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

Law Review: Julian C. Surprise, Medical Debt Regulation and Law: Effects on Consumers and Industry, 29 N.C. Banking Inst. 307 (2025). Ed Boltz Thu, 05/15/2025 - 05:47 Available at:   https://scholarship.law.unc.edu/ncbi/vol29/iss1/12 Introduction: The United States of America leads the developed world in medical spending. So it is no surprise to find that Americans struggle to keep up with medical debt. The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) has sought to understand how this trend has affected Americans’ credit scores and ability to access credit. Over the past decade, the CFPB produced a series of studies and reports that culminated in a finalized rule, published in January 2025. The finalized rule accomplishes two victories for the Bureau. First, the rule eliminates an exception in the Fair Credit Reporting Act (“FCRA”) that allows creditors to access consumers’ medical financial information for credit eligibility determinations. Second, the CFPB has created a definition for “medical debt information” to be implemented under Title 12, Chapter X of the Code of Federal Regulations. The new term “medical debt information” is significant because it ensures that medical debt information includes debts held by third parties and agents of healthcare providers.  Leading up to the finalization of the rule, the credit industry paid attention to the writing on the wall. By April 2023, TransUnion, Equifax, and Experian—the three major Consumer Reporting Agencies (“CR As”) in America—had eliminated qualified medical debt from consumer reports. The decision to eliminate this type of debt from consumer reports is significant, given that medical debt makes up 58% of all debts that third parties report in collections. In turn, credit score companies adopted new methods for calculating scores for consumers that exclude medical debt that is in collections. Because of this, the voluntary industry changes have already reached many of the consumers affected by medical debt. Now, with a final rule on the matter, the CFPB has codified and broadened the protections offered by the industry via regulation.  The CFPB’s rule raises important questions about how its regulatory authority is used and how the CFPB can help consumers with medical debt. To address these questions, it is necessary to understand the scope of the CFPB’s authority. The CFPB’s rule contemplates the limits of the effect of its rule change. As this Note will argue, the limits on the effect the CFPB can have on medical debt issues can be traced back to the statutory language that granted the CFPB its regulatory power over CR As. This Note argues that complementary legislative action— while acknowledged, but not fully explored in the rule—should more thoroughly examine how existing state laws can help bridge the gap in the Bureau’s efforts to address medical debt and the burden that such debt has on consumers .  Commentary: For bankruptcy practitioners, the insights from this article are particularly salient. The pervasive nature of medical debt means that many clients seeking bankruptcy relief are burdened by medical expenses. Understanding the nuances of how medical debt is incurred and collected can inform more effective advocacy and representation. Moreover, the article's call for enhanced regulatory protections aligns with the need for systemic reforms to alleviate the medical debt crisis. Such reforms might reduce the number of individuals forced to file for bankruptcy due to insurmountable medical bills,  but could also work in conjunction with bankruptcy to lessen the burdens of medical debt. For example,  following the 2024 enactment of the Healthcare Access and Stabilization Program (HASP) —by providing for the cancellation of eligible medical debts— there would seem to be an affirmative duty on medical  systems to  amend or withdraw Proofs of Claims filed in consumer bankruptcy cases and failing that there is a novel and promising avenue for objecting to medical Proofs of Claim in Chapter 13 cases. Below is a breakdown of how consumer debtor attorneys and Chapter 13 trustees (who have a duty to examine and object to claims) can utilize HASP to object to such claims, enhance plan feasibility, and increase dividends to other unsecured creditors.  While my firm  has started to affirmatively look for these claims and seek forgiveness of medical debts under HASP,  whether either medical creditors or Chapter 13 Trustees will meet their obligations and duties is an open question. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document medical_debt_regulation_and_law_effects_on_consumers_and_industr.pdf (586.11 KB) Category Law Reviews & Studies

