Bankr. E.D.N.C.: In re Celebration Cottage AB- Single Asset Real Estate Entity Ed Boltz Mon, 11/11/2024 - 15:16 Summary: In Celebration Cottage AB, LLC, the bankruptcy court denied the motion by BIP Canton, LLC to designate Celebration Cottage AB, LLC as a Single Asset Real Estate (SARE) entity,  despite assertions that the real property constituted a single project that generated most of the debtor’s income.  Designation as a SARE  would require expedited creditor protections and alter the debtor's Chapter 11 restructuring process. Celebration Cottage owns four properties: a cottage, two adjacent vacant lots in Atlantic Beach, NC, and a property in Morehead City, NC. The court found that these properties did not function as a single economic project since only the three Atlantic Beach properties were occasionally used together for events, while the Morehead City property was used separately for short-term rentals and as a residence. As a result, the court concluded that the properties did not meet the criteria for SARE designation and could proceed under subchapter V of Chapter 11, which is designed for small business reorganization. The court also noted that Celebration Cottage’s listing of the Atlantic Beach properties for sale and continued use of the Morehead City property as a rental showed that the properties were not being held solely as passive real estate investments. Consequently, the court denied the motion to designate Celebration Cottage as a SARE entity and held BIP’s motion for relief from the automatic stay in abeyance for further hearing. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_celebration_cottage_ab.pdf (144.23 KB) Category Eastern District

Law Review: Pang, Belisa, The Bankruptcy Revolving Door (January 31, 2024) Ed Boltz Sat, 11/09/2024 - 21:39 Available at:   https://ssrn.com/abstract=4911339 Abstract: Using credit report data dating back to 1997, this study unveils that nearly 46% of consumer bankruptcy filings in 2023 came from people with a prior bankruptcy record. This percentage has increased at an average rate of 61 basis points per year since 2016. The majority of repeat filings occur after a discharged case rather than a dismissed one, and nearly half of refilers have previously filed under Chapter 7, challenging conventional beliefs about repeated filings. Moreover, the temporal gap between successive filings is substantial, with most refilings occurring over 7 years after the initial filing. This paper then reveals that a person's past filings are strongly correlated with increased future filings after 7 years, even after controlling for a wide range of variables including debt levels and demographic characteristics. Therefore, this paper contends that the prevalence of refiling can be attributed to two main reasons: first, individuals with a prior bankruptcy frequently face new financial distress, and second, they are more predisposed to file for bankruptcy compared to those with no bankruptcy record. Commentary: While this study does reveal that individuals are more likely  to file subsequent bankruptcies  if they have previously successfully filed bankruptcy,  the results do not indicate that filing  bankruptcy,  particularly Chapter 13,  is used as a stalling technique.  Only 7.6% of all refilers,  despite their notoriety, filed two dismissed Chapter  13 cases within a year, and not all of these individuals engage in abuse. (In fact,  extension of the automatic stay §362(c) for more than 30 days and subsequent confirmation of their plan both require a demonstration of good faith.) That  this research shows that many borrowers  need to file subsequent Chapter 7 bankruptcies,  particularly when the borrower continues to have non-dischargeable debts (whether student loans or reaffirmed personal liability for secured debts)  does also open the question about  whether or how much Chapter 13 bankruptcy,  with its less frequent discharges,  is truly worse than the quicker and more certain Chapter 7 discharge,  if those also lead to repeat filings.  Both may instead be traceable as much to continued lack of income or other subsequent financial distress as  to deficiencies in the debt relief provided under either regime.   While this paper does find that the amount of non-dischargeable student loan debt increases the likelihood of a subsequent bankruptcy,  but it is not clear that the author similarly examined  the amount of reaffirmed debt,  which is essentially not discharged either,  to determine the extent to which Chapter 7 debtors,  attempting to holding onto cars and houses,  similar to most Chapter 13 debtors,  are successful.  A repossession of foreclosure following a reaffirmation, resulting in a deficiency balance,  would seem likely to increase the odds of another bankruptcy. On a more venal note for consumer debtor attorneys,  this research does point to past clients as a potential source  for future clients,  especially as the earlier relationship allows for direct contact For additional commentary,  see: Credit Slips:  Bob Lawless- Revisiting How Many People Have Filed Bankruptcy     With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document the_bankruptcy_revolving_door_compressed.pdf (579.31 KB) Category Law Reviews & Studies

