M.D.N.C.: Joyner-Perry v. Selene- FDCPA & NC Debt Collection Claims Survive Motion to Dismiss by Mortgage Servicer Ed Boltz Thu, 09/25/2025 - 17:12 Summary: Three North Carolina homeowners brought a putative class action against Selene Finance, alleging that Selene’s standardized “default and intent to accelerate” letters violated the FDCPA, the North Carolina Debt Collection Act, and the North Carolina Collection Agencies Act. They also asserted negligent misrepresentation under state law. Selene moved to dismiss. Judge Schroeder denied most of Selene’s motion, allowing the FDCPA and state debt collection claims to proceed. He held that even though Selene used the conditional word “may,” its threats of acceleration and foreclosure could still mislead the least sophisticated consumer if Selene did not, in fact, intend to follow through on such threats. As the court explained, “conditional language does not insulate a debt collector from liability” when the practice is to never actually accelerate or foreclose under the terms described. The court likewise sustained claims under the NCDCA and NCCAA, noting that “informational injury” suffices to show harm. Only negligent misrepresentation was dismissed for lack of allegations of pecuniary loss. One plaintiff, Joyner-Perry, was dismissed from the FDCPA subclass because her loan was not in default when Selene acquired it. Commentary: While this case is framed as a consumer protection class action under the FDCPA and North Carolina debt collection statutes, it should not be overlooked that many of the putative class members almost certainly also passed through the bankruptcy courts—most often Chapter 13—during their struggles with Selene. Selene is a frequent filer of proofs of claim in Chapter 13 cases in North Carolina, and the standardized letters at issue here would have overlapped with bankruptcy filings. That raises two important concerns. First, damages from these improper collection communications should include not just emotional distress and informational injury, but also the very real costs imposed when any of these  borrowers resorted to bankruptcy protection: attorneys’ fees, Chapter 13 trustee commissions, court filing fees, and the years-long burden of repayment plans. Any settlement or award must account for those harms, which flow directly from Selene’s practices.  Second, if there is a class wide recovery, its distribution should reflect the difficulty of getting relief in bankruptcy court itself. As practitioners know, consumer rights claims—particularly FDCPA and state law claims—tend to see stronger outcomes in federal district court than when brought in bankruptcy courts, where they are too often minimized as tangential to case administration. Given these realities, coordination between any recovery in this case and parallel or past bankruptcy proceedings is critical. NACBA (the National Association of Consumer Bankruptcy Attorneys) is well-positioned to assist in such coordination, ensuring that debtors who filed Chapter 13 are not overlooked, and would be an appropriate recipient for any cy pres award if direct distribution proves impractical. This case underscores the importance of federal district courts in vindicating consumer rights against mortgage servicers, and it highlights the need for thoughtful resolution that takes into account the full spectrum of damages suffered by homeowners—including the costs of bankruptcy itself. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document joyner-perry_v._selene.pdf (165.75 KB) Category Middle District

Bankr. W.D.N.C.- In re Gilbert- Sua Sponte Dismissal Hearing for Third Filing, Despite no Automatic Stay Ed Boltz Wed, 09/24/2025 - 16:32 Summary and Commentary (In re Gilbert, W.D.N.C. 2025) Russell Wade Gilbert filed his third Chapter 13 case in just over fourteen months, all pro se and without an attorney. His first case (June 2024) was dismissed for failure to propose a feasible plan, make initial payments, and file required tax returns. His second case (November 2024) was dismissed in July 2025 for defaulting on plan payments. Just six weeks later, he filed the present case in August 2025. Under 11 U.S.C. § 362(c)(4), when a debtor has had two or more bankruptcy cases dismissed within the preceding year, no automatic stay goes into effect in the new filing. Instead, the debtor must request that the court impose a stay, and only after notice and hearing can the court do so if the debtor shows the case was filed in good faith. Judge Ashley Austin Edwards’ show cause order specifically noted that, because Gilbert had two prior dismissals in the past year, “the automatic stay is not in effect in this case”. The claims filed in his prior case were modest. The IRS and N.C. Department of Revenue were owed less than $1,000 in total. The only significant creditor was the Kania Law Firm, holding a $9,776.83 secured claim for attorney’s fees and costs from a tax foreclosure proceeding. That raises the practical question: is a hearing even necessary here? Since no stay exists, both Kania (as foreclosure counsel), the IRS, and NCDOR are free to pursue collection and enforcement remedies immediately, without needing relief from stay. Unless Gilbert requests and persuades the Court to impose a stay under § 362(c)(4)(B), the creditors are not restricted. Commentary: This case highlights how serial pro se filings often operate less as genuine efforts to reorganize than as attempts to forestall inevitable foreclosure or collection.  The Bankruptcy Code already provides a built-in safeguard against abuse—§ 362(c)(4) strips repeat filers of the automatic stay. Here, where the debtor owes only small amounts to taxing authorities and the bulk of the claim lies with foreclosure counsel, the practical effect of the third filing is minimal. Creditors can simply proceed as if no bankruptcy had been filed at all. The Court has nonetheless scheduled what appears to be an unnecessary show cause hearing, since absent a motion for stay protection by the debtor, the outcome seems foreordained: dismissal or at best, a stern warning that without good faith (and without counsel), Chapter 13 offers no refuge. With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document in_re_gilbert.pdf (219.11 KB) Category Western District