Bankr. W.D.N.C.: In Re Carolina Sleep Shoppe- Subchapter V case may be closed pre-discharge under § 350 and Rule 3022, even with a non-consensual plan Ed Boltz Wed, 05/14/2025 - 15:30 Summary: Carolina Sleep Shoppe, LLC filed a Subchapter V Chapter 11 in April 2024. Despite expectations of a consensual plan, no creditor cast a ballot, resulting in a non-consensual cramdown confirmation under § 1191(b). The Debtor proceeded to substantially consummate the plan, pay all administrative expenses, and begin distributions—particularly to its only secured creditor, the SBA. Seeking case closure prior to discharge, the Debtor moved under 11 U.S.C. § 350 and Fed. R. Bankr. P. 3022. The Bankruptcy Administrator objected, citing post-confirmation oversight concerns, costs to creditors if the case had to be reopened, and general policy against closing non-consensual Subchapter V cases pre-discharge. Judge Edwards,ruled in favor of the Debtor, holding that: The Subchapter V Trustee had been discharged under the terms of the confirmed Plan and substantial consummation. The estate was “fully administered” under the Rule 3022 factors—even though no discharge had yet been entered. There is no blanket rule that cases with non-consensual plans must remain open until discharge. Closing a case pre-discharge is permissible and often practical, as reopening remains available under § 350(b). Importantly, the court noted that the discharge of a Subchapter V Trustee in a non-consensual plan must be evidenced via a separate Report of No Distribution, and future closure requests should be made by motion—not embedded in a final report. Commentary: This case presents a pivotal and pragmatic clarification on Subchapter V practice in the Western District of North Carolina: a non-consensually confirmed Subchapter V can, and sometimes should, be closed before the plan term ends. Judge Edwards's opinion decisively dispels the misconception that § 1191(b) plans require cases to remain open for their entire duration. While the Bankruptcy Administrator raised valid concerns about estate oversight and creditor protections, the Court gave credence to what many Chapter 11 practitioners already know—post-confirmation oversight often imposes unnecessary burdens without meaningful benefit, particularly when creditor engagement is nonexistent (as was the case here). In a nod to judicial economy and administrative pragmatism, the court emphasized flexibility in interpreting "fully administered" and prioritized plan performance over bureaucratic inertia. This ruling may prompt other districts to reconsider rigid closure policies in Subchapter V cases, especially where creditor silence—not opposition—drives cramdown. It also highlights the evolving role of the Subchapter V Trustee post-confirmation and underscores the importance of tailoring plan provisions to explicitly govern vesting and trustee discharge. Commentary: While  Chapter 13 cases  obviously remain open while plan payments and disbursements continue to be made,  it is not uncommon  for a case to remain open for extended periods of time after plan completion.  A frequent example involves the Notice of Final Cure and Motions to Declare Current in mortgage cases.  The recognition that  there may be burdens for a debtor,  whether a consumer in Chapter 13 or a business in a Sub V,  in remaining in an open case  is important  as that impacts, among other things,  the abandonment of assets under  §554,  any restrictions (from either the bankruptcy court or lenders) the debtor may have on obtaining new credit, and also the real psychological desire of being free from bankruptcy. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_carolina_sleep_shoppe.pdf (533.57 KB) Category Western District

4th Cir.: Front Row Motorsports v. Diseveria- BK Racing Again Ed Boltz Tue, 05/13/2025 - 16:10 Summary: The Fourth Circuit’s recent unpublished opinion in Front Row Motorsports v. DiSeveria is, on the surface, a straightforward contract dispute arising from an indemnity agreement. But behind the curtain of corporate formalities is the long shadow of In re BK Racing, the bankruptcy case that has become the NASCAR equivalent of a Russian nesting doll—each layer revealing deeper dysfunction. In 2016, Front Row purchased a NASCAR charter from BK Racing for $2 million. The contract promised a lien-free transfer. It wasn’t. BK Racing failed to disclose a $9 million Union Bank lien, and Front Row only discovered it after paying the first $1 million installment. When BK Racing’s principals—Michael DiSeveria and Ronald Devine—offered a personal indemnity agreement to close the second half of the deal, Front Row accepted. Union Bank eventually sued, and Front Row settled for $2.1 million. It then sought indemnity from DiSeveria and Devine, who refused. The defense? That the indemnity wasn’t enforceable because a third BK principal (Wayne Press) didn’t sign it, that indemnification was against public policy because Union Bank had raised a civil conspiracy claim, and that there was no consideration because Front Row was already contractually obligated to pay. The district court (WDNC) rejected these defenses on summary judgment and, after a bench trial, found the $2.1 million settlement was reasonable. The Fourth Circuit affirmed in full. It found that the indemnity was enforceable under North Carolina law, there was no bar under public policy, and the settlement was entirely reasonable given that Devine himself had proposed higher numbers to resolve the same debt.  Commentary: It seems prophetic that the entity was named "BK Racing"  as that certainly now stands for "Bankruptcy Racing". Previous related cases include: Bankr. W.D.N.C.: In re BK Racing Smith v. Devine- Sanctions for Discovery Abuses and W.D.N.C.: Smith v. Payne: Temporary Withdrawal of Reference for Pre-Trial Bankr. W.D.N.C.: Smith v. DeSeveria- Repayment of Short-Term Loans to Insiders was not a Fraudulent Conveyance With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document front_row_motorsports_v._diseveria.pdf (131.36 KB) Category 4th Circuit Court of Appeals

