N.C. Ct. of App.: Zuleger v. Clore- Life Estates on Paper vs. Life Estates in Bankruptcy Court Ed Boltz Sun, 12/28/2025 - 23:23 At first blush, Zuleger v. Clore looks like a pure state-law property dispute about life estates, remainders, and an aging house that no one can afford to fix. But for bankruptcy practitioners—especially in North Carolina—it quietly sharpens an issue we wrestle with all the time:   How do you value a life estate or remainder interest when the law allows liquidation in theory, but the market reality says otherwise? The answer in Zuleger reinforces—and importantly, complements—the valuation logic bankruptcy courts have long applied under In re Cain. What Zuleger Clarifies About Value The Court of Appeals reaffirmed that under N.C. Gen. Stat. § 41-11, a court may: Order a sale of property subject to a life estate when it is economically unproductive; and Pay the life tenant the actuarial value of the life estate in cash, while protecting the remaindermen by reinvesting the balance . That matters because it confirms something critical: actuarial valuation is legally relevant when the asset is actually being liquidated. Section 41-11 is a statutory exception to the usual market constraints—it authorizes a court-ordered conversion of a divided property interest into cash. But—and this is where bankruptcy lawyers should sit up straight—Zuleger only works because the statute allows forced sale and forced conversion. Enter In re Cain: Why Bankruptcy Valuation Is Different Contrast that with In re Cain, where the Bankruptcy Court for the Middle District of North Carolina was dealing with a Chapter 7 estate that owned only a remainder interest, not the life estate, and had no power to force a sale of the entire property . Judge Stocks made two points in Cain that remain devastatingly relevant: Actuarial tables are not fair market value. Mortality tables may tell you the theoretical present value of a life estate, but they do not tell you what a willing buyer would pay for a remainder interest subject to a non-consenting life tenant. You cannot value a bankruptcy asset by pretending you can sell interests the estate does not own. The court rejected the creditor’s attempt to value the remainder by: Using statutory life expectancy tables, Calculating the present value of the life estate, and Simply subtracting that from the fee-simple value. That approach assumes a hypothetical sale of both interests—something the bankruptcy estate could not compel. The “Divide by Three” Reality Check What practitioners sometimes forget—and what Cain implicitly recognized—is that fair market value in bankruptcy is brutally practical. Even if actuarial math says a remainder interest is worth $40,000 on paper, the real question is: Who is buying a remainder interest in a house they cannot possess, cannot finance, cannot insure independently, and may not see for 10–15 years? In practice, trustees, courts, and practitioners often discount actuarial values dramatically—sometimes by two-thirds or more—to reflect: Illiquidity Lack of control Carrying risks Uncertainty of life expectancy Absence of a realistic buyer pool That is how courts get from “actuarial value” to something much closer to one-third of the theoretical number—not as a formula, but as a recognition of market reality. Cain didn’t use the phrase “divide by three,” but that is exactly what its reasoning produces. Putting Zuleger and Cain Together Seen together, these cases draw a clean line that bankruptcy lawyers should lean into: If the law authorizes forced liquidation of all interests (as under § 41-11), actuarial tables make sense, and cash-out valuation is appropriate. If the bankruptcy estate owns only a partial interest, and no mechanism exists to compel sale of the whole, actuarial tables overstate value, sometimes wildly. In other words: Zuleger tells us when actuarial value is legally realizable. Cain tells us when actuarial value is a fiction. Why This Matters in Real Bankruptcy Cases This distinction shows up everywhere: Trustees threatening turnover based on inflated remainder values Creditors objecting to homestead exemptions using mortality tables Debtors being told they “have equity” that no rational buyer would touch Zuleger should not be misread as endorsing actuarial valuation across the board. Instead, it reinforces Cain’s core insight: value depends on enforceability. And bankruptcy courts, thankfully, still understand the difference between: Mathematical value, and Market value in the real world. That’s a distinction worth defending—early and often. To read a copy of the transcript, please see: Blog comments Attachment Document zuleger_v._clore.pdf (170.4 KB) Document in_re_cain-_valuation_of_life_estate.pdf (213.45 KB) Category NC Court of Appeals