When you file a bankruptcy petition, you get an “automatic stay.”  This halts collection efforts from creditors and gives you breathing room.  While the stay is in place, they cannot call you, threaten you, or initiate other collection or enforcement efforts.  But what about utility bills and tax liens? Utility bills aren’t the same as a debt, because each month, a new service is carried out and new payment is issued.  While they are not strictly covered under the automatic stay like other debts are, there are rules that can help prevent a shutoff, at least for a while.  Similarly, tax liens can continue to be calculated and move forward, but they cannot actually go into effect or be applied until your automatic stay ends. For help stopping shutoffs and liens, call the Philadelphia bankruptcy attorneys at Young, Marr, Mallis & Associates at (215) 701-6519. How an Automatic Stay Stops Collections As soon as you file your bankruptcy petition in court, an automatic stay is put in place.  This is a court order to stop collection efforts.  You can show the creditor proof that you filed for bankruptcy, and they have to stop everything they’re doing to try to get money from you. This applies to all kinds of debts and collection efforts, and it can stop many of the enforcement mechanisms that creditors use.  For example, wage garnishment can be stopped, forced sale of your residence can be stopped, and liens can be stopped from going into use. But while it is powerful, an automatic stay doesn’t stop everything. Does the Automatic Stay Apply to Utility Bills? An automatic stay sort of applies to utility bills.  In the sense that back payments are debts you now owe the utility company, they become creditors and can try to enforce the back payments through collections efforts.  This can negatively impact your credit score and lead to collections, and all of those can be stopped like with any other creditor. However, utility companies also have ongoing contracts with you.  You pay them each month for the services they rendered, and a new bill is going to come around, likely before your automatic stay ends.  Are they expected to just continue services while you rack up more debt? This is all a bit different from something like a debt to a mortgage company or credit card company, where there are no additional services they render, and interest continues to accrue while you aren’t paying. How Bankruptcy Affects Utilities Utilities services are instead governed by the rules of 11 U.S.C. § 366. This law puts two major requirements on the utility company when you file bankruptcy proceedings: They cannot stop service to discriminate against you solely because you filed for bankruptcy. This is impermissible discrimination. They cannot stop service at all until 20 days have passed and you haven’t taken steps to pay future bills. The antidiscrimination protections are tough to enforce, since they can potentially point to other excuses, like the fact that you are not paying them.  But if you follow all the necessary steps for option two, then you can halt shutoffs. Section 366(b) stops shutoffs if you have given the utility company “adequate assurance of payment.”  This means setting up a plan with them to pay your ongoing bills and figuring out how to pay past bills.  It usually requires a deposit or other surety. You can also have the court modify the amount you have to pay, potentially helping you make adequate arrangements to avoid a shutoff.  Our Pennsylvania bankruptcy lawyers can help you arrange these kinds of things, when possible. If you don’t do this, then they can shut off your utilities.  You may also need to continue to stay in touch with them and follow through with your promises, or else they can eventually shut off your utilities under this section. Can the Government Create Tax Liens While I’m in Bankruptcy? While an automatic stay might stop tax collection efforts against you, it does not require the government to sit on its hands.  The government can take proactive steps to continue with collections on their end, they just can’t actually enforce those tax collection efforts against you while the automatic stay is in place. This ultimately means that they can start the process of obtaining a lien, calculate liens, and then hit pause.  Those liens would only go into effect and actually attach once the automatic stay ends. This also does not apply if the tax debt in question won’t actually be discharged under your bankruptcy.  For example, new tax debts that arose while you were in bankruptcy proceedings aren’t covered under the existing bankruptcy petition. Because of this, it is important to stay on top of new tax payments, withhold the proper amounts at work, and avoid going into additional tax debt during and after bankruptcy. When is My Tax Debt Discharged? At the end of your bankruptcy case, whether you paid through Chapter 13 or underwent liquidation through Chapter 7, the debts will be paid or discharged.  That includes the tax debts you went into bankruptcy with. However, new tax debts are not covered under this.  If liens were created to cover your new debts, they can go into effect and lead to property being seized under those liens. Which Bankruptcy Stops My Utility and Tax Debt Collections? Most individuals and couples filing for bankruptcy will do so through Chapter 7 or Chapter 13.  Chapter 11 might sound familiar, but this is usually a business bankruptcy. In Chapter 7, you can only apply with a low income level.  Instead of you paying back debts as you go with your income, assets are instead liquidated to help cover your debts, then anything left is discharged.  With Chapter 13, you typically have a higher income and can allocate that toward one payment to pay off debts as you go. In both cases, automatic stays are granted.  In addition, these other rules about getting 20 days to give assurances for utilities also apply to both types of bankruptcy. Call Our Bankruptcy Lawyers in Pennsylvania Today Call (215) 701-6519 for a free case review with Young, Marr, Mallis & Associates’ Berks County, PA bankruptcy lawyers.