Bankr. E.D.N.C.: B&M Realty v. Elam- Treble Damages of $1.17 Million for Unfair and Deceptive Acts Ed Boltz Mon, 05/12/2025 - 17:22 Summary: In a blistering opinion befitting the severity of the fraud, Judge David M. Warren awarded B & M Realty, LLC over $1.17 million in damages, including trebled damages and attorneys’ fees, against Dwight Elam and his defunct corporate shell United Properties. The court found that Elam fraudulently induced the debtor into entrusting him with over $323,000—derived from both direct payments and loan proceeds secured by multiple rental properties—and then converted those funds under the guise of managing property renovations. Not only did Elam do little or no work, but he also lied about being a licensed contractor, fabricated financial documents, and fronted a long-dissolved corporate entity as a legitimate business operation. The debtor, B & M Realty, was formed by the Lindsey family to manage real estate inherited after the death of Ms. Brown-Lindsey’s father. Seeking to update and improve the properties, the Lindseys were introduced to Elam, who claimed to be a contractor operating under "United Properties"—a dissolved entity Elam continued to use interchangeably with other similarly named but equally hollow LL Cs. At Elam’s urging, the debtor incurred five real estate-secured loans totaling over $700,000. Elam and United Properties received over $183,000 from the loan proceeds—on top of $140,000 in direct payments—and left the properties in disrepair. The court dismissed claims against Elam’s associate Allen Simmons and their co-formed entity Alight Investments due to insufficient evidence. However, it found Elam’s conduct satisfied the elements of fraud, conversion, and a violation of North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA), pierced the corporate veils of United Properties and its variants, and awarded trebled damages and attorney fees. Commentary:   Judge Warren found that Elam’s fraud in connection with the debtor’s rental property renovations affected commerce and therefore fell within the UDTPA. While there is some debate in North Carolina case law about whether conduct purely within the context of litigation is “in commerce,” Elam signals that Warren should  look to the substance and economic effect of the conduct.  For consumer debtors, this may open  a judicial door,  which has often seemed hostile to what it has labelled "alphabet soup laws",  to UDTPA claims (both those arising pre- and post-petition) in bankruptcy cases including,  for example,  mortgage servicing abuses, particularly misapplication of payments or escrow mismanagement, noncompliance with NCGS 45-91 or Rule 3002.1,  etc.   If the deceptive conduct affects the debtor’s use or enjoyment of consumer financial products (mortgage, car loan, credit card), Warren’s opinion suggests he might  consider such conduct to fall “in or affecting commerce.” With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document bm_realty_v._elam.pdf (155.71 KB) Category Eastern District

 When we file a Chapter 7 bankruptcy petition for an individual, clients often ask which assets they will be able to keep after the bankruptcy case is closed.Oftentimes, clients own interests in LL Cs or partnerships and want to know if they will lose that interest in Chapter 7 bankruptcy.Forbes recently published an article by Jay Adkisson titled “Can an LLC Interest Owned by a Debtor Be Sold by the Bankruptcy Trustee?” In this well-written article, Mr. Adkisson analyzes a recent case of first impression in the Eastern District of Kentucky, captioned Business Aircraft Leasing v. Ultra Energy Resources LLC (In re Addington).The bankruptcy court held that in a Chapter 7 bankruptcy filing, a bankruptcy trustee can sell an economic right in an LLC member's interest. In the Addington case, Larry Addington filed for Chapter 11 bankruptcy, which was later converted to Chapter 7. He owned a 36% membership interest in a limited liability company called Ultra Energy Resources, LLC. The judge in the Addington case discusses that an LLC membership interest consists of a governance interest, which includes the right to manage the LLC, vote to admit members or dissolve the LLC, and the economic rights of an LLC, which are the rights to distributions of money or property from the LLC.The dispute in the case was whether the creditor who purchased the LLC interest from the Chapter 7 Bankruptcy Trustee acquired governance interests or economic rights. The LLC's position was that the purchaser had simply acquired economic rights, and the bankruptcy court, in a declaratory judgment, held that the purchaser had indeed only acquired economic rights, not governance interests.In reaching his decision, the Bankruptcy Judge analogized to a charging lien that a judgment creditor obtained on a debtor LLC member's interest. The Addington case is one of the first to involve the sale of a membership interest in an LLC by a Bankruptcy Trustee in a Chapter 7 proceeding.Mr. Adkisson, in his article, notes that the managers of a closely held LLC are unlikely to admit the purchaser as a member unless they know the purchaser will be friendly. A few comments based on our experience:1. If the LLC is a single-member LLC, the Bankruptcy Trustee will be able to sell the member's governance and economic interest.2. Whether a governance or economic interest can be sold will often depend on the terms of the Operating Agreement and state LLC law.Individuals or their advisors with questions pertaining to the sale of LLC member interests in a chapter 7 bankruptcy filing should contact Jim Shenwick, Esq.jhsJim Shenwick, Esq  917 363 3391  [email protected] Please click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15minWe help individuals & businesses with too much debt!

