Bankr. W.D.N.C.: In re Best Wall- Bankruptcy Subject Matter Jurisdiction does not require Financial Distress Ed Boltz Fri, 03/15/2024 - 19:18 Summary: The bankruptcy court found that the lack of financial distress does not deprive  it of subject matter jurisdiction. For a more detailed summary (which will recommend reading the entire 59-page opinion)  see Rochelle's Daily Wire "Lack of Financial Distress Doesn’t Divest a Court of Subject Matter Jurisdiction".Commentary: Judge Beyer provides a very comprehensive  survey of the history of bankruptcy law from the eighteenth century to the present writing that: While the language of the Bankruptcy Clause, the history of American bankruptcy law, and the Supreme Court’s descriptions of the bankruptcy power do not definitively answer, or even directly address, the question of whether constitutional subject matter jurisdiction requires a debtor in financial distress, the absence of support for the Committee’s argument is conspicuous. There are simply no cases at any level (of which this court is aware) that explicitly endorse the proposition that bankruptcy courts do not have subject matter jurisdiction unless a debtor has a sufficient degree of financial distress. This complements the recent law review article, by Rafael Pardo, Rethinking Antebellum Bankruptcy.   This case (which has been appealed to the district court already) and its potential conflict with  In re LTL Management LLC  from the Third Circuit could lead to the Supreme Court to provide more definitive parameters for the scope of the Bankruptcy Clause  beyond relying on the 182 year old opinion of Justice Catron (sitting as a Circuit Judge). To read a copy of the transcript, please see: Blog comments Attachment Document bestwalljurisdiction_compressed.pdf (401.91 KB) Category Western District

N.C. Ct. of App.: Causey v. Southland- Shareholders Cannot Intervene to Insurance Company Liquidation Ed Boltz Fri, 03/15/2024 - 19:14 Summary: The North Carolina Court of Appeals  ruled in the case between Mike Causey, Commissioner of Insurance, and several insurance companies owned by Greg Lindberg, including Southland National Insurance Corporation, Bankers Life Insurance Company, and Colorado Bankers Life Insurance Company. GBIG Holdings, LLC, owned by Lindberg, appealed against the orders directing the liquidation of the insurance companies.    The Court of Appeals held that as a shareholder, GBIG should not have been allowed to intervene and defend against the liquidation petition, as only a company’s directors are permitted to intervene to defend under N.C.G.S. § 58-30-95. Commentary: While it seems more obvious that Causey,  as the North Carolina Commissioner of Insurance,  would seek rehabilitation and eventually liquidation of an insurance company under N.C.G.S § 58‑30 et seq.,  this is yet another case where a failed business is being handled through  avenues other than bankruptcy.   Whether GBIG  would be able to meet the requirements of 11 U.S. Code § 303 to file an involuntary Chapter 11 bankruptcy and seek to  continue the reorganization  there would seem to require at least two other entities holding claims is unknown,  but could remove this case from state to bankruptcy court. To read a copy of the transcript, please see: Blog comments Attachment Document causey_v._southland_insurance.pdf (145.69 KB) Category NC Court of Appeals NC Courts

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

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

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

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

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

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

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

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