Bankr. E.D.N.C.: Sanderson v. Gross Family Trust- Avoidance of "Estate Planning" Transfer Ed Boltz Tue, 09/23/2025 - 17:50 Summary: This adversary proceeding arose out of the collapse of Wireless Systems Solutions, LLC, a company almost entirely owned and controlled by Susan and Laslo Gross. In 2019, Wireless entered into a Teaming Agreement with SmartSky Networks, which carried potential damages of up to $10 million for breach. By early 2020, the relationship with SmartSky was unraveling, and Wireless faced mounting liabilities. At the same time, Mrs. Gross created the Susan L. Gross Family Trust, naming her husband as trustee and their children as beneficiaries. On March 6, 2020, Wireless transferred $1 million into that Trust. Within weeks, the Trust used much of those funds to buy real estate in Watauga County, while Wireless’s finances spiraled further downward. The Chapter 7 Trustee sought to claw back the transfer under 11 U.S.C. § 544(b) and North Carolina’s Uniform Voidable Transactions Act. The court found that the transfer bore numerous badges of fraud: it was made to an insider, for no consideration, while Wireless faced mounting debts and litigation with SmartSky, and under the complete control of the same insiders who ran the company. The supposed justification—“estate planning”—was dismissed as a post hoc gloss on what was in reality an asset-protection scheme. The court concluded that the transfer was both an actual fraudulent transfer (§ 39-23.4(a)(1)) and a constructively fraudulent transfer (§ 39-23.4(a)(2)) and entered judgment for the Trustee, avoiding the transfer. Commentary: This case is a reminder that calling something “estate planning” does not immunize insider transfers when creditors are already circling. The Grosses’ attempt to move $1 million out of their closely held company into a family trust—right as litigation with their only major customer loomed—was almost a textbook case of fraudulent transfer. Judge Callaway was especially critical of Mrs. Gross’s shifting testimony, noting her “selective memory issues” and tendency to shape her story to the moment. The defendants implicitly invoked the idea that they were acting on professional advice when setting up the trust. Here, the “advice of counsel” defense, as discussed by the Fourth Circuit in Sugar v. Burnett (2024), is instructive. The Fourth Circuit emphasized that reliance on counsel can negate fraudulent intent only where the debtor (1) fully discloses material facts, (2) seeks advice in good faith, and (3) reasonably relies on that advice. In the Grosses’ case, those elements were lacking: Mrs. Gross downplayed or denied critical facts about Wireless’s deteriorating relationship with SmartSky, their timing showed asset-protection motives rather than good-faith estate planning, and no reasonable person could believe that siphoning $1 million from an operating business on the brink of litigation would be immune from avoidance simply because it passed through a lawyer’s hands. The lesson for debtors and their counsel is clear: a debtor cannot launder fraudulent intent through an estate planning lawyer. Estate planning advice may provide a veneer of legitimacy, but without candor, good faith, and reasonableness, it will not withstand scrutiny. For practitioners, two points stand out: Badges of fraud add up. Insider transfers, lack of consideration, and impending liabilities will overwhelm “estate planning” rationales. Advice of counsel is not a shield without transparency. Following Sugar v. Burnett, courts in the Fourth Circuit will demand evidence that the debtor disclosed the whole picture to their attorneys,  both in bankruptcy and otherwise, and reasonably relied on the advice given. In short, when “estate planning” collides with creditor exposure, it is almost always the creditors who will win. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document sanderson_v._gross_family_trust.pdf (312.55 KB) Category Eastern District

Bankr. W.D.N.C.: In re Davis- Private School Educational Expenses for Individualized Educational Program are not a Special Circumstance under Chapter 7 Means Test Ed Boltz Mon, 09/22/2025 - 17:06 Summary: The debtor, earning more than $200,000 annually, sought Chapter 7 relief but was met with a presumption of abuse once the Bankruptcy Administrator corrected her means test. She attempted to rebut that presumption under § 707(b)(2)(B) by asserting “special circumstances,” namely her fourteen-year-old daughter’s sensory processing disorder that, according to the debtor, required enrollment in a private school costing $24,000 per year. Despite extensive testimony and documentation, the Court found that the debtor had not exhausted available alternatives, particularly by failing even to request a Section 504 plan from Charlotte-Mecklenburg Schools. Because the IDEA requires public schools to provide a “free appropriate public education,” the Court held the debtor had not shown that there was “no reasonable alternative” to the private school expense. The motion to dismiss was therefore granted, with 30 days to convert to Chapter 13. Commentary: In re Davis underscores the difficulty debtors face in using the “special circumstances” exception: courts demand exhaustion of reasonable alternatives, especially when statutory protections like the IDEA exist.  Could these expenses have been considered under § 707(b)(2)(A)(ii)(II)? It may have been a strategic misstep here to  frame the expense as “special circumstances” rather than as an allowed deduction under § 707(b)(2)(A)(ii)(II).   