Bankr. E.D.N.C.: In re Clark- When Cryptocurrency Meets the Means Test Ed Boltz Sun, 12/28/2025 - 23:01 In re Clark is not just a means-test case. It is also a reminder that even if a debtor stumbles into Chapter 7 eligibility math, § 707(b)(3) still looms large—and can be dispositive—when the court looks at bad faith and the totality of the circumstances. Judge Pamela W. McAfee used both tools, methodically and unapologetically. The Short Story  The debtors, self-employed real estate agents whose income collapsed post-pandemic, filed Chapter 7 believing they were below median. During the six-month lookback, they liquidated cryptocurrency and received roughly $68,000 in proceeds. The Bankruptcy Administrator moved to dismiss, arguing that those proceeds pushed CMI above median, triggering a presumption of abuse.  The debtors countered with three arguments: (1) crypto is “currency,” not an asset; (2) selling an asset doesn’t produce “income”; and (3) if it does, only gains realized during the six-month period should count. Judge McAfee rejected the first two outright and the third on evidentiary grounds. Crypto was an investment, not “currency.” Gains from investment assets count as income for CMI. The debtors offered no evidence of basis or gain, so the court used what was proven: the money received. That alone was enough for dismissal under § 707(b)(2). But Judge McAfee didn’t stop there. Crypto Is Not Cash—At Least on This Record The court had little patience for the idea that cryptocurrency functioned like legal tender here. The debtor testified he bought it as an investment, held it long-term, then liquidated it to dollars to pay bills. Investments are “capital invested,” and income includes gains from capital. When the investment thesis is explicit, the characterization follows. Income Means Gains—But Proof Is Everything Judge McAfee walked a line many courts recognize: a gain realized on the sale of property is income; a mere return of capital is not. The problem wasn’t the law; it was proof. Absent evidence of basis or gains, the court could not carve out non-income. The proceeds received during the lookback period pushed CMI above median and triggered § 707(b)(2). Separately—and decisively—the court also found abuse under § 707(b)(3) based on lifestyle choices, inconsistent schedules, and a lack of meaningful belt-tightening. Clark is not a declaration that every pre-petition sale equals income. Judge McAfee expressly distinguished personal, non-investment assets—cars, homes—from investments. The sky is not falling. Selling a vehicle to keep the lights on does not suddenly become “income.”  This preserves  Billy Brewer's post-BAPCPA  truism that "moving a dollar bill from one pocket to another" is not income. But the opinion does reject a comforting oversimplification: when the asset is an investment and the proceeds reflect gains, those gains belong in the CMI analysis—and when debtors can’t prove otherwise, courts will use what’s in front of them. Exemption Planning Is Fine. Timing Still Matters. Selling non-exempt investment assets and using the proceeds to acquire or preserve exempt assets can be  lawful pre-bankruptcy planning. Bankruptcy courts have said for decades that this is permissible, even expected. The old bankruptcy saw still applies: pigs get fat, hogs get slaughtered. Reasonable planning is protected; overreach invites scrutiny. What Clark reminds us is that means-test mechanics can trip-up otherwise legitimate planning if the timing is wrong. Liquidate an investment within the six-month lookback, and the resulting gains can spike Current Monthly Income (CMI). That spike can cascade into Disposable Monthly Income (DMI) and trigger a presumption of abuse—forcing a Chapter 13 or dismissal—even though the asset is gone and the income will never recur.   In other words, the exemption planning may be sound, but the filing date may not be. One  fix is often simple and unglamorous: delay filing until the lookback clears. This can require consumer bankruptcy attorneys to give their clients temporary relief from collection harassment through the use of Buzz Off Letters  under the FDCPA and NC UDTPA and other hand-holding counseling during those delays,  but those are arrows all of us need to have in our quivers. Chapter 13 and Lanning: A Structural Irony The same liquidation that doomed Chapter 7 would likely fare better in Chapter 13. Under Hamilton v. Lanning, courts may exclude income events that are “known and virtually certain” not to recur. Once an investment asset is sold, it cannot be sold again. Those gains are prime candidates for a Lanning adjustment, excluded from projected disposable income. Thus, the same transaction that can be fatal in Chapter 7 could be  largely neutral in Chapter 13—a structural choice, not a contradiction. § 707(b)(3): When the Court Looks Past the Math Even if the debtors had threaded the needle on the means test, § 707(b)(3) would have ended the case. Judge McAfee conducted a classic totality-of-the-circumstances analysis, grounded in Fourth Circuit precedent, and found abuse on multiple, reinforcing grounds: 1. Lifestyle Choices and Lack of Belt-Tightening The court focused heavily on expenses that, taken together, signaled an unwillingness to adjust lifestyle while seeking to discharge over $300,000 in unsecured debt: Private school tuition for three children, without evidence of special educational need Ongoing discretionary spending (subscriptions, alcohol, seafood delivery, entertainment) Family vacations and recreational expenses Minimal reduction in personal expenses despite claimed financial distress The court was explicit: bankruptcy relief is for the truly needy, not for preserving a comfortable pre-petition lifestyle at creditors’ expense. 