4th Cir.: Paxton v. LVNV- Statute of Limitations for FCRA not Tolled by Fraudulent Concealment Ed Boltz Sat, 11/09/2024 - 21:37 Summary: The Fourth Circuit Court of Appeals affirmed the dismissal of  Paxton’s claims against LVNV Funding, LLC, and Jacob Law Group, PLLC. Paxton had alleged violations of the Fair Debt Collection Practices Act (FDCPA) and state law. The district court dismissed her FDCPA claims as time-barred, as the last alleged FDCPA violation occurred on May 7, 2020, but Paxton did not file her complaint until July 2021, exceeding the one-year statute of limitations. Paxton argued for tolling based on fraudulent concealment, claiming improper service and pursuit of judgment in a state where she no longer lived, but the court found her allegations insufficient. Consequently, the court also declined to exercise supplemental jurisdiction over her state claims. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document paxton_v._lvnv.pdf (122.99 KB) Category 4th Circuit Court of Appeals

Love and Marriage. Fries and Catsup. Chips and Dip. Like these famous pairings, divorce and bankruptcy are frequent companions. When a couple goes their separate ways, often the most substantial marital accumulation is debt. The questions we get as bankruptcy practitioners usually revolve around whether to file a bankruptcy case before or after the divorce.  […] The post Navigate The Marital Debt Thicket In Bankruptcy appeared first on Bankruptcy Mastery.

Bankr. MD: In re Klemkowski- Online Access to Mortgage Account during Chapter 13 Ed Boltz Fri, 11/08/2024 - 17:20 Summary: Judge Harner of the Maryland bankruptcy Court  evaluated whether CitiMortgage Inc. and its servicer Cenlar FSB violated the automatic stay under 11 U.S.C. § 362(a)(3) by denying debtor Ms.  Klemkowski access to her online payment portal after she filed for bankruptcy. Before the bankruptcy filing, Klemkowski had used this portal to make mortgage payments, but her access was revoked upon her filing. She argued this change impeded her ability to comply with her repayment obligations. The court ruled that the right to use the online portal (just another twig in the bundle of sticks), as per the prepetition agreements, became part of Klemkowski's bankruptcy estate, and that the servicer’s unilateral denial of access post-filing effectively violated the automatic stay by altering her contractual rights. However, the court found no sufficient evidence to award monetary damages since Klemkowski continued to make payments through other means, though less conveniently. The stay violation was deemed void ab initio, and the court allowed further proceedings to determine appropriate remedies, potentially including restoring portal access to uphold the debtor’s contractual rights within the bankruptcy framework. Commentary: It would seem that,  again coupled with  Trantham,  a debtor could propose a nonstandard plan provision  that required mortgage servicers to allow online access, because not only does nothing in the Bankruptcy Code prohibit such a provision,  but the refusal by mortgage servicers is,  in Judge Harner's words,  "troubling and inconsistent with the general policies underlying the Code and consumer protection laws." As an example,  the MDNC Local Form Plan at 8.2d  already  provides that: The Holder shall continue to send monthly statements to the Debtor in the same manner as existed pre-petition and such statements will not be deemed a violation of the automatic stay. Recognizing that in 2024  online access is essential and essentially the same as periodic monthly statements  seems only a modest step further,  with a such a nonstandard  provision perhaps being: The Holder shall continue to send monthly statements to the Debtor and to allow the Debtor online access to their account in the same manner as existed pre-petition and neither such statements nor information provided through the online access will not  be deemed a violation of the automatic stay. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_klemkowski.pdf (302.95 KB) Document mdnc_loop_1-1-2020.docx (162.43 KB) Category Middle District