Section 707(b)(2)(A)(ii)(II) allows deduction of expenses “reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor’s immediate family.” The debtor’s daughter clearly fits the definition of a disabled member of the Debtor's immediate family. Unlike the narrow “special circumstances” exception in § 707(b)(2)(B), this provision is built into the means test itself, so arguably not as stringent a requirement. That said, the statutory language still requires that the expenses be both “reasonable and necessary.” Courts generally place the burden on the debtor to establish that reasonableness, though some case law (e.g., In re Sorrells on post-confirmation modifications) illustrates that once the trustee raises an objection, the ultimate burden of persuasion may shift. Here, the Court’s skepticism that the debtor had even attempted to utilize public school accommodations strongly suggests that the same expenses would have failed the § 707(b)(2)(A)(ii)(II) test as not “reasonably necessary.” Future planning: ABLE accounts and the NC exemption Effective September 1, 2025, North Carolina law exempts ABLE accounts without limitation. That exemption may provide a more viable path for families in situations like Davis. Contributions to an ABLE account for a disabled child could be treated as expenses “for care and support” and—if reasonably calculated—pass through the means test under § 707(b)(2)(A)(ii)(II). Unlike private tuition, ABLE contributions carry the imprimatur of federal and state policy, providing tax-advantaged savings specifically for disabled dependents’ present and future needs. Creditors and trustees may still challenge the amount as excessive, but courts are likely to be more receptive given the statutory framework. Education Attorney Fees as a Deductible Priority Expense Section 330(a)(4)(B) provides that in a Chapter 12 or 13 case, “the court may allow reasonable compensation to the debtor’s attorney for representing the interests of the debtor in connection with the bankruptcy case,” without the requirement—present in Chapters 7 and 11—that the services benefit the estate. That broad phrasing opens the door to compensation for legal services that help a debtor navigate obligations and expenses that are central to the debtor’s ability to propose and perform under a plan. From there: §503(b)(2) elevates compensation awarded under §330 to an administrative expense. §507(a)(1)(A) grants administrative expenses first-priority status. §707(b)(2)(iv), in the means test, explicitly allows deduction of “the total of all amounts…for priority claims” spread over 60 months. Thus, if Ms. Davis’s converts to Chapter 13  and hires an education attorney to pursue an adequate IEP under the IDEA—or to document that no adequate IEP is available—those attorney’s fees could be approved under §330(a)(4)(B), paid as an administrative expense, and deducted in full as a priority claim in the means test or diverting much of any dividend to nonpriority unsecured creditors to the priority administrative expense of hiring an education attorney. Strategic Impact This approach flips the posture of the case. Rather than trying (and failing) to shoehorn private school tuition into the “special circumstances” exception of §707(b)(2)(B), or risk rejection under §707(b)(2)(A)(ii)(II) for lack of reasonableness, the debtor channels resources into obtaining a legal determination. That determination either: Produces an adequate IEP – which may satisfy the Bankruptcy Court that public school is a reasonable alternative, eliminating the tuition issue. Or, Proves no adequate IEP is available – bolstering the case for private school tuition as a “reasonable and necessary” expense, now grounded in legal documentation rather than parental assertion. Either way, the attorney’s fees are deductible as a priority administrative expense, reducing disposable income available to unsecured creditors in Chapter 13. Potential Pathway Back to Chapter 7   If the IEP process confirms that no public alternative is reasonably available, the debtor may then move to convert back to Chapter 7. At that point, the private school tuition would be far better positioned to qualify under §707(b)(2)(A)(ii)(II) as a reasonable and necessary expense for a disabled dependent. In effect, the Chapter 13 detour—funded in part by deductible attorney’s fees—lays the evidentiary foundation for a successful rebuttal of abuse under Chapter 7. Given the case law in the W.D.N.C.,  including In re Siler, 426 B.R. 167 (Bankr. W.D.N.C. 2010), where Judge Whitley held that even though a 401k contribution was not deductible in a Chapter 7 means test,  since it would be deductible if the case was converted to Chapter 13 forcing that conversion was pointless,  which has historically taken a more pragmatic view of the Chapter 7  Means in seeking to "avoid absurd results",  it seems in Ms Davis' case there many be not only an absurd result, but a rather unkind one as well. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_davis.pdf (337.51 KB) Category Western District

