Law Review: Casey, Anthony and Lotts, Emma, Finding Debtor's Counsel (November 01, 2025). Ed Boltz Mon, 02/09/2026 - 15:49 Available at: https://ssrn.com/abstract=6124067   Abstract: In this Essay, the authors explore the question of how to assess the independence of debtor’s counsel in Chapter 11. The question has arisen in recent high-profile bankruptcy cases, attracting renewed attention from commentators. The authors examine these cases and revisit the unique role that debtor’s counsel serves. From this analysis, a few guiding principles emerge for determining independence and managing conflicts that may arise. First, consistent with the rules outside of bankruptcy, sophisticated parties are capable of waiving conflicts and should be free to do so when their interests alone are affected by the conflict. Second, the possibility of conflicts—both real and apparent—is much higher for debtor’s counsel than for attorneys in other roles. This creates a challenge for courts, which must address both the real conflicts and the weaponization of apparent conflicts to shift leverage. Conscious of this, courts should rely, whenever possible, on intermediate remedies—such as conflicts counsel and ethical firewalls—to address allegations that debtor’s counsel is not independent. Finally, one should be careful to separate the analysis of the independence of a debtor’s managers (including its directors and officers) from that of its counsel. With this framework in mind, notwithstanding several criticisms from commentators, most of the outcomes in recent cases are easy to explain and reconcile. Commentary: Finding Debtor’s Counsel offers a clear-eyed and practical account of why conflicts are endemic in Chapter 11 and why courts should favor calibrated remedies—waivers, conflicts counsel, ethical walls—over the blunt instrument of disqualification. The authors’ throughline is institutional humility: in a debtor-in-possession system built on negotiated allocation among competing constituencies, courts should be wary of letting conflict allegations become leverage tools that destroy estate value rather than protect it . But the article also underscores how sharply consumer bankruptcy diverges—and why that divergence deserves far more scholarly attention. In Chapters 7 and 13, Congress has made an explicit normative choice that debtor’s counsel is supposed to represent the debtor’s interests, even when doing so yields no benefit to the estate. Section 11 U.S.C. § 330(a)(4)(B) codifies that choice, authorizing compensation based on benefit and necessity to the debtor, without regard to estate enhancement. That is not an ethical loophole; it is the policy. (In an indirect and backhanded manner,  so does Lamie v. US Trustee, which, by limiting such compensation  from the bankruptcy estate, the independence of the debtor's attorney is also preserved.) Consumer debtor’s counsel is not a neutral allocator among creditors, but a necessary counterweight in a system where trustees and creditors otherwise dominate. This contrast matters because consumer bankruptcy is not a sideshow—it is the overwhelmingly predominant form of bankruptcy relief in the United States, and thus the real bankruptcy system. Chapter 11 may generate headlines and law review ink (and adoration from tenure committees), but it is a statistical blip compared to the millions of consumer cases that define access to the fresh start. If Chapter 11 scholarship has matured into a nuanced discussion of conflicts, waivers, and institutional design, consumer bankruptcy scholarship should receive the same sustained attention. Further work—ideally by these authors and others—examining the ethics, incentives, and statutory choices governing consumer debtor representation would be a welcome and necessary next step. Understanding how and why Congress affirmatively empowered debtor-centered advocacy in consumer cases is essential, not only to avoid misapplying Chapter 11 instincts where they do not belong, but to ensure that the bankruptcy system actually functions for the people it serves most often. With proper attribution,  please share. To read a copy of the transcript, please see: Blog comments Attachment Document finding_debtors_counsel.pdf (485.22 KB) Category Law Reviews & Studies

Many clients have contacted Shenwick & Associates asking whether it is safe to ship goods to Saks following its Chapter 11 bankruptcy filing.The real concern is whether vendors will be paid for goods shipped after the bankruptcy filing.In most Chapter 11 cases, the answer is yes—shipping goods post-petition is generally safe, particularly where the debtor has obtained Debtor-in-Possession (DIP) financing.Here are the key considerations:Post-petition shipments receive priority payment status. Vendors who supply goods after the bankruptcy filing typically hold administrative expense claims under Bankruptcy Code §503(b)(1)(A). These claims must generally be paid in full as a condition to confirming a Chapter 11 plan under §1129(a)(9), giving them priority over pre-petition unsecured claims.DIP financing supports ongoing operations. DIP financing provides liquidity so the debtor can continue operations and pay ordinary-course expenses, including post-petition vendor invoices. Courts often authorize payment of undisputed post-petition invoices in the ordinary course.Chapter 11 encourages vendors to continue shipping. The purpose of Chapter 11 is to allow a debtor to reorganize while continuing business operations. The Bankruptcy Code structure incentivizes vendors to continue supplying goods so the business can survive.Continuing shipments may preserve business relationships. Vendors who continue supplying merchandise maintain relationships with buyers and may offset losses from pre-petition shipments through continued profitable sales. Vendors who refuse to ship risk losing shelf space to competitors.Vendors are not required to ship post-petition. The Bankruptcy Code does not obligate vendors to continue selling goods after the filing; the decision remains a business judgment.Payment is not absolutely guaranteed. While administrative claims are entitled to priority, risk remains if the case later converts to liquidation and administrative expenses exceed available assets.Critical Vendor or “Doctrine of Necessity” relief may be available. Vendors supplying unique or essential goods may seek treatment as a Critical Vendor, allowing payment of certain pre-petition amounts if the court finds such payments necessary to preserve operations. While beneficial, this status is not required for vendors to safely ship post-petition goods.In most circumstances, vendors can safely continue shipping goods to a Chapter 11 debtor like Saks, especially where DIP financing is in place.Vendors or advisors with questions regarding shipping goods or protecting claims in the Saks bankruptcy are welcome to contact us.Jim Shenwick, EsqShenwick & [email protected] click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15Please click the link to schedule a telephone call with me. https://calendly.com/james-shenwick/15min