2. Inconsistent and Unreliable Schedules The schedules and statements of income and expenses did not “reasonably and accurately reflect” the debtors’ financial condition: Schedule I income figures conflicted with the means-test numbers Schedule J understated recurring expenses (including tuition and health-sharing costs) Business and personal expenses were blurred Operating expenses used to calculate CMI were unsupported These inconsistencies mattered. Schedules are not aspirational documents; they are supposed to tell the truth. 3. Asset Liquidation and Pre-Filing Conduct The court was clearly troubled by testimony that the debtors were advised to “burn through” cryptocurrency before filing. (This unfortunately sounds rather similar to the  "manipulation" the judges at the 4th Circuit   were concerned about in the recently argued Goddard v. Burnett  case.) While Judge McAfee stopped short of making this dispositive bad faith—crediting evidence that liquidation had begun earlier—it still weighed against the debtors in the overall analysis. Likewise, the last-minute change in the debtors’ business entity, which effectively cut off creditor access to future commissions while discharging the associated debts, did not help. Standing alone it might not prove abuse; combined with everything else, it tipped the scale. 4. The Big Picture Viewed holistically, the court found: No meaningful effort to repay creditors No meaningful effort to reduce discretionary spending Financial disclosures that obscured rather than clarified Strategic choices that benefited the debtors while freezing out creditors That combination, not any single act, demonstrated abuse under § 707(b)(3). Practice Pointers With § 707 in Mind Document basis and gains for any investment liquidation in the lookback. Mind the calendar; delay filing if liquidation inflates CMI. Use Chapter 13 strategically and invoke Lanning for non-recurring gains. Expect lifestyle scrutiny under § 707(b)(3), even if the means test is close. Get the schedules right—internally consistent, well-supported, and boring. An Additional Practice Point on Attorney Fees This was not a routine no-asset Chapter 7. The debtors liquidated more than $90,000 in cryptocurrency, triggered extensive discovery, evidentiary hearings, contested § 707(b)(2) and (b)(3) litigation, and presented complex exemption-planning and income-characterization issues. Yet the attorney fee was $1,925—essentially the median Chapter 7 fee throughout all three districts in North Carolina. That disconnect matters. Cases like this are structurally different from ordinary no-asset filings. Pricing them as if they are the same is a recipe for uncompensated risk and unhappy outcomes-  not just for the attorney taking on a case for far less than the amount of time required,  but also for the clients,  since the low cost can lull them into a false sense of security about their risks.   This is complicated by the fact that in North Carolina,  Chapter 7 debtors and their attorneys cannot "unbundle"  the costs of defending against a Motion to Dismiss, etc.  from the underlying costs of a Chapter 7.  One untested possibility for cases such as this would be to charge and collect a much higher fee  prior to filing,  refunding unearned portions if no problems arise.  Whether that would pass muster with the Bankruptcy Administrator (or USTP) or get snagged by the sticky fingers of a Chapter 7 trustee as non-exempt are additional questions. Bottom Line Clark is not an anti-crypto opinion, nor an attack on exemption planning. It is a reminder that Chapter 7 relief is both mathematical and equitable. You must pass the means test—and still convince the court that, under the totality of the circumstances, granting a discharge makes sense. Exemption planning remains valid. Chapter 13 remains flexible. But Chapter 7, when paired with recent investment liquidation and an unreformed lifestyle, is unforgiving. Feed the means test too much, too fast—and ignore § 707(b)(3)—and don’t be surprised when the court shuts the door. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_clark.pdf (333.77 KB) Category Eastern District