Law Review: Norbert, Scott- The Supreme Court and the Discharge of Debts in Consumer Bankruptcy Ed Boltz Fri, 09/19/2025 - 15:16 Available at:   www.ablj.org/the-supreme-court-and-the-discharge-of-debts-in-consumer-bankruptcy-cases-vol-99-issue-2-pdf/ Abstract: The article examines the U.S. Supreme Court’s eleven decisions on the exceptions to discharge under Bankruptcy Code section 523(a). This jurisprudence is predictable in its focus on statutory text and at the same time remarkable for its almost complete aversion to bankruptcy policy.  The limits of a bankruptcy jurisprudence without bankruptcy policy are clearly exposed in the Court’s most recent decision on the exceptions to discharge, Bartenwerfer v. Buckley, where the Court ignored the fundamental bankruptcy policy of granting a discharge to honest but unfortunate debtors, holding that an innocent debtor could not discharge a fraud debt for which she was vicariously liable under state law. Summary: Scott Norberg’s article, The Supreme Court and the Discharge of Debts in Consumer Bankruptcy Cases, surveys the eleven post-1978 Supreme Court decisions interpreting the scope of the discharge, nearly all arising under § 523(a). He finds the Court’s approach to be highly textualist, with a near total disregard for bankruptcy policy. While the Court occasionally mentions the “fresh start” for “honest but unfortunate debtors,” it has not treated that policy as a guiding canon. Instead, the Justices have relied on statutory text, context, and statutory history—while generally avoiding legislative history. The article emphasizes two themes: Bad Acts vs. Other Exceptions – Norberg distinguishes the “bad acts” exceptions (§ 523(a)(2), (4), and (6)) from the rest. Unlike tax, student loan, or support debts (which protect a creditor’s identifiable interest in repayment), the bad-acts exceptions function like § 727(a) objections to discharge: they target dishonest debtors and limit relief to those who truly deserve a fresh start. Creditor-Friendly Results – In eight of eleven cases (seven of nine involving bad acts), the Court sided with creditors, narrowing discharge and limiting fresh starts. Yet, the Court has not articulated a pro-creditor interpretive principle. Rather, it portrays itself as neutral, though its pattern suggests a corrective against perceived pro-debtor lower court rulings. Norberg critiques Bartenwerfer v. Buckley (2023), where the Court held that a debtor could not discharge a fraud debt based solely on vicarious liability for her partner’s fraud. He argues that the Court missed the crucial policy link between § 727(a) and § 523(a): the bad-acts exceptions are about the debtor’s character, not about privileging the fraud creditor’s repayment interests. By ignoring this, the Court imposed nondischargeability on an innocent debtor, undermining the principle that bankruptcy relief should be reserved for the “honest but unfortunate.” The article also observes the influence of non-legal factors: the Solicitor General almost always sided with creditors, and the Court nearly always followed. The absence of a government agency advancing a bankruptcy-policy perspective (in contrast to the SEC or EPA in their fields) leaves the Court without a counterweight to creditor arguments. Commentary: This piece underscores what many consumer lawyers have long felt: the Supreme Court’s bankruptcy jurisprudence is neither guided by coherent bankruptcy policy nor animated by concern for struggling families. Instead, the Court clings to textualism while quietly narrowing the discharge. Norberg’s critique of Bartenwerfer is particularly apt. By allowing nondischargeability based on vicarious liability, the Court ignored the foundational principle that the discharge is meant for the “honest but unfortunate.” If the debtor herself acted without fraud, why should her future be burdened forever? In practice, this decision empowers creditors to weaponize state-law agency theories against debtors who never intended, or even knew of, the misconduct. For practitioners, the takeaway is stark: do not assume the Court will apply bankruptcy’s core policy of fresh starts. Instead, expect strict readings of statutory text that often tilt toward creditors. For debtors’ counsel, that means more vigilance in contesting nondischargeability complaints and more creativity in using Chapter 13, where Congress initially excluded the bad-acts exceptions. Professor Norberg also highlights the systemic problem: without a federal agency advocating for bankruptcy policy before the Court, debtors stand alone against institutional creditors and a DOJ-aligned Solicitor General.  He notes that   Professor Mann has written that: The absence of a major administrative presence in the Executive Branch has hindered the development of a broad and coherent bankruptcy system. Specifically, the administrative vacuum has left the Supreme Court adrift, under informed about the importance of a robust bankruptcy system to a modern capitalist economy.  BANKRUPTCY AND THE U.S. SUPREME COURT (Cambridge University Press 2017)). Professor Mann further observes that “[t]he Solicitor General’s role in bankruptcy cases has been almost diametrically opposed to the role we would have expected from [a hypothetical] United States Bankruptcy Administration: We don’t have a Court left to its own devices in the bankruptcy realm, we have a Court consistently advised by the executive to downplay the significance of the bankruptcy system.”  This critique resonates especially in the Fourth Circuit, where the Bankruptcy Administrator system—independent of the Department of Justice—offers at least a measure of structural separation. (Whether bankruptcy judges like to treat the BA as their stand-in is another question.) By contrast, the U.S. Trustee Program, as a DOJ arm, too often reflects prosecutorial instincts rather than the balanced policy judgments bankruptcy demands.   With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Category Law Reviews & Studies