Law Review: Daniel III, Josiah M.- Determining the Historiographical Problem of Municipal Bankruptcy: Enactment and Amendment of Chapter IX, 1933-1979 (December 30, 2025). Ed Boltz Fri, 02/06/2026 - 15:45 Available at: https://ssrn.com/abstract=5253527 or http://dx.doi.org/10.2139/ssrn.5253527 Abstract: This article determines the historiographical problem of municipal bankruptcy law, 1933-1979. First, it identifies the problem. So far, the story has belonged to scholars of the law-and-economics school, but economic theorizing is unhelpful, and the L&E authors' version is inadequately researched and factually incorrect. Instead this article submits the historical method as superior methodology for unearthing and understanding the genesis of municipal bankruptcy. Second, the article solves the problem by providing the first archivally researched history of that origin and early development. Congressman Hatton Sumners, Judiciary Committee chair, was the key actor. The legislative process was a laboratory for new forms of relief under the Constitution's Bankruptcy Clause, seeking to relieve the insolvency experienced during the Depression by irrigation districts in Texas, new towns in Florida, and across the nation all types of political subdivisions that could not collect their taxes and pay their municipal bonds. State governments were helpless. The Constitution’s Contract Clause forbade “impairing the Obligation of Contracts,” and voluntary restructuring agreements were frustrated by the “holdout problem.” From multiple models, it was the device of composition with creditors that succeeded. Congress from 1933 to 1937 amended the Bankruptcy Act of 1898 by enacting the First and Second Municipal Bankruptcy Acts—known as Chapter IX—based on composition. L&E scholars credit this to a freshman Florida congressman, Mark Wilcox, who worked in conjunction with a bondholders’ group. But it was Sumners who determined that the composition model was not only constitutional but also politically most feasible. Sumners navigated through opposition that insisted “bankruptcy” required turnover of the debtor’s assets in exchange for a discharge of debt and that such legislation would destroy the municipal credit market. Municipal bankruptcy did leave all properties in the debtor’s hands and beyond bankruptcy court jurisdiction, and it did grant a discharge. The credit market survived. Further, relevantly to an issue in mass-tort chapter 11 bankruptcy today, Sumners crafted the first, and still the only, statutory injunctive relief applicable in the bankruptcy case of a non-individual entity for the protection of nondebtor third parties—here, all officers and inhabitants of a municipal debtor—against  collection efforts by a debtor's claimants. Once municipal bankruptcy became a New Deal agenda item, Franklin Roosevelt helped push the legislation to enactment in spring 1934. The Supreme Court invalidated the first act in the 1936 Ashton case, but Justice Cardozo dissented and outlined small changes that Sumners and Congress utilized in enacting the second act in 1937. Then Sumners led the oral arguments in 1938’s Bekins case that sustained it. Municipal bankruptcy law succeeded in effectuating municipal-bond restructurings, and its essence lives in today’s Bankruptcy Code as Chapter 9, providing discharge of unpayable debt and more commonly furnishing the platform upon which towns and taxing districts negotiate such deals. Chapter IX worked in the past, and Chapter 9 works today. Sumners, not Wilcox, was primarily responsible for the legislation. Nothing was assured; the story demonstrates change over time, with Sumners the key actor. And the project of finding and interpreting the genesis of municipal bankruptcy is one for legal history, not for L&E   Summary: This paper, by Josiah M. Daniels, III,   is a deeply researched legal history of the enactment and evolution of municipal bankruptcy—originally Chapter IX (1933–1979), now Chapter 9—arguing that its origins have been misunderstood by modern “law and economics” scholars. Drawing on archival sources rather than abstract theory, the author shows that municipal bankruptcy was born out of the Great Depression’s wave of local-government insolvencies, particularly special taxing districts and small municipalities overwhelmed by bond debt and crippled by the holdout problem. Congress, led principally by Texas Congressman Hatton Sumners, crafted municipal bankruptcy not as a creditor-control regime, but as a constitutionally sensitive, debtor-protective composition process designed to preserve local sovereignty while enabling realistic debt adjustment. The Supreme Court’s initial rejection (Ashton) and later approval (Bekins) reflect this careful balance between federal bankruptcy power and state sovereignty. The paper sharply criticizes later scholarship that retrofits creditor-bargain theory onto Chapter 9 by misreading or oversimplifying this history, calling that approach “forensic” rather than historical. Commentary (ncbankruptcyexpert.com style) This is one of those articles that quietly—but firmly—reminds us that bankruptcy law did not drop from the sky fully formed by economic theorists with spreadsheets and utility curves. It was built, piece by piece, by legislators confronting human, institutional, and political failure. The most important lesson for consumer bankruptcy reform is this: bankruptcy succeeds when it is designed as a pressure-release valve, not a moral judgment or a collection enhancement tool. Chapter IX was not created to maximize creditor recoveries. It was created to solve collective action problems, stop destructive litigation, and allow insolvent debtors—here, municipalities—to continue functioning. That same DNA runs through the best parts of modern consumer bankruptcy. There are several takeaways worth underscoring: History matters more than theory. Just as Chapter 9 was never meant to be a creditor-control regime, consumer bankruptcy was never meant to be a pure debt-collection device. Efforts to “reform” consumer bankruptcy by importing creditor-bargain logic or market-discipline rhetoric repeat the same category error this article exposes in the municipal context. The holdout problem is the real villain. Whether it’s bondholders in the 1930s or aggressive unsecured creditors, servicers, or debt buyers today, bankruptcy law exists because individual enforcement breaks systems. Any consumer bankruptcy reform that strengthens individual creditor leverage while weakening collective relief is moving backwards. Debtor dignity and institutional survival matter. Municipal bankruptcy was structured to preserve democratic governance and local autonomy. Consumer bankruptcy, at its best, preserves similarly preserves autonomy and also household stability, employment, housing, and family systems. Reforms that treat consumer debtors as failed market actors rather than citizens facing systemic stress miss the point entirely. Constitutional humility is a feature, not a bug. Sumners’ careful navigation of federalism constraints