Bankr. E.D.N.C.: In re Clark- When Cryptocurrency Meets the Means Test Ed Boltz Sun, 12/28/2025 - 23:01 In re Clark is not just a means-test case. It is also a reminder that even if a debtor stumbles into Chapter 7 eligibility math, § 707(b)(3) still looms large—and can be dispositive—when the court looks at bad faith and the totality of the circumstances. Judge Pamela W. McAfee used both tools, methodically and unapologetically. The Short Story  The debtors, self-employed real estate agents whose income collapsed post-pandemic, filed Chapter 7 believing they were below median. During the six-month lookback, they liquidated cryptocurrency and received roughly $68,000 in proceeds. The Bankruptcy Administrator moved to dismiss, arguing that those proceeds pushed CMI above median, triggering a presumption of abuse.  The debtors countered with three arguments: (1) crypto is “currency,” not an asset; (2) selling an asset doesn’t produce “income”; and (3) if it does, only gains realized during the six-month period should count. Judge McAfee rejected the first two outright and the third on evidentiary grounds. Crypto was an investment, not “currency.” Gains from investment assets count as income for CMI. The debtors offered no evidence of basis or gain, so the court used what was proven: the money received. That alone was enough for dismissal under § 707(b)(2). But Judge McAfee didn’t stop there. Crypto Is Not Cash—At Least on This Record The court had little patience for the idea that cryptocurrency functioned like legal tender here. The debtor testified he bought it as an investment, held it long-term, then liquidated it to dollars to pay bills. Investments are “capital invested,” and income includes gains from capital. When the investment thesis is explicit, the characterization follows. Income Means Gains—But Proof Is Everything Judge McAfee walked a line many courts recognize: a gain realized on the sale of property is income; a mere return of capital is not. The problem wasn’t the law; it was proof. Absent evidence of basis or gains, the court could not carve out non-income. The proceeds received during the lookback period pushed CMI above median and triggered § 707(b)(2). Separately—and decisively—the court also found abuse under § 707(b)(3) based on lifestyle choices, inconsistent schedules, and a lack of meaningful belt-tightening. Clark is not a declaration that every pre-petition sale equals income. Judge McAfee expressly distinguished personal, non-investment assets—cars, homes—from investments. The sky is not falling. Selling a vehicle to keep the lights on does not suddenly become “income.”  This preserves  Billy Brewer's post-BAPCPA  truism that "moving a dollar bill from one pocket to another" is not income. But the opinion does reject a comforting oversimplification: when the asset is an investment and the proceeds reflect gains, those gains belong in the CMI analysis—and when debtors can’t prove otherwise, courts will use what’s in front of them. Exemption Planning Is Fine. Timing Still Matters. Selling non-exempt investment assets and using the proceeds to acquire or preserve exempt assets can be  lawful pre-bankruptcy planning. Bankruptcy courts have said for decades that this is permissible, even expected. The old bankruptcy saw still applies: pigs get fat, hogs get slaughtered. Reasonable planning is protected; overreach invites scrutiny. What Clark reminds us is that means-test mechanics can trip-up otherwise legitimate planning if the timing is wrong. Liquidate an investment within the six-month lookback, and the resulting gains can spike Current Monthly Income (CMI). That spike can cascade into Disposable Monthly Income (DMI) and trigger a presumption of abuse—forcing a Chapter 13 or dismissal—even though the asset is gone and the income will never recur.   In other words, the exemption planning may be sound, but the filing date may not be. One  fix is often simple and unglamorous: delay filing until the lookback clears. This can require consumer bankruptcy attorneys to give their clients temporary relief from collection harassment through the use of Buzz Off Letters  under the FDCPA and NC UDTPA and other hand-holding counseling during those delays,  but those are arrows all of us need to have in our quivers. Chapter 13 and Lanning: A Structural Irony The same liquidation that doomed Chapter 7 would likely fare better in Chapter 13. Under Hamilton v. Lanning, courts may exclude income events that are “known and virtually certain” not to recur. Once an investment asset is sold, it cannot be sold again. Those gains are prime candidates for a Lanning adjustment, excluded from projected disposable income. Thus, the same transaction that can be fatal in Chapter 7 could be  largely neutral in Chapter 13—a structural choice, not a contradiction. § 707(b)(3): When the Court Looks Past the Math Even if the debtors had threaded the needle on the means test, § 707(b)(3) would have ended the case. Judge McAfee conducted a classic totality-of-the-circumstances analysis, grounded in Fourth Circuit precedent, and found abuse on multiple, reinforcing grounds: 1. Lifestyle Choices and Lack of Belt-Tightening The court focused heavily on expenses that, taken together, signaled an unwillingness to adjust lifestyle while seeking to discharge over $300,000 in unsecured debt: Private school tuition for three children, without evidence of special educational need Ongoing discretionary spending (subscriptions, alcohol, seafood delivery, entertainment) Family vacations and recreational expenses Minimal reduction in personal expenses despite claimed financial distress The court was explicit: bankruptcy relief is for the truly needy, not for preserving a comfortable pre-petition lifestyle at creditors’ expense. 