Bankr. MD: In re Klemkowski- Online Access to Mortgage Account during Chapter 13 Ed Boltz Fri, 11/08/2024 - 17:20 Summary:   Judge Harner of the Maryland bankruptcy Court  evaluated whether CitiMortgage Inc. and its servicer Cenlar FSB violated the automatic stay under 11 U.S.C. § 362(a)(3) by denying debtor Ms.  Klemkowski access to her online payment portal after she filed for bankruptcy. Before the bankruptcy filing, Klemkowski had used this portal to make mortgage payments, but her access was revoked upon her filing. She argued this change impeded her ability to comply with her repayment obligations. The court ruled that the right to use the online portal (just another twig in the bundle of sticks), as per the prepetition agreements, became part of Klemkowski's bankruptcy estate, and that the servicer’s unilateral denial of access post-filing effectively violated the automatic stay by altering her contractual rights. However, the court found no sufficient evidence to award monetary damages since Klemkowski continued to make payments through other means, though less conveniently. The stay violation was deemed void ab initio, and the court allowed further proceedings to determine appropriate remedies, potentially including restoring portal access to uphold the debtor’s contractual rights within the bankruptcy framework. To read a copy of the transcript, please see:   Commentary:   It would seem that,  again coupled with  Trantham,  a debtor could propose a nonstandard plan provision  that required mortgage servicers to allow online access, because not only does nothing in the Bankruptcy Code prohibit such a provision,  but the refusal by mortgage servicers is,  in Judge Harner's words,  "troubling and inconsistent with the general policies underlying the Code and consumer protection laws."   As an example,  the MDNC Local Form Plan at 8.2d  already  provides that:   The Holder shall continue to send monthly statements to the Debtor in the same manner as existed pre-petition and such statements will not be deemed a violation of the automatic stay.   Recognizing that in 2024  online access is essential and essentially the same as periodic monthly statements  seems only a modest step further,  with a such a nonstandard  provision perhaps being:   The Holder shall continue to send monthly statements to the Debtor and to allow the Debtor online access to their account in the same manner as existed pre-petition and neither such statements nor information provided through the online access will not  be deemed a violation of the automatic stay.   With proper attribution,  please share this post. Blog comments Attachment Document in_re_klemkowski.pdf (302.95 KB) Document mdnc_loop_1-1-2020.docx (162.43 KB) Category Middle District

Bankr. E.D.N.C.: In re Grand Valley MHP- Appointment of Chapter 11 Trustee Ed Boltz Fri, 11/08/2024 - 15:57 Summary: The bankruptcy court appointed an interim Chapter 11 trustee, John C. Bircher III, to oversee the bankruptcy cases of several entities owned by Neil Carmichael Bender II. The decision follows concerns about mismanagement, conflicts of interest, and the complex financial entanglement among Bender's companies. The court found that Bender’s management practices, including fund transfers between entities without clear accountability and his substantial personal withdrawals amid financial strain, indicated gross mismanagement. Creditors supported appointing a trustee, citing concerns about Bender’s transparency and the companies’ unsound financial practices. The court held that appointing a trustee was both warranted by cause and in the best interest of creditors and the estate, noting that Bender’s operational decisions compromised the entities' reorganization potential. The trustee will assess whether separate trustees are necessary to address possible conflicts between the estates. Bender’s continued control was deemed unsuitable to fulfill fiduciary responsibilities essential for fair debt management and reorganization, and Bircher’s appointment may become permanent after further assessment. With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document in_re_grand_valley_mhp_et_al.pdf (339.31 KB) Category Eastern District

Bankr. M.D.N.C.: In re Autry- Denial of Debtors' Motion to Convert Ed Boltz Fri, 11/08/2024 - 15:55 Summary: The bankruptcy court denied Russell and Mildred Autry's motion to convert their Chapter 7 bankruptcy case to Chapter 13, citing their bad faith. The Bankruptcy Administrator had objected to the conversion, presenting evidence that the Autrys had concealed their ownership of a property in Ocean Isle Beach, North Carolina, which they had purchased with proceeds from the sale of another property in Tennessee. The Autrys failed to disclose this property in their initial filings, inaccurately stated that they resided in a travel trailer, and omitted other relevant financial information, such as homeowners' insurance and real estate taxes. Despite the Autrys amending their schedules after the § 341 meeting of creditors, the court found their explanations for the omissions lacking in credibility. The court concluded that their consistent concealment of the Ocean Isle property and related misrepresentations showed bad faith, which justified denying their request to convert to Chapter 13 under the principles established in Marrama v. Citizens Bank of Mass. Thus, the court upheld the Bankruptcy Administrator’s objection, denying the motion to convert. Commentary: It would not be a wild guess to assume that the Trustee, as indicated by his questions (transcribed into the opinion) at the Meeting  of Creditors,  was fully aware of the Ocean Isle beach  property and merely gave the Autrys one last opportunity to honestly disclose this asset (and enough rope to hang themselves.)   This is likely because the cost of detailed asset and liability searches,  through such programs as WestLaw PeopleMap, have become much less expensive.  Failing to use this or similar services going forward by consumer debtor attorneys may be tantamount to malpractice. With proper attribution,  please share this post.    To read a copy of the transcript, please see: Blog comments Attachment Document in_re_autry.pdf (470.6 KB) Category Middle District