Law Review: Norbert, Scott- The Supreme Court and the Discharge of Debts in Consumer Bankruptcy Ed Boltz Fri, 09/19/2025 - 15:16 Available at:   www.ablj.org/the-supreme-court-and-the-discharge-of-debts-in-consumer-bankruptcy-cases-vol-99-issue-2-pdf/ Abstract: The article examines the U.S. Supreme Court’s eleven decisions on the exceptions to discharge under Bankruptcy Code section 523(a). This jurisprudence is predictable in its focus on statutory text and at the same time remarkable for its almost complete aversion to bankruptcy policy.  The limits of a bankruptcy jurisprudence without bankruptcy policy are clearly exposed in the Court’s most recent decision on the exceptions to discharge, Bartenwerfer v. Buckley, where the Court ignored the fundamental bankruptcy policy of granting a discharge to honest but unfortunate debtors, holding that an innocent debtor could not discharge a fraud debt for which she was vicariously liable under state law. Summary: Scott Norberg’s article, The Supreme Court and the Discharge of Debts in Consumer Bankruptcy Cases, surveys the eleven post-1978 Supreme Court decisions interpreting the scope of the discharge, nearly all arising under § 523(a). He finds the Court’s approach to be highly textualist, with a near total disregard for bankruptcy policy. While the Court occasionally mentions the “fresh start” for “honest but unfortunate debtors,” it has not treated that policy as a guiding canon. Instead, the Justices have relied on statutory text, context, and statutory history—while generally avoiding legislative history. The article emphasizes two themes: Bad Acts vs. Other Exceptions – Norberg distinguishes the “bad acts” exceptions (§ 523(a)(2), (4), and (6)) from the rest. Unlike tax, student loan, or support debts (which protect a creditor’s identifiable interest in repayment), the bad-acts exceptions function like § 727(a) objections to discharge: they target dishonest debtors and limit relief to those who truly deserve a fresh start. Creditor-Friendly Results – In eight of eleven cases (seven of nine involving bad acts), the Court sided with creditors, narrowing discharge and limiting fresh starts. Yet, the Court has not articulated a pro-creditor interpretive principle. Rather, it portrays itself as neutral, though its pattern suggests a corrective against perceived pro-debtor lower court rulings. Norberg critiques Bartenwerfer v. Buckley (2023), where the Court held that a debtor could not discharge a fraud debt based solely on vicarious liability for her partner’s fraud. He argues that the Court missed the crucial policy link between § 727(a) and § 523(a): the bad-acts exceptions are about the debtor’s character, not about privileging the fraud creditor’s repayment interests. By ignoring this, the Court imposed nondischargeability on an innocent debtor, undermining the principle that bankruptcy relief should be reserved for the “honest but unfortunate.” The article also observes the influence of non-legal factors: the Solicitor General almost always sided with creditors, and the Court nearly always followed. The absence of a government agency advancing a bankruptcy-policy perspective (in contrast to the SEC or EPA in their fields) leaves the Court without a counterweight to creditor arguments. Commentary: This piece underscores what many consumer lawyers have long felt: the Supreme Court’s bankruptcy jurisprudence is neither guided by coherent bankruptcy policy nor animated by concern for struggling families. Instead, the Court clings to textualism while quietly narrowing the discharge. Norberg’s critique of Bartenwerfer is particularly apt. By allowing nondischargeability based on vicarious liability, the Court ignored the foundational principle that the discharge is meant for the “honest but unfortunate.” If the debtor herself acted without fraud, why should her future be burdened forever? In practice, this decision empowers creditors to weaponize state-law agency theories against debtors who never intended, or even knew of, the misconduct. For practitioners, the takeaway is stark: do not assume the Court will apply bankruptcy’s core policy of fresh starts. Instead, expect strict readings of statutory text that often tilt toward creditors. For debtors’ counsel, that means more vigilance in contesting nondischargeability complaints and more creativity in using Chapter 13, where Congress initially excluded the bad-acts exceptions. Professor Norberg also highlights the systemic problem: without a federal agency advocating for bankruptcy policy before the Court, debtors stand alone against institutional creditors and a DOJ-aligned Solicitor General.  He notes that   Professor Mann has written that: The absence of a major administrative presence in the Executive Branch has hindered the development of a broad and coherent bankruptcy system. Specifically, the administrative vacuum has left the Supreme Court adrift, under informed about the importance of a robust bankruptcy system to a modern capitalist economy.  BANKRUPTCY AND THE U.S. SUPREME COURT (Cambridge University Press 2017)). Professor Mann further observes that “[t]he Solicitor General’s role in bankruptcy cases has been almost diametrically opposed to the role we would have expected from [a hypothetical] United States Bankruptcy Administration: We don’t have a Court left to its own devices in the bankruptcy realm, we have a Court consistently advised by the executive to downplay the significance of the bankruptcy system.”  This critique resonates especially in the Fourth Circuit, where the Bankruptcy Administrator system—independent of the Department of Justice—offers at least a measure of structural separation. (Whether bankruptcy judges like to treat the BA as their stand-in is another question.) By contrast, the U.S. Trustee Program, as a DOJ arm, too often reflects prosecutorial instincts rather than the balanced policy judgments bankruptcy demands.   With proper attribution,  please share this post.  Blog comments Attachment Document 4-norberg-the-supreme-court-and-the-discharge-of-debts_final-author-reviewv2.pdf (450.79 KB) Category Law Reviews & Studies