2. Inconsistent and Unreliable Schedules The schedules and statements of income and expenses did not “reasonably and accurately reflect” the debtors’ financial condition: Schedule I income figures conflicted with the means-test numbers Schedule J understated recurring expenses (including tuition and health-sharing costs) Business and personal expenses were blurred Operating expenses used to calculate CMI were unsupported These inconsistencies mattered. Schedules are not aspirational documents; they are supposed to tell the truth. 3. Asset Liquidation and Pre-Filing Conduct The court was clearly troubled by testimony that the debtors were advised to “burn through” cryptocurrency before filing. (This unfortunately sounds rather similar to the  "manipulation" the judges at the 4th Circuit   were concerned about in the recently argued Goddard v. Burnett  case.) While Judge McAfee stopped short of making this dispositive bad faith—crediting evidence that liquidation had begun earlier—it still weighed against the debtors in the overall analysis. Likewise, the last-minute change in the debtors’ business entity, which effectively cut off creditor access to future commissions while discharging the associated debts, did not help. Standing alone it might not prove abuse; combined with everything else, it tipped the scale. 4. The Big Picture Viewed holistically, the court found: No meaningful effort to repay creditors No meaningful effort to reduce discretionary spending Financial disclosures that obscured rather than clarified Strategic choices that benefited the debtors while freezing out creditors That combination, not any single act, demonstrated abuse under § 707(b)(3). Practice Pointers With § 707 in Mind Document basis and gains for any investment liquidation in the lookback. Mind the calendar; delay filing if liquidation inflates CMI. Use Chapter 13 strategically and invoke Lanning for non-recurring gains. Expect lifestyle scrutiny under § 707(b)(3), even if the means test is close. Get the schedules right—internally consistent, well-supported, and boring. An Additional Practice Point on Attorney Fees This was not a routine no-asset Chapter 7. The debtors liquidated more than $90,000 in cryptocurrency, triggered extensive discovery, evidentiary hearings, contested § 707(b)(2) and (b)(3) litigation, and presented complex exemption-planning and income-characterization issues. Yet the attorney fee was $1,925—essentially the median Chapter 7 fee throughout all three districts in North Carolina. That disconnect matters. Cases like this are structurally different from ordinary no-asset filings. Pricing them as if they are the same is a recipe for uncompensated risk and unhappy outcomes-  not just for the attorney taking on a case for far less than the amount of time required,  but also for the clients,  since the low cost can lull them into a false sense of security about their risks.   This is complicated by the fact that in North Carolina,  Chapter 7 debtors and their attorneys cannot "unbundle"  the costs of defending against a Motion to Dismiss, etc.  from the underlying costs of a Chapter 7.  One untested possibility for cases such as this would be to charge and collect a much higher fee  prior to filing,  refunding unearned portions if no problems arise.  Whether that would pass muster with the Bankruptcy Administrator (or USTP) or get snagged by the sticky fingers of a Chapter 7 trustee as non-exempt are additional questions. Bottom Line Clark is not an anti-crypto opinion, nor an attack on exemption planning. It is a reminder that Chapter 7 relief is both mathematical and equitable. You must pass the means test—and still convince the court that, under the totality of the circumstances, granting a discharge makes sense. Exemption planning remains valid. Chapter 13 remains flexible. But Chapter 7, when paired with recent investment liquidation and an unreformed lifestyle, is unforgiving. Feed the means test too much, too fast—and ignore § 707(b)(3)—and don’t be surprised when the court shuts the door. To read a copy of the transcript, please see: Blog comments Category Eastern District