should be a model for modern reformers. Over-aggressive tinkering—whether by courts or Congress—often reflects impatience with limits that are actually doing important work. If there is a cautionary note here for today’s consumer-bankruptcy reform movement, it is this: do not let elegant theories overwrite messy reality. The system works best when it is grounded in lived experience, political feasibility, and a clear-eyed understanding of why bankruptcy law exists in the first place—not to punish failure, but to manage it humanely and efficiently. In short, if we want to reform consumer bankruptcy, we should spend less time asking what creditors would have bargained for in a hypothetical world, and more time asking what history teaches us about what actually works when real people, real institutions, and real crises collide. With proper attribution, please share. To read a copy of the transcript, please see: Blog comments Attachment Document determining_the_historiographical_problem_of_municipal_bankruptcy_enactment_and_amendment_of_chapter_ix_1933-1979.pdf (1023.78 KB) Category Law Reviews & Studies

Bankr. M.D.N.C.: Reid v. Rodriguez- Bankruptcy Court Kicks State-Law Landlord/Tenant Fight Back to State Court due to Mandatory Abstention Ed Boltz Thu, 02/05/2026 - 16:09 Summary: In Reid v. Rodriguez , the Bankruptcy Court for the Middle District of North Carolina dismissed, without prejudice, a pro se Chapter 7 debtor’s adversary proceeding against her landlord, holding that mandatory abstention under 28 U.S.C. § 1334(c)(2) applied—and that even if it did not, permissive abstention clearly would. The debtor, Sharon Annette Reid, filed a Chapter 7 case and then commenced an adversary proceeding asserting purely state-law claims against her landlord for breach of the implied warranty of habitability and unfair or deceptive trade practices. Those same claims were already being litigated in North Carolina state court as part of a summary ejectment action, including on appeal. The landlord moved to dismiss and/or abstain. The debtor did not respond. Judge Kahn walked carefully through the six-factor test for mandatory abstention, concluding that all six were satisfied: the motion was timely; the claims were exclusively state-law claims; the adversary was, at most, “related to” the bankruptcy case; there was no independent basis for federal jurisdiction; the state-court action was already pending when the bankruptcy was filed; and the matter could be timely adjudicated in state court—especially given that it was already further along than the adversary proceeding. Critically, this was a no-asset Chapter 7 case, the trustee had filed a report of no distribution, and the debtor had claimed the potential recovery as exempt. Once exemptions become final, the Court noted, the litigation would have no conceivable impact on estate administration. On those facts, abstention was mandatory. And even if it weren’t, the Court held that every relevant factor favored permissive abstention, including comity, judicial economy, avoidance of forum shopping, and the lack of any bankruptcy issue to decide. The adversary proceeding was therefore dismissed without prejudice, leaving the parties to litigate in state court. Commentary: This is a clean, disciplined abstention opinion—and a good reminder that bankruptcy court is not a general-purpose small-claims or landlord-tenant court, even when a debtor is pro se. A few practical takeaways stand out. First, courts mean it when they say that “related to” jurisdiction has limits. Once a Chapter 7 case is clearly a no-asset case, the trustee has walked away, and any recovery is fully exempt, bankruptcy jurisdiction becomes thin to nonexistent. At that point, the case is no longer about administering an estate—it’s just a state-law dispute wearing a bankruptcy costume. Second, this opinion underscores the importance of procedural posture. The state-court case was already pending—and already further along—when the adversary was filed. Bankruptcy courts are understandably reluctant to let parties relitigate or “appeal-by-adversary-proceeding” unfavorable state-court outcomes. Third, although the Court properly construes pro se pleadings liberally, that leniency does not extend to ignoring jurisdictional limits. Bankruptcy courts have an independent obligation to police their own subject-matter jurisdiction, and abstention doctrine is one of the primary tools for doing so. Fourth—and this matters for consumer practitioners advising clients—there is a recurring misconception that filing an adversary proceeding somehow gives state-law claims more leverage or visibility. In many Chapter 7 cases, the opposite is true. Filing an adversary can slow things down, increase costs, and ultimately send the client right back to state court anyway. Finally, this decision fits comfortably within a broader pattern: when bankruptcy adds nothing of substance to the resolution of a dispute—and especially when it risks forum shopping—courts will step aside. Mandatory abstention is not exotic or rare; it is a routine, predictable outcome when all six statutory elements are met. Bottom line: if it walks like a state-law case and quacks like a state-law case, bankruptcy court is not obligated—nor inclined—to keep it. To read a copy of the transcript, please see: Blog comments Attachment Document reid_v._rodriguez.pdf (587.19 KB) Category Middle District

Bankr. M.D.N.C.: In re Reid — Willful Stay Violations, Real Harm, and an Anemic Damages Award Ed Boltz Wed, 02/04/2026 - 14:53 Summary: In In re Reid, the Bankruptcy Court for the Middle District of North Carolina found that Modern Rent to Own willfully violated the automatic stay through a sustained campaign of post-petition collection calls and texts directed at a Chapter 7 debtor who was proceeding pro se. The factual record was not close: more than 100 voicemail calls and over 50 text messages, continuing after repeated actual notice of the bankruptcy filing, and accompanied by statements that collection would continue regardless. The Court had little difficulty finding a willful violation of § 362(a) and entitlement to relief under § 362(k). The facts matter. Ms. Reid testified—credibly and unrebutted because Modern Rent to Own couldn't have been bothered to send an attorney to represent it—that the barrage of calls left her voicemail unusable, caused her to miss medical communications, and directly interfered with her ability to obtain childcare work that depends on phone notifications. The Court accepted that these harms were real and caused by the stay violations. Still, because Ms. Reid could not precisely quantify her damages, the Court awarded $1.00 in nominal compensatory damages and $5,000 in punitive damages. Pro se posture cuts both ways The Court explicitly acknowledged that Ms. Reid’s pro se status contributed to the difficulty in quantifying actual damages. That acknowledgment is important—but it also highlights a recurring, uncomfortable pattern: damages for stay violations often seem lower when the debtor is represented by