Bankr. E.D.N.C.- In re 255 NORTH FRONT STREET CONDOS, INC.- Single Asset Real Estate Entity Ed Boltz Sun, 05/11/2025 - 16:20 Summary: In this Subchapter V eligibility skirmish, the United States Bankruptcy Court for the Eastern District of North Carolina tackled whether a condominium association—specifically, 255 North Front Street Condos, Inc.—qualified as a “single asset real estate” (SARE) entity under 11 U.S.C. § 101(51B), which would disqualify it from Subchapter V treatment as a “small business debtor.” The Bankruptcy Administrator (joined by a purported creditor) objected to the Debtor’s Subchapter V designation, arguing that its operations—managing common elements of a condo project for two unit owner-members—met the definition of SARE because the real property (i.e., the common areas) supposedly generated substantially all of the Debtor’s income and no other substantial business was being conducted. The court disagreed, holding that the Debtor’s income was not generated by the property itself (such as rent or proceeds of sale), but rather from services rendered by the Debtor—like maintenance, insurance, fire inspections, and accounting—to its members under the statutory duties imposed by the North Carolina Condominium Act. As such, the Debtor was not merely passively collecting income from real estate, but actively managing operations with meaningful effort. Thus, it did not meet the “no substantial business” or “gross income generated by the property” prongs of the SARE test. Accordingly, the court overruled the objection and permitted the Debtor to proceed under Subchapter V. Commentary: In Front Street, Judge Warren emphasized that eligibility exclusions (like SARE or the Subchapter V bar) should be understood historically in light of Congress’s goal to stop strategic misuse, not to disqualify good-faith reorganizations by  debtors based on formalities.    Similarly,   Chapter 13's debt limits, codified in § 109(e), have historically been justified as a gatekeeping function: Congress wanted Chapter 13 reserved for wage earners with modest debt loads, and not complex, high-debt business entities or wealthy individuals.   Arguably,  these  debt limits should  be interpreted not with rigid mathematical exclusion, but with consideration of whether the debtor fits the core profile Congress intended Chapter 13 to serve: a wage-earning individual capable of reorganization through a plan.   This perspective would support, for instance, courts excluding disputed or non-liquidated debts from the debt limit tally, especially where inclusion would push a debtor into more expensive or less appropriate chapters and also only enforcing debt limits when eligibility is actively challenged by a creditor rather than on a per se and automatic basis. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_255_north_front_street_condos_inc.pdf (176.8 KB) Category Eastern District

4th Cir.: NCO v. Montgomery Park- Explicit Demand for Attorney Fees Required Ed Boltz Thu, 05/08/2025 - 16:31 Summary: In NCO Financial Systems, Inc. v. Montgomery Park, LLC,  the Fourth Circuit revisited — for the fifth time — a protracted commercial lease dispute over roughly 100,000 square feet of office space in Baltimore. After NCO vacated the property prematurely in 2011, Montgomery Park prevailed in its suit for breach of the lease, ultimately obtaining a judgment exceeding $9.8 million for unpaid rent. The district court subsequently awarded Montgomery Park an additional $3.76 million in attorneys’ fees, expert witness fees, and default interest under the lease’s fee-shifting provision. On appeal, NCO raised three main issues: That Montgomery Park never made a proper "demand" for costs and fees as required by the lease, and therefore was not entitled to interest; That the fee award should have excluded costs incurred defending against NCO’s initial claims rather than pursuing its own remedies; That expert witness fees were not recoverable under Maryland law. The Fourth Circuit partially agreed. While it held that Montgomery Park’s August 24, 2022, fee motion constituted a valid "demand," the court ruled that default interest could only accrue from that date—not retroactively to when the fees were incurred. Thus, it vacated and remanded for recalculation of the interest award. On the remaining issues, however, the court affirmed: It held that the fees incurred defending against NCO’s claims and pursuing its own remedies were inextricably linked under the “common core of facts” doctrine, and that the lease's broad reference to “fees” encompassed expert witness costs. Commentary: The lesson is that “notice” and “demand” are not mere formalities—they are gatekeeping mechanisms that define when a party’s enforcement rights arise. In commercial settings, courts may allow a fair degree of flexibility, especially among sophisticated parties. But in consumer contexts, precision is paramount. Lenders and servicers ignore these preconditions,  which often include  not only statutory requirements,  such as under NCGS 45-91,  but also contractual preconditions like Notices of Default and explicit acceleration of the  note, at their peril, as courts should not allow attorneys’ fees  where those obligations are  strictly followed. With proper attribution,  please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document nco_v._montgomery_park.pdf (143.45 KB) Category 4th Circuit Court of Appeals