M.D.N.C.: Williams v. Penny Mac- A Dim View of Pay-to-Pay Mortgage Fees Ed Boltz Tue, 12/23/2025 - 20:18 In Williams v. PennyMac Loan Services, LLC, the Middle District of North Carolina once again refused to let a mortgage servicer wriggle out of Pay-to-Pay fee litigation at the pleading stage. The Court denied PennyMac’s Rule 12(b)(6) motion in a detailed opinion that should feel very familiar to anyone who has been watching this line of cases develop since Alexander v. Carrington and, closer to home, Custer v. Dovenmuehle. The Holding (Short Version) Borrowers plausibly stated claims under both the NCDCA and NC UDTPA where PennyMac allegedly charged “optional” debit-card and phone-payment fees not affirmatively authorized by the mortgage. The servicer’s attempt to outsource the fee to a “third-party processor” did not save it, at least at the pleading stage. The Court accepted as plausible that: The fees were incidental to the debt (no mortgage payment, no fee). “Legally entitled” means affirmatively authorized, not merely “not expressly prohibited.” PennyMac could be liable for fees charged by its vendor under basic agency principles. Allegations of excessive fees, double-charging (on top of servicing compensation), and persistence after notice sufficed to allege unfairness and deception. Nothing necessarily groundbreaking — but that’s exactly the point. Why This Matters in Chapter 13 Practice 1. Pay-to-Pay Fees Don’t Magically Become Lawful in Bankruptcy Mortgage servicers often behave as if the filing of a Chapter 13 petition cleanses questionable fee practices. It doesn’t. If a fee is not affirmatively authorized by the note, deed of trust, or applicable law outside bankruptcy, it doesn’t become collectible simply because the debtor is now paying through a plan. Williams reinforces what bankruptcy practitioners already know: “Optional” does not mean lawful, especially when the borrower cannot choose their servicer and is effectively steered into fee-bearing payment methods. 2. TFS Bill Pay and the Quiet Irony Many Chapter 13 Trustees now require or strongly encourage debtors to use TFS Bill Pay to submit plan payments. From a trustee-administration perspective, this makes sense: predictability, automation, and fewer bounced checks. But Williams underscores a quiet irony: Trustees push debtors toward no-fee, court-sanctioned payment systems to ensure compliance. Mortgage servicers, meanwhile, monetize borrower compliance by charging fees for electronic or telephonic payments — even when those methods are cheaper to process than paper checks. If trustees can run an entire Chapter 13 system without charging debtors “convenience fees,” servicersICO-funded servicers will have a hard time persuading courts that their own Pay-to-Pay fees are benign or necessary. 3. The Post-Klemkowski Servicer Panic Williams also sits in the broader context of the wildly terrified response by mortgage servicers to In re Klemkowski and the MDNC’s briefly proposed Local Form plan provision that would have required servicers to: Allow debtors access to their online mortgage accounts, and Permit direct online payments during Chapter 13. That opinion and the local plan  provision were ultimately both withdrawn — not because it was wrong, but because servicers reacted as if the court had proposed to nationalize their IT departments. The fear was never really about cybersecurity or operational burden. It was about control: Control over how payments are made, Control over which channels generate fee income, and Control over borrower access to real-time account information that might expose errors, suspense abuses, or unauthorized charges. Punishing debtors for filing bankruptcy. Williams shows that courts are increasingly skeptical of that control narrative. Commentary: The Through-Line Is Access and Transparency Taken together, Williams, Alexander, Custer, and Klemkowski reflect a consistent judicial instinct: Debt collection systems should not be designed to extract revenue from the act of compliance itself. Whether it’s: Charging a fee to make a payment, Blocking online access during bankruptcy, or Forcing borrowers into friction-laden payment methods, courts are recognizing that these practices are not neutral “choices.” They are leverage. For Chapter 13 practitioners, the takeaway is practical: Scrutinize Pay-to-Pay fees just as closely as post-petition charges under Rule 3002.1. Don’t accept “third-party vendor” explanations at face value. And remember: if trustees can run TFS Bill Pay without skimming compliance fees, servicers can too. The servicers may be terrified. The law, increasingly, is not sympathetic. To read a copy of the transcript, please see: Blog comments Attachment Document williams_v._penny_mac.pdf (226.04 KB) Category Middle District