counsel, as if courts assume that having a lawyer somehow cushions or mitigates the real-world impact of illegal collection activity. That assumption is hard to square with reality. Harassment is harassment whether or not a debtor has counsel on speed dial, and the automatic stay protects people, not just legal theories. The Lyle comparison problem The Court relied heavily on In re Lyle (E.D.N.C.), where $100 per call for 540 illegal calls yielded $54,000 in punitive damages. Yet here—despite evidence of over 150 separate communications (calls plus texts)—the punitive award was capped at $5,000. The Court characterized this as a “moderate” award sufficient for deterrence, but the comparison raises eyebrows. If $100 per call was appropriate in Lyle, why is a fraction of that amount sufficient here, particularly where the conduct persisted after repeated notice and the creditor did not even appear to defend itself? Statutory damages as a missed benchmark Bankruptcy courts often say they are not bound by other consumer protection statutes when fashioning § 362(k) remedies. That may be true—but they can still look to those statutes for guidance. At a minimum, statutory damages frameworks provide a reality check for deterrence. North Carolina’s UDTPA (N.C.G.S. § 75) allows up to $4,000 per violation in statutory damages. The Telephone Consumer Protection Act (TCPA) provides $500 per improper call or text, escalating to $1,500 per violation for knowing or willful offenses, with no overall cap Under the TCPA alone, 150 willful violations × $1500 = $225,000 in statutory damages—an amount Ms. Reid could still plausibly pursue in a supplemental federal action. Against that backdrop, a $5,000 punitive award for serial, knowing stay violations looks less like deterrence and more like a cost of doing business. “But that could bankrupt the creditor…” The predictable response is that larger awards could devastate a small creditor like Modern Rent to Own (or its owner and manager personally). That concern rings hollow in bankruptcy court. Courts routinely grant creditors relief from the automatic stay—with devastating consequences to debtors—for far more innocent conduct, such as missing payments. If bankruptcy courts are comfortable imposing life-altering consequences on consumers for defaults, they should be equally comfortable imposing meaningful consequences on creditors who deliberately ignore federal law.  Instead,  a $5,001  award is, as Jamie Dimon once explained to Sen. Elizabeth Warren saying "So hit me with a fine. We can afford it" , instead just a minor cost of doing business (illegally). A reporting obligation worth remembering Finally, this is exactly the sort of case that should not disappear into the electronic ether. 28 U.S.C. § 159(c)(3) requires clerks to report “cases in which creditors were fined for misconduct and any amount of punitive damages awarded by the court for creditor misconduct.” That obligation is too often overlooked. This decision belongs on that list—not just for transparency, but to reinforce that the automatic stay is not optional and for the possibility (however infinitesimal) that Congress will realize the frequency and scope of illegal behaviors by creditors is much worse than the misdeeds of debtors. Bottom line: In re Reid gets the law right on liability but undershoots on remedies. If punitive damages are meant to deter, courts should be willing to look beyond internal bankruptcy comparisons and take seriously the statutory damage regimes that Congress and state legislatures have already deemed appropriate for this very kind of conduct.   To read a copy of the transcript, please see: Blog comments Attachment Document in_re_reid.pdf (703.87 KB) Category Middle District

Law Review: Littwin, Angela and Adams, Adrienne and Kennedy, Angie, Ineffective Legal Relief for Coerced Debt: The Failure of Divorce and Debtor-Creditor Law to Address Debt Created by Domestic Violence (December 01, 2025). Ed Boltz Tue, 02/03/2026 - 15:54 Available at: https://ssrn.com/abstract=6023874 or http://dx.doi.org/10.2139/ssrn.6023874   Abstract: Coerced debt occurs when the abusive partner in a relationship characterized by domestic violence (DV) uses fraud, coercion, or manipulation to incur debt in the DV survivor’s name. For example, abusers may fraudulently open credit cards in their partners’ names or coerce their partners into refinancing their homes. Prior research has shown that coerced debt may be a common problem that negatively impacts DV survivors’ lives by damaging credit scores and imposing barriers to leaving abusive relationships. This manuscript presents data from the first in-depth study of coerced debt, Debt as a Control Tactic in Abusive Marriages, funded by the National Science Foundation.1 Our research team interviewed 116 recently-divorced women with coerced debt. A key research aim was to evaluate the effectiveness of legal relief for coerced debt. We analyzed participants’ experiences with divorce and studied three options under debtor-creditor law: unauthorized use in the Truth in Lending Act, the Texas statute of limitations, and bankruptcy. We found these options for legal relief for coerced debt to be highly ineffective. The failure of existing legal remedies underscores the importance of ongoing advocacy for legal reform. This article—Ineffective Legal Relief for Coerced Debt: The Failure of Divorce and Debtor-Creditor Law to Address Debt Created by Domestic Violence—by Littwin, Adams, and Kennedy, reports on a National Science Foundation–funded study examining how coerced debt is created and, more importantly, how poorly the legal system responds to it. The study interviewed 116 women who had recently divorced abusive husbands and identified over $12.5 million in coerced debt, with a median of roughly $22,000 per participant. The authors then examined whether commonly assumed remedies actually help: Divorce law fails because family courts cannot bind creditors. Even when divorce decrees “assign” debt to the abuser, survivors remain contractually liable. Indemnification provisions offer cold comfort, often increasing post-divorce conflict and risk. Unauthorized use doctrines under the Truth in Lending Act help only a small fraction of debts, particularly because creditors often demand police reports—something many survivors reasonably fear. Statutes of limitation are almost entirely illusory as relief. Bankruptcy, while theoretically powerful, is often inaccessible due to cost and remains unacceptable to many survivors despite awareness of its existence. Using a framework of availability, accessibility, and acceptability, the authors find that fewer than one in ten coerced debts could realistically be resolved through existing debtor-creditor law. The article ends with a call for reform, including broader recognition of coerced debt and stronger statutory protections. Commentary: This is an important paper, and not just for academics. It should be required reading for domestic-violence advocates and divorce attorneys—and, frankly, for bankruptcy lawyers who