W.D.N.C.: Ready v. Navient- Court Confirms Student Loan Creditors Must Prove the Validity of Debt Ed Boltz Thu, 09/18/2025 - 17:08 Summary: Judge Kenneth D. Bell’s denial of Navient’s motion for summary judgment in Ready v. Navient (W.D.N.C. No. 5:24-cv-00050) is a sharp reminder that even student loan creditors must prove the underlying debt. Navient insisted that Ms. Christy Ready had taken out a 1995 consolidation loan through “Citibank (NYS)” which was later rolled into a 2002 consolidation. Ms. Ready disputed this, questioning the authenticity of the electronic signature on the 2002 note and producing a notarized declaration from a Citibank NA vice president stating that Citibank had no record of any such loan. With this conflict in the evidence, Judge Bell correctly found a genuine issue of material fact, requiring the case to go to trial. Application in Bankruptcy:  Rule 3001 and the Burden of Proof: Bankruptcy Rule 3001 requires every creditor—including student loan servicers—to file proofs of claim supported by documentation of the underlying obligation. Without this evidence, a claim loses its prima facie validity. Courts have been clear that the burden begins with the creditor: it must establish both the existence of the debt and that it qualifies under one of the narrow exceptions in  §523(a)(8). Only after that showing does the burden shift to the debtor to prove undue hardship. Yet, as Jason Iuliano’s Student Loan Bankruptcy and the Meaning of Educational Benefit demonstrated, courts have too often allowed all creditors, but particularly when related to putative student loans,  to bypass these thresholds, assuming without proof that any “educational” debt is both valid and nondischargeable. Ready pushes back against that trend. Discovery as a Tool for Debtors: Importantly, Ready also illustrates that debtors—whether in bankruptcy or not—can use discovery to expose gaps and contradictions in student loan creditors’ claims. In federal and state court litigation, borrowers can demand production of the original loan documents, payment histories, and correspondence. In bankruptcy adversary proceedings, Rule 2004 examinations, interrogatories, requests for admission, and document subpoenas all provide avenues to test the creditor’s assertions. In Ms. Ready’s case, the discovery process unearthed a key discrepancy: Navient’s claim of a Citibank loan was directly contradicted by Citibank’s own declaration that it could find no such record. That factual conflict was enough to defeat summary judgment. The practical lesson is that debtors are not passive bystanders. They can—and should—demand proof. A creditor’s internal database printout is not gospel. (Despite what  some large credit unions also believe in avoiding compliance in filing mortgage proofs of claim without complying with mandatory forms.) Without authenticated documentation, the claim falters. Commentary: Another nice win for Shane Perry and Stacy Williams. For consumer bankruptcy practitioners, the practice pointers are clear: Use Rule 3001 as a shield. If a proof of claim lacks proper documentation, object and demand compliance. Leverage discovery aggressively. Whether in bankruptcy adversaries or outside litigation under the FDCPA, FCRA, or state law, discovery is the debtor’s tool to pierce through a servicer’s boilerplate assertions. Remember the sequence. Creditors must first prove a valid debt that falls within §523(a)(8). Only then do questions of “undue hardship” even arise. Takeaway: Ready v. Navient reinforces a simple but powerful principle: calling something a “student loan” does not make it so.  It may not even make it a valid debt. Creditors bear the burden of proving both the existence of the debt and its statutory character, and debtors have powerful procedural tools—Rule 3001 objections and discovery mechanisms—to hold them to that burden. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document ready_v._navient.pdf (294.94 KB) Category Western District

E.D.N.C.: Lewis v. Equity Experts IV- Court Approves Opt-Out Class Notice and Neutral Class Website Ed Boltz Wed, 09/17/2025 - 16:57 Summary: In the latest chapter of the HOA-collections saga, Judge Flanagan approved the form of class notice in Lewis v. EquityExperts.org, LLC, confirming that this Rule 23(b)(3) class will proceed on an opt-out basis and authorizing a neutral, administrator-run class website—with tight guardrails on content. The court rejected EquityExperts’ push for an opt-in regime or claims-form gating, pointing to Rule 23(c)(2)(B) and due-process precedent (Phillips Petroleum v. Shutts) favoring opt-out classes—especially where small claims must be aggregated to be economical. The notice will be mailed (individual notice still required) and posted online by CPT Group; the website can host only the notice, Amended Complaint, Class Certification Order, Order on Reconsideration, and this Order—no advocacy or extra commentary. The parties must file the finalized notice and specify the method of individual notice within 14 days. Why this matters (and how we got here): If you’ve been following along at ncbankruptcyexpert.com, this tracks the arc we’ve covered: Part I (background on fee practices): “EDNC: Lewis v. EquityExperts.org — Excessive Fees Illegal under