v._travellers.pdf (172.37 KB) Category 4th Circuit Court of Appeals

4th Cir.: Mohamed v. Bank of America- Electronic Funds Transfers Act Ed Boltz Sat, 03/09/2024 - 19:14 Summary: Mohamed sued Bank of America alleging violations of the EFTA, particularly regarding unauthorized electronic fund transfers. The case centered on whether Bank of America properly provided notice of the right to cancel preauthorized electronic fund transfers, as required by the EFTA. Mohamed argued that the bank's notice did not comply with the law. The Court of Appeals found in favor of Mohamed, ruling that Bank of America's notice did not adequately inform consumers of their rights under the EFTA  and by failing to provide adequate fraud prevention and investigation. Further,  a "covered account" under the EFTA  includes a prepaid account, including one loaded with unemployment assistance related to the pandemic such as a government benefit account. Commentary:  Some of the main protections under the EFTA include: Disclosure Requirements: Financial institutions must provide consumers with clear and comprehensive disclosures regarding the terms and conditions of electronic fund transfer services, including fees, liability for unauthorized transactions, and procedures for resolving errors. Limits on Liability for Unauthorized Transfers: The EFTA limits a consumer's liability for unauthorized electronic fund transfers, provided the consumer promptly reports the unauthorized activity to the financial institution. Typically, the consumer's liability is capped at $50 if the report is made within two business days of discovering the unauthorized transfer. Error Resolution Procedures: Financial institutions are required to establish procedures for consumers to report errors related to electronic fund transfers, such as incorrect amounts or unauthorized transactions. Upon receiving a report, the institution must investigate and resolve the error promptly. Right to Stop Payments: Consumers have the right to stop preauthorized electronic fund transfers by notifying the financial institution at least three business days before the scheduled transfer date. Prompt Crediting of Deposits: Financial institutions must promptly credit electronic deposits, such as payroll direct deposits or electronic benefit transfers, to the consumer's account on the day the funds are received. Fair Treatment of Consumers: The EFTA prohibits unfair or deceptive practices by financial institutions in connection with electronic fund transfer services, ensuring consumers are treated fairly and transparently.These protections may apply in Chapter 13 cases, potentially in regard to electronic payments to Chapter 13 trustee but perhaps also in electronic transfers made by Chapter 13 Trustees,  as the definition in the EFTA of a consumer's account  could also include money that the Trustee holds, the definition of a financial institution  could include Trustees themselves and the phrase preauthorized electronic fund transfer  arguably includes those authorized under a voluntary Chapter 13 repayment plan.   Could this mean that  the EFTA  apply and  provides Chapter 13 debtors some degree of continuing control to stop payments?  Similarly,  does the EFTA  require prompt crediting of payments received,  again either from the debtor to the Chapter 13 trustee or from the Chapter 13 Trustee to a creditor? To read a copy of the transcript, please see: Blog comments Attachment Document mohamed_v._bank_of_america_1.pdf (157.45 KB) Category 4th Circuit Court of Appeals

Bankr. M.D.N.C.: In re Randolph Hospital I & II- Motion for Summary Judgment and Expert Witnesses in a Bench Trial Ed Boltz Sat, 03/09/2024 - 18:47 Summary (MSJ): The Liquidating Trustee   sought judgment on his claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and unfair or deceptive acts  or practices against   Moses H. Cone Memorial Hospital Operating Corporation ("Cone Health),  with both parties seeking summary judgment.   Ranging over 76 pages,  the bankruptcy court opinion regarding the numerous causes of action variously granted or denied the parties' Motions for Summary Judgment,  with specific order also attached. Summary  (Expert Witness): The bankruptcy court excluded portions of an expert witness's testimony  to the extent that it involved conclusions as  to a parties' legal responsibilities  or its alleged breaches of the agreement,  but otherwise overruled in all other respects.  Fed. R. Evid. 702 (2023),  specifically provides that:  A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if the proponent demonstrates to the court that it is more likely than not that:  (a) the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the product of reliable principles and methods; and  (d) the expert’s opinion reflects a reliable application of the principles and methods to the facts of the case. .    The application of Rule 702 here was "relaxed"  as  this case was to be decided by the bankruptcy judge,  rather than by a jury,  so "there is less need for the gatekeeper to keep the gate when the gatekeeper is keeping the gate only for himself."  . See, e.g., United States v. Wood, 741 F.3d 417, 425 (4th Cir. 2013) (quoting United States v. Brown, 415 F.3d 1257, 1269 (11th Cir. 2005)). Commentary: While reading 94 pages about the contractual fights in a hospital bankruptcy is not immediately pertinent for most consumers attorneys,  the second of these opinions does  examine in detail  the allowance of expert witnesses in bankruptcy cases,  with it appearing that broad discretion, almost up to the point an expert providing legal opinions, should be given in bench trials, whether  medical systems experts or, as an example more likely in a consumer context,  for forensic mortgage accountants. Additionally useful is the discussion of the waivers of breaches of contract,  which the bankruptcy court held requires: The waiving party is the innocent, or nonbreaching party;  The breach does not involve total repudiation of the contract so that the nonbreaching party continues to receive some of the bargained-for consideration;   The innocent party is aware of the breach; The innocent party intentionally waives his right to excuse or repudiate his own performance by continuing to perform or accept the partial performance of the breaching party. See Wheeler v. Wheeler, 263 S.E.2d 763, 766-767 (N.C. 1980).  In consumer cases,  the question of waiver  touches on,  for example,  whether a reaffirmation is required. A waiver  of a breach of contract,  including perhaps the acceptance of payments after receiving notice of a breach of contract due to the filing of bankruptcy,  could remove any event of default and make any reaffirmation an impermissible and unnecessary "undue hardship".    Blog comments Attachment Document robichaux_v._cone_22-02002_-_order_re_objection_to_expert_reports.pdf (621.43 KB) Document randolph_cone_msj.pdf (403.22 KB) Category North Carolina Bankruptcy Cases Middle District