don’t routinely think about IPV and coercion. One of the article’s most striking findings is not simply that legal remedies fail, but why they fail. Survivors often do not pursue relief because the systems meant to help them are expensive, frightening, culturally incompetent, or actively dangerous. That rings true. But there is another layer here that deserves more attention: there is a deep and persistent ignorance about bankruptcy among the very professionals most likely to encounter coerced debt first. That ignorance exists not only among laypeople—who understandably don’t know what they don’t know—but also among DV advocates and divorce lawyers. Many harbor a reflexive aversion to bankruptcy, viewing it as a moral failure, a last resort, or something that will “ruin” a survivor’s life. Some divorce attorneys are also understandably concerned that a bankruptcy might discharge unpaid attorney’s fees. The result is that bankruptcy is often never seriously discussed, even when it is the most effective—and sometimes the only—tool available. I saw a version of this long before I ever became a bankruptcy lawyer. In 1998, fresh out of law school, I worked on an acrimonious divorce where the only contested issue was about $20,000 in joint credit-card debt. No assets. No children. Each party ultimately spent more than $3,000 in legal fees fighting over which of them would be “responsible” for debts that the credit-card companies were never going to release either of them from anyway. Even back then, they could have filed a joint bankruptcy for under $1,000 total and moved on with their lives. Instead, they paid lawyers to argue over a legal fiction. Multiply that dynamic by coercive control, fear of retaliation, and financial abuse, and you begin to see how perverse the system becomes. Divorce Courts, Contracts, and Bankruptcy’s Missing Seat at the Table The authors correctly note that divorce courts cannot shift contractual liability from an abused debtor to an abuser without running headlong into constitutional problems—namely, interference with private contracts. At best, courts can order indemnification. At worst, they do nothing. Bankruptcy, however, sits in a different constitutional posture. Congress can impair contracts, and it has done so for over two centuries. Used thoughtfully and in coordination with divorce proceedings, bankruptcy could solve problems that family courts simply cannot. That said, there is a real tension here. Actually shifting liability to an abuser—outside of bankruptcy—may increase the risk of further abuse and may also deplete the abuser’s resources, impairing child support or alimony. A more realistic (if underexplored) option may be placing the abuser into an involuntary bankruptcy, liquidating non-exempt assets to pay creditors, and discharging the remaining debts for both parties. It’s not a silver bullet, but it is at least a tool worth discussing—something divorce courts and DV advocates rarely do. North Carolina Law: Existing Tools and Promising Reform North Carolina debtors already have some protection. The North Carolina Identity Theft Protection Act, N.C.G.S. § 75-60 et seq., can apply to certain coerced debts, though it is far from comprehensive. More promising is the proposed Coerced Debt Relief Act, S. 650 (2025–2026), introduced by Mujtaba A. Mohammed. That bill would directly recognize coerced debt and provide clearer remedies. It closely tracks the National Consumer Law Center Model State Coerced Debt Law, which should be the baseline for reform nationwide. Bankruptcy, Student Loans, Vehicle Cram-Down and Missed Opportunities The paper’s discussion of bankruptcy is careful but incomplete. In evaluating student loan discharge, the authors do not meaningfully account for the Department of Justice’s Student Loan Adversary Proceeding (SLAP) guidance. As other scholars—including Pang and Iuliano—have shown, that guidance has substantially increased the likelihood of discharge, albeit with additional legal costs. Facts demonstrating abuse, long-term impacts of that abuse, and coercion in taking on student loans would carry significant weight under the DOJ SLAP framework—and likely even with the most recalcitrant bankruptcy judges. Similarly, the authors correctly note that BAPCPA curtailed vehicle cram-downs in Chapter 13. But the infamous  “Hanging Paragraph” in § 1325(a)(5)(*) applies only to motor vehicles “acquired for the personal use of the debtor” within 910 days. A serious argument can be made that a vehicle acquired through coercive debt—even one driven by the survivor—was in reality acquired by, through and for the abuser. That argument has not been tested nearly enough. Awareness Is Up. Acceptability Is Not. One underappreciated finding in the study is that over 90% of participants were at least aware of bankruptcy as a concept. That is a quiet triumph of access to justice—and yes, a vindication of consumer bankruptcy attorneys whose advertising is often sneered at by “tall-building” lawyers, judges, and academics. But awareness is not acceptability. Bankruptcy remained “not at all acceptable” to a majority of participants. That gap can be closed—but only if DV advocates, divorce lawyers, and bankruptcy attorneys start talking to each other, cross-training, and presenting bankruptcy not as failure, but as relief. Lastly,  while certainly accurate that access to legal solutions for coerced debt are often limited by the expense of attorneys fees (which in the consumer bankruptcy attorneys are nonetheless far, far more reasonable than nearly any other type of lawyer- as evidence by the fact that white shoe law firms never take on consumer cases),  more  thought and effort needs to be expended on finding solutions for this conundrum.  This includes options for low-cost attorney fee only Chapter 13 cases  (as allowed in the MDNC)  or ideas,  such as being considered by the National Bankruptcy Conference and Rep. J.  Luis Correa (D-CA),  for attorney fees to be paid after the filing of a Chapter 7 under court supervision (those two options are,  in essence,  identical),  ideas for increasing access to justice while maintaining the high quality of representation (since creditors and abusers aren't ever going to ease up) is vital. Until then, coerced debt will remain what this article so clearly shows it to be: another weapon of abuse, enabled by a fragmented and deeply siloed, limited and inaccessible legal system.     With proper attribution,  please share. To read a copy of the transcript, please see: Blog comments Attachment Document ineffective_legal_relief_for_coerced_debt_the_failure_of_divorce_and_debtor-creditor_law_to_address_debt_created_by_domestic_violence.pdf (1.09 MB) Category Law Reviews & Studies