FDCPA” (Mar. 21, 2024) — laying the groundwork that add-on “collection costs” and attorney fees in HOA matters can violate the FDCPA when not authorized or reasonable. Link: https://ncbankruptcyexpert.com/2024/03/21/ednc-lewis-v-equityexpertsorg-excessive-fees-illegal-under-fdcpa Part II (class certification): “EDNC: Lewis v. EquityExperts.org II — Class” (Jan. 25, 2025) — detailing certification of a Rule 23(b)(3) damages class targeting systemic fee-inflation tactics. Link: https://ncbankruptcyexpert.com/2025/01/25/ednc-lewis-v-equityexpertsorg-ii-class Part III (pleading sharpened): “EDNC: Lewis v. EquityExperts — Part III Amended Complaint (Class Action Against HOA Agent)” (June 4, 2025) — aligning the claims with certification rulings and clarifying the class theory. Link: https://ncbankruptcyexpert.com/2025/06/04/ednc-lewis-v-equityexperts-part-iii-amendment-complaint-class-action-against-hoa-agent This notice order cements key mechanics for moving the class forward: opt-out governance, a narrow and neutral information hub, and a timeline to finalize and disseminate notice. It also flags that defendant’s causation and merits attacks belong at summary judgment or decertification after fuller discovery, not at the notice stage. Practice Pointers for Consumer Debtor Attorneys HOA & Servicer Add-Ons = Class Exposure: Systemic “collection costs,” lien-notice fee stacks, and attorney-fee markups remain fertile FDCPA/State UDAP ground—especially in Chapter 13 cases where proofs of claim mirror the same add-ons. The class-action posture here keeps pressure on uniform practices rather than one-off skirmishes. Opt-Out is the Default—and Powerful: Courts in (b)(3) classes will hew to Rule 23 and Shutts: absent members are in unless they exclude themselves. Defense efforts to convert to opt-in or force claim-forms at the threshold often fail when the class was already certified and claims are uniform. Keep this in mind when you see creditors arguing “individualized causation” at the notice stage; that fight usually belongs later. Neutral Notice Infrastructure: Where defendants point to “inflammatory” plaintiff-side websites, courts will often split the baby by mandating an administrator-controlled site with strictly limited content. That can actually streamline administration (and avoid later notice challenges). If you’re structuring class notice in your own matters, propose administrator hosting and a tight document list up front. Bankruptcy Cross-Over: Many class members will also be current or future debtors. Coordinate: (a) ensure proofs of claim don’t include the challenged fees; (b) use Lewis-style rulings to object under § 502(b)(1) and state-law fee limits; (c) consider Rule 3002.1 implications when fees relate to residential mortgages; and (d) preserve class relief alongside individual claim objections so your client isn’t whipsawed by “everybody pays a little” practices.  EquityExperts.org   specifically advertises that it can assist with filing proofs of claim (https://www.youtube.com/watch?v=9YFPLZX6-30),  which indicates that the Bankruptcy Administrators and Chapter 13 Trustees   should be looking for these issues as well. Discovery Timing & Decertification: Defense hints about “no causation” frequently presage a late-stage decertification or SJ bid. Build a record now—uniform templates, standardized fee schedules, batch communications, and accounting codes—so the class theory remains cohesive when the merits arrive. Bottom Line: Lewis keeps moving. With an opt-out class and a neutral class website in place, notice is next and the merits loom. For consumer practitioners, this is a playbook: challenge standardized fee inflation, resist premature individualization, and use class tools to reform practices that nickel-and-dime homeowners—inside and outside bankruptcy. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document lewis_v._equityexperts_iv.pdf (98.77 KB) Category Eastern District

In re Thomas, Ch. 13 Case No. 24-10535-RMM, 2025 WL 1373615 (Bankr. M.D. Ga. May 12, 2025). Debtors’ Chapter 13 Plan proposed to reduce the secured creditor’s claim to the value of the manufactured home that served as collateral. The sole legal issue was whether a manufactured home that was Debtors’ residence was a “motor vehicle” for purposes of the hanging paragraph of 11 U.S.C. §1325(a). Debtors had obtained the loan less than 910 days before the filing of the Bankruptcy petition. The Lender argued that the home was a motor vehicle and, therefore, the Debtors could not cram down the loan. The Court disagreed. “The definition of motor vehicle has two distinct parts: it is a vehicle that is both (1) ‘driven or drawn by mechanical power’ and (2) ‘manufactured primarily for use on public streets, roads, and highways.’” See 49 USC §30102(a)(7).  A manufactured home does not fall within this definition based on the plain language of this statute. This conclusion was also consistent with all relevant persuasive authority. The National Highway Transportation Safety Administration has also excluded manufactured homes from the definition of motor vehicles for at least 50 years. See, e.g., NHTSA Interpretation Letter to Constance Newman (Mar. 17, 1976), 1976 WL 533912, also available at https://www.nhtsa.gov/interpretations/aiam2279).   The Lender’s objection to the Chapter 13 Plan was, therefore, overruled. Scott Riddle’s practice focuses on bankruptcy and reorganization. Scott has represented businesses and other parties in Bankruptcy cases for over 20 years.  You can contact Scott at 404-815-0164 or [email protected].  For more information, click here.