Economics Review: Greene, Claire, Perry, and Julian, Stavins, Joanna- Consumer Payment Behavior by Income and Demographics Ed Boltz Fri, 11/08/2024 - 15:53 Available at:  https://www.bostonfed.org/publications/research-department-working-paper/2024/consumer-payment-behavior-by-income-and-demographics.aspx Abstract: Despite the introduction of an array of innovations and new payment options for consumers over the last decade, income and demographics remain significant predictors of payment behavior. Using data from a 2023 consumer payments diary, we find that income, age, and education are significant predictors of which payment instruments consumers adopt and use. These associations hold not only for traditional payment instruments—cards and paper—but also for innovations such as mobile apps; buy now, pay later (BNPL); and cryptocurrency. In 2023, less educated consumers were significantly less likely than other consumers to adopt any payment instrument, especially checks and electronic payments, even when we control for income and employment. After controlling for education, we find that high-income consumers used credit cards significantly more relative to other consumers. Younger and more educated consumers were most likely to adopt mobile payment apps. Women, Black and Latino consumers, and those who had filed for bankruptcy in the previous year were significantly more likely to have used BNPL. Men were nearly three times as likely as women to adopt cryptocurrency. Key Findings: The most significant factors affecting the adoption and use of any payment instrument in 2023 were income, age, education, and credit scores—the same factors that were important a decade ago. Consumers’ assessments of the characteristics of a payment instrument also influenced their decision on whether to adopt that instrument. Consumers’ choices concerning payment innovations, including the use of mobile payment apps, BNPL, and cryptocurrency, were affected by demographic and financial attributes. In addition to age, education, and income, race affected BNPL use and the acquisition of cryptocurrency. Higher self-reported FICO scores were associated with a higher likelihood of adopting a checking account and using credit cards, and with a lower likelihood of using cash and debit cards.  Implications: Patterns in the adoption and use of payment instruments that were identified in studies from more than a decade ago have persisted: Age, education, and income remain the most important determinants for the adoption and use of paper, card, and electronic payment instruments. The same demographic and financial factors also significantly affect the adoption and use of new payment options, including mobile apps and BNPL. Commentary: The significantly higher likelihood that women, Black and Latino consumers and those who had filed bankruptcy use "Buy Now, Pay Later" (BNPL) payment methods,  might also be a part of the explanation,  in addition to the "debt sweatbox",  implicit racial biases in steering debtors' chapter choice,  and others,  for why members of those demographic groups tend to choose Chapter 13,  which is often a BNPL bankruptcy,  over  Chapter 7,  with its upfront costs. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document consumer_payment_behavior_by_income_and_demographics.pdf (851.87 KB) Category Book Reviews

4th Cir.: Fernandez v. Rentgrow- Standing for FCRA Violation Requries Evidence that Misleading Information was read and understood Ed Boltz Fri, 11/08/2024 - 15:52 Summary: In Fernandez v. RentGrow, Inc., the Fourth Circuit Court of Appeals vacated and remanded the district court’s class certification in a case where plaintiff Marco Fernandez sued RentGrow under the Fair Credit Reporting Act (FCRA). Fernandez alleged that RentGrow included misleading Office of Foreign Assets Control (OFAC) alerts (flagging potential matches to a U.S. Treasury list of criminals) in its tenant screening reports without adequate accuracy procedures, harming his reputation. The district court certified a class, reasoning that all affected individuals suffered harm simply from the dissemination of inaccurate information. The Fourth Circuit disagreed, holding that concrete reputational harm for Article III standing requires more than just disseminating a report; the recipient must read and understand the misleading information. Evidence showed the property manager reviewing Fernandez’s report did not comprehend the OFAC alert, meaning no reputational harm occurred. Since Fernandez lacked standing, the court ordered the lower court to re-evaluate class certification based on this understanding of harm and standing requirements. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document fernandez_v_rentgrow.pdf (176.89 KB) Category 4th Circuit Court of Appeals