N.C Bus. Ct.: State of North Carolina v. MV Realty: When “Covenants Running with the Land” Turn Out to Be Pure Fiction Ed Boltz Mon, 02/02/2026 - 16:03 Summary: In State ex rel. Jackson v. MV Realty PBC, LLC, the North Carolina Business Court granted sweeping partial summary judgment in favor of the Attorney General, holding that MV Realty’s Homeowner Benefit Agreements (“HB As”) were the product of multiple unfair and deceptive trade practices under Chapter 75. At bottom, MV Realty’s business model was simple—and abusive. Homeowners were paid a few hundred or a few thousand dollars up front in exchange for signing a 40-year exclusive real estate brokerage agreement, backed by draconian “early termination fees,” threats of litigation, and—most critically—the recording of memoranda falsely claiming that these obligations were covenants running with the land. The court had little trouble concluding that this scheme was unlawful. The Business Court ruled, as a matter of law, that: The HB As were personal services contracts, not real covenants, and therefore could not “touch and concern” the land. Recording memoranda asserting otherwise created a false cloud on title, constituting an unfair and deceptive trade practice. MV Realty’s routine filing of lis pendens in breach-of-contract suits seeking only money damages was improper and deceptive. The so-called “Early Termination Fees” were unenforceable penalties, not valid liquidated damages. MV Realty also violated North Carolina’s Telephone Solicitation Act through massive robocalling campaigns and calls to numbers on the Do-Not-Call Registry without provable consent. In short, the court dismantled the legal scaffolding MV Realty relied upon to intimidate homeowners and lock them into long-term obligations they neither understood nor could realistically escape . Commentary: This opinion has practical impact for consumer bankruptcy attorneys, mortgage lawyers (both sides),  bankruptcy trustees,  title examiner, and any court confronting attempts to repackage predatory contracts as “real property interests.” It is also a roadmap for how the Attorney General can—and should—ensure that these findings remain effective notwithstanding bankruptcy filings. 1. Why This Matters in Consumer Bankruptcy Cases For bankruptcy practitioners, the most important takeaway is the court’s unequivocal holding that MV Realty’s agreements do not create property interests. That matters because: There is no valid lien. There is no covenant running with the land. There is no secured claim. There is, at most, a disputed unsecured claim for breach of a personal services contract, and even that claim is undermined by the court’s ruling that the ETF is an unenforceable penalty. Practically, this gives debtor’s counsel several powerful tools: Claim objections: Any proof of claim asserting secured status, lien rights, or damages based on an ETF should be objected to aggressively. Lien avoidance and declaratory relief: If memoranda remain of record, debtors can seek declaratory relief confirming that no enforceable interest exists. Stay and discharge enforcement: Post-petition or post-discharge collection efforts premised on these agreements are fertile ground for stay-violation and discharge-violation litigation. Chapter 13 treatment: Even if a claim survives as unsecured, it is subject to ordinary plan treatment—and likely to receive pennies, if anything. Equally important is the court’s emphasis on consumer sophistication. The Business Court repeatedly highlighted the imbalance between MV Realty and individual homeowners. Bankruptcy courts, which see this imbalance every day, should take note. 2. Using This Opinion Affirmatively for Debtors Consumer attorneys, both in bankruptcy cases and elsewhere,  should not treat this decision as merely defensive. It can be used affirmatively to: Reassure hesitant homeowners that bankruptcy will not “lock in” these agreements. Push back against title insurers or closing attorneys who still fear recorded memoranda. Support motions to reopen cases where debtors paid ET Fs prepetition under coercion. Bolster fee applications in cases where significant work is required to unwind these abusive contracts. This is also a rare case where a state court UDTP ruling directly strengthens bankruptcy outcomes, rather than existing in a silo. 3. The Attorney General’s Role Going Forward—Including in Bankruptcy The opinion also raises an important structural question: how does the State ensure these protections are not diluted by bankruptcy proceedings? There are several answers. First, the AG should continue to assert that: Actions to enforce Chapter 75, including injunctive and declaratory relief, fall squarely within the police and regulatory power exception to the automatic stay. Findings that the memoranda are false and deceptive are not dischargeable “claims,” but regulatory determinations that bind successors and bankruptcy courts alike. Second, in any future bankruptcy (its previous bankruptcy having been dismissed  on May 24, 2024, via an order in the U.S. Bankruptcy Court for the Southern District of Florida) involving MV Realty or related entities, the AG should insist that: No plan or settlement may revive or recharacterize HB As as property interests. No sale “free and clear” can launder unenforceable interests into something marketable. Any attempt to monetize these agreements is inconsistent with North Carolina public policy as articulated by the Business Court. Third—and critically—the AG should coordinate with consumer bankruptcy trustees and debtor’s counsel to ensure that these rulings are actually enforced at the household level, not just preserved in reported decisions. 4.  Practice Note for Chapter 7 Trustees: Avoidance and Estate-Value Opportunities Although this opinion arises from a state enforcement action, it provides Chapter 7 trustees with a ready-made roadmap for avoidance actions that directly benefit unsecured creditors—and, incidentally, clean up the damage inflicted on consumer debtors.(I know, I know-  it goes against the very nature of Chapter 7 trustees to do anything that might help consumer debtors,  but perhaps their own pecuniary interest might override that aversion.) Most importantly, the Business Court’s holding that MV Realty’s memoranda did not create covenants running with the land supports the conclusion that the recorded “liens” were void ab initio, not merely avoidable. Trustees can rely on this finding in exercising their § 544(a) strong-arm powers, both to defeat asserted secured claims and to clear title where sale proceeds were reduced or diverted based on a false encumbrance. The Court’s ruling that the Early Termination Fees were unenforceable penalties also tees up classic preference (§ 547) and constructive fraudulent transfer (§ 548) claims where homeowners paid ET Fs or settlement amounts prepetition. Payments extracted under a legally void penalty, particularly from insolvent consumers, are difficult to defend as reasonably equivalent value and often result in the recipient receiving more than it would in a Chapter 7. Finally, where sale proceeds were escrowed, withheld, or paid under threat of an asserted lien, trustees should consider § 542 turnover and, in appropriate cases, § 544(b) actions grounded in the underlying Chapter 75 violations. Framed correctly, these are not debtor-relief cases—they are estate-value recovery actions that prevent a predatory creditor from leaping ahead of legitimate unsecured creditors. 5.  The Bigger Picture This case fits into a broader and increasingly familiar pattern: financial actors attempting to extract long-term value from homeowners by skirting traditional lending, brokerage, and consumer-protection rules, then trying to dress those arrangements up as “innovative” real estate products. The Business Court was not fooled. Nor should bankruptcy courts be. For consumer bankruptcy attorneys, this opinion is both a sword and a shield. For the Attorney General, it is an opportunity—and an obligation—to ensure that bankruptcy does not become the place where unlawful business models go to be quietly resuscitated. And for homeowners who were told they had “no way out,” it is a long-overdue reminder that North Carolina law still draws a sharp line between legitimate contracts and predatory fiction. A Final Note of Congratulations This decision also warrants a well-deserved tip of the hat to Jeff Jackson and the North Carolina Department of Justice team that brought and litigated this case with persistence and clarity of purpose. Brian Rabinovitz and Asa Edwards, in particular, deserve recognition for translating complex real-estate and consumer-protection law into a compelling case that exposed this scheme for what it was. Asa’s recent transition from the North Carolina consumer bar to public service only underscores the depth of practical experience brought to bear here. This win stands squarely in the long and proud tradition of North Carolina Attorneys General taking an active, progressive role in defending consumers and protecting the integrity of the marketplace—and it will have lasting ripple effects well beyond this single case. With proper attribution,  please share. To read a copy of the transcript, please see: Blog comments Attachment Document state_ex_rel._jackson_v._mv_realty.pdf (348.26 KB) Category NC Business Court

E.D.N.C. (and Jones Cty. Sup. Ct.): Carolina Lease Management, Rent-to-Own Sheds, and the End of the “Executory Contract” Fairy Tale Ed Boltz Fri, 01/30/2026 - 16:15 Summary: The Bland and Greene class actions against Carolina Lease Management Group, LLC are now fully and finally resolved. Together, they represent one of the more consequential pieces of consumer litigation in North Carolina in recent years — not only because of the millions of dollars recovered and debt cancelled, but because of what they say, loudly and clearly, about how “rent-to-own” contracts actually work in substance, not just in name. For bankruptcy lawyers, especially those handling Chapter 13 cases, these cases should be required and inspirational  reading. Calling a Sale a Lease Doesn’t Make It One At the heart of both cases was a simple premise: You don’t get to avoid consumer-credit laws by calling a retail installment sale a lease. Carolina Lease Management leased portable storage sheds to North Carolina consumers under standardized “rent-to-own” contracts. The plaintiffs alleged — persuasively enough to drive a global settlement — that these agreements were retail installment sales in disguise, and that CLM: Failed to comply with North Carolina’s Retail Installment Sales Act (RISA); Engaged in unfair and deceptive trade practices under Chapter 75; and Used unlawful debt collection practices to collect amounts not legally owed. This was not about a few bad contracts. It was about uniform documents and uniform practices, applied statewide, to thousands of consumers. After years of hard-fought litigation in both state and federal court, including an appeal to the Fourth Circuit, the cases settled on a global basis: $8 million total settlement across the two actions; Over $600,000 in alleged debt cancelled; Cash distributions to thousands of class members; No claims process; and Zero opt-outs. Zero objections. That last point matters. Why This Matters in Consumer Bankruptcy Cases What makes these cases especially important is what they undercut in bankruptcy court. Anyone who files consumer cases in North Carolina has seen this move: A rent-to-own shed creditor files a proof of claim insisting that the contract is an executory lease, not a secured claim, and certainly not unsecured. The implication is always the same — assume it or else. The Bland / Greene litigation blows a hole straight through that strategy. If these contracts are retail installment sales, then in bankruptcy: They are not executory contracts within the meaning of § 365; The creditor is not a lessor, but a seller or financier; The claim is subject to § 506 valuation; and In Chapter 13, the debt is potentially crammable. That is not an academic distinction. It is the difference between: Forcing a debtor to cure and maintain an inflated “lease” payment; or Treating the claim like what it actually is — often a low-value secured claim with a large unsecured tail, or in some cases simply an unsecured claim. Portable sheds depreciate quickly. Their resale value is often minimal. Once stripped of the “executory lease” label, many of these claims collapse under ordinary Chapter 13 analysis. Not Just Carolina Lease Management And this is the point that bankruptcy lawyers should not miss: This is not just a Carolina Lease Management problem. The rent-a-shed industry relies on: Standard form contracts; Identical “rent-to-own” language; The same semantic dodge — this is a lease, trust us. The reasoning that drove these settlements is portable. It applies just as readily to other shed companies, portable building sellers, and rent-to-own personal property creditors operating in North Carolina. Expect to see these issues raised more often: Objections to executory-contract treatment; Challenges to secured status; Defensive use of RISA, UDTPA, and DCA violations in bankruptcy cases; and Chapter 13 plans that cram these claims down to reality. As it should be. Credit Where It Is Due This result did not happen because the law was easy or obvious. It happened because of exceptional lawyering. Adrian Lapas of Goldsboro, along with Charles Delbaum and Jennifer Wagner of the National Consumer Law Center, deserve enormous credit for what they achieved here. These cases involved: Novel issues of statutory interpretation; Years of contested discovery; Aggressive defense by well-funded defendants; Appellate risk; and The very real possibility that consumers would recover nothing if the litigation failed. Instead, they delivered cash, debt cancellation, and structural change — the kind of result that actually matters in consumers’ lives. For North Carolina consumers — and for the bankruptcy lawyers who represent them every day — this was consumer advocacy done right. The Takeaway for Bankruptcy Practitioners If you see a rent-to-own shed claim in a Chapter 13 case and your first instinct is “executory contract”, it may be time to slow down. The lesson of Bland and Greene is simple: Substance still matters. Labels don’t control. And calling a sale a lease doesn’t make it one. That’s a lesson worth enforcing — in bankruptcy court and beyond. See previous posts at: 4th Cir.: Bland v. Carolina Lease Management Group Statute of Limitations for UDTPA  E.D.N.C.: Bland v. Carolina Lease Management- Preliminary Approval of Class Action Settlement against "Rent-A-Shed" Companies With proper attribution,  please share. To read a copy of the transcript, please see: Blog comments Attachment Document bland_v._carolina_lease_management_1.pdf (654.33 KB) Document in_re_johnson_571_b.r._167_bankr_ednc_2017.pdf (519.56 KB) Document greene_v._carolina_lease_management.pdf (5.44 MB) Category Eastern District

​Bankr. W.D.N.C. (& kinda M.D.N.C.): Trustee’s Ponzi-Scheme Fraud Claims Survive Motion to Dismiss (and Live to Fight Another Day) Ed Boltz Thu, 01/29/2026 - 17:03 Summary: In Hayes v. Total Equipment & Rental of El Paso, LLC, Adv. No. 25-03074 (Bankr. W.D.N.C. Jan. 23, 2026), the Chapter 7 trustee cleared the first—and often most important—procedural hurdle: keeping his fraudulent-transfer case alive past Rule 12(b)(6). In a thorough memorandum opinion denying the defendant’s motion to dismiss, the Court held that the trustee plausibly pled actual and constructive fraudulent transfer claims under both North Carolina and South Carolina law, as well as related claims under §§ 502(d) and 510(c). The setup. The debtor, Applied Machinery Rentals, LLC, was allegedly nothing more than a vehicle for a classic Ponzi scheme run by its principal, involving nonexistent or double-pledged telehandlers, sale-out-of-trust transactions, and “rent” payments that functioned as disguised investments. The trustee targeted two prepetition transfers totaling $150,000 made in early 2020, transfers that were undocumented, oddly round-numbered, and purportedly tied to equipment that may not have existed at all. No ‘shotgun pleading’ escape hatch. The defendant first argued that the trustee’s complaint should be tossed as an impermissible “shotgun pleading” because it grouped multiple causes of action into a single count. The Court was unimpressed. The touchstone is notice, not aesthetic pleading preferences, and the motion itself demonstrated the defendant understood exactly which claims were being asserted. That argument died quickly. Choice-of-law fights belong to discovery, not dismissal. On the more substantive issues, the Court refused to short-circuit the case with a premature choice-of-law ruling. Applying North Carolina choice-of-law principles and the UVTA’s location-of-the-debtor framework, the Court held that determining whether North Carolina or South Carolina law governs requires a fact-intensive inquiry into where the debtor’s places of business and chief executive office were located. At the pleading stage, the trustee’s allegations—that the debtor was run from North Carolina and South Carolina by a single principal—were more than enough. Actual fraud: Ponzi presumptions still matter. For actual fraudulent transfer claims, the alleged existence of a Ponzi scheme did real work. Under South Carolina’s Statute of Elizabeth and analogous North Carolina principles, the Court held that the trustee plausibly alleged not only fraudulent intent by the debtor, but facts sufficient to impute that intent to the transferee—either through knowledge or circumstances that would have put a reasonably prudent party on inquiry notice. Undocumented six-figure transfers, whole-number amounts, and a total lack of business explanation were enough to get past dismissal. Constructive fraud: ‘Reasonably equivalent value’ isn’t magic words. The Court also rejected the argument that the trustee failed to plead constructive fraud because he didn’t incant the precise phrase “no or nominal consideration.” What matters are facts, not labels. Allegations that the trustee could discern no basis for the transfers, that the transactions lacked documentation or business purpose, and that they mirrored other fraudulent conduct sufficed to plausibly allege a lack of value. Claims allowance consequences remain in play. Because the fraudulent transfer claims survived, so too did the trustee’s § 502(d) disallowance and § 510(c) equitable subordination theories. The defendant effectively conceded as much at the hearing. Commentary: This is not a merits ruling, but it is an important reminder that well-pled trustee complaints—especially those grounded in Ponzi-scheme allegations—are not easily dispatched at the pleading stage. Courts remain reluctant to resolve fact-heavy issues like choice of law, intent, and value on a cold record, and rightly so. And finally, a brief sarcastic aside: because this opinion was authored by Judge Benjamin Kahn of the Middle District of North Carolina, sitting by designation in the Western District, lawyers from the Eastern District can, in the grand tradition of parochialism in the bankruptcy courts, take comfort in having two perfectly respectable reasons to ignore it entirely. With proper attributions,  please share. To read a copy of the transcript, please see: Blog comments Attachment Document hayes_v._total_equipment.pdf (560.48 KB) Category Western District

 The Saks, Bergdorf Goodman, Neiman Marcus Bankruptcy Filing and the Case of the Missing or Incomplete Consignment AgreementMany clients have contacted my law firm explaining that they are in the jewelry business and shipped jewelry, diamonds, or other high-value items to Saks on a “consignment” basis. When I ask for the Consignment Agreement, what I usually receive—if anything at all—is a receipt or invoice stamped “Consignment” in the upper right-hand corner. I then ask for a copy of the UCC-1 financing statement and the PMSI notice sent to other inventory secured creditors, and I am often met with a glazed look and the response: “That’s not how it’s done on 47th Street.”Unfortunately, in a Chapter 11 case, custom and practice do not trump the Uniform Commercial Code.Under UCC Article 9, perfected consignments are treated as secured transactions.If the consignment is not properly perfected, the goods are deemed property of the bankruptcy estate and are subject to the claims of the debtor’s other creditors including secured  inventory lenders, DIP lenders and the Bankruptcy Trustee. The consignor, instead of being a secured creditor, is treated as a general unsecured creditor.Article 9 does provide the consignor with a PMSI in consigned inventory—but only if it is properly perfected.This generally requires filing a UCC-1 financing statement and sending timely PMSI notices, before delivery of the goods, with renewals every five years. In Chapter 11, secured creditors are typically paid far more than unsecured creditors, making these steps critical.Creditors involved with the  Saks, Bergdorf Goodman, Neiman Marcus bankruptcy filing with questions about the treatment of their claims or consignment agreements should contact Jim Shenwick, Esq. Please click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15mPlease click the link to schedule a telephone call with me. https://calendly.com/james-shenwick/15minShenwick & Associates116 Plymouth DriveScarsdale, NY 10583Work: 917-363-3391Bankruptcy & Creditor Rights