Bankr. M.D.N.C.- In re Bryant I-V: When a Pro Se Chapter 7 Becomes a Procedural Stress Test for the Bankruptcy System Ed Boltz Mon, 12/22/2025 - 20:04 The Chapter 7 case of James and Sharon Bryant and the related adversary proceeding brought by Eastwood Construction Partners, LLC is not notable because it breaks new doctrinal ground. It is notable because it shows—almost clinically—how civil litigation spillover, aggressive creditor strategy, and pro se overconfidence (amplified by generative AI) can collide inside a consumer bankruptcy case. Across a series of careful, methodical opinions and orders, Judge Benjamin A. Kahn repeatedly drew—and enforced—clear procedural boundaries. The result is a body of rulings that will be cited not just for what they say about § 523(a)(6), Rule 2004, lien avoidance, and Rule 9011, but for how bankruptcy courts can maintain control of complex pro se litigation without denying access to justice. Background: From Neighborhood Dispute to Bankruptcy Court The roots of the bankruptcy lie in a bitter prepetition dispute between the Bryants and their homebuilder, Eastwood. What began as disagreements over covenants and neighborhood development escalated into public protests, signage, social-media campaigns, and alleged interference with Eastwood’s sales efforts. That conflict produced: State-court litigation in Randolph County, A federal civil action, And ultimately a confidential settlement in which the Bryants executed a $150,000 confession of judgment, while Eastwood paid them $7,500. When the Bryants later filed a pro se Chapter 7 case, Eastwood arrived in bankruptcy court not as a passive judgment creditor, but as an active litigant determined to preserve leverage. The Adversary Proceeding: § 523(a)(6) Survives the Pleading Stage Eastwood filed an adversary complaint seeking a determination that its claim was nondischargeable under 11 U.S.C. § 523(a)(6) for willful and malicious injury. The Bryants moved to dismiss. In denying the motion to dismiss, Judge Kahn applied familiar Rule 12(b)(6) principles—Twombly and Iqbal—while also honoring the requirement that pro se filings be liberally construed. Even so, the Court concluded that Eastwood had plausibly alleged: Intentional conduct, Directed at Eastwood’s business relationships, With the alleged purpose and effect of causing economic harm. Two points matter for practitioners: Speech can be actionable conduct. While the Court did not decide the merits, it made clear that coordinated campaigns allegedly intended to drive away customers can constitute “willful and malicious injury” at the pleading stage. Settlement and release defenses are not automatic Rule 12 winners. Whether the confession of judgment and release bar nondischargeability is a merits question—not something to be resolved on a motion to dismiss. This is a reminder that § 523(a)(6) remains a real exposure risk when consumer disputes cross the line into alleged intentional economic harm. Rule 2004, Discharge, and the Myth That “Everything Is a Stay Violation” Much of the postpetition litigation consisted of the Bryants’ repeated assertions that Eastwood’s actions—Rule 2004 examinations, motions to compel, continuation of the adversary proceeding—violated the automatic stay or the discharge injunction. Judge Kahn rejected those arguments, repeatedly and carefully. In a detailed opinion denying sanctions, the Court explained a principle that should be obvious but often is not: actions expressly authorized by the Bankruptcy Code, the Rules, and court orders do not become stay or discharge violations simply because a debtor dislikes them. Rule 2004 examinations, properly limited to non-adversary issues, are not harassment. Litigating nondischargeability is not post-discharge collection. And compliance with court orders cannot be recharacterized as contempt. This opinion alone is worth bookmarking for any practitioner dealing with serial “sanctions” motions in consumer cases. Lien Avoidance: A Modest Win for the Debtors (That Might not Matter in the End.) The Bryants did succeed on one significant issue. In granting their § 522(f) motion to avoid Eastwood’s judicial lien, Judge Kahn applied straightforward North Carolina exemption law and petition-date valuation principles. Even crediting Eastwood’s arguments about property value and lien amounts, the Court concluded that the judicial lien impaired the Bryants’ homestead exemptions and was avoidable. Critically, the Court also rejected the idea—frequently advanced by pro se debtors—that lien avoidance moots a nondischargeability action. It does not. Secured status and dischargeability are analytically distinct. Rule 9011 and Generative AI: A Measured but Firm Warning What makes this case especially notable is Judge Kahn’s handling of the Bryants’ AI-assisted filings. After identifying: Non-existent cases, Incorrect citations, Misstatements of holdings, and Duplicative, previously rejected arguments, The Court entered a show cause order under Rule 9011, explicitly discussing the phenomenon of generative-AI “hallucinations.” The Court struck a careful balance: Acknowledging that AI tools can increase access to justice for unrepresented parties; Emphasizing that Rule 9011 applies to pro se litigants just as it does to attorneys; Declining to impose sanctions at that time, based on partial withdrawals and apparent contrition; But issuing a clear warning that future violations would not be treated leniently. This is not an anti-AI opinion. It is a procedural accountability opinion—and one that other courts will likely cite. Commentary: Why This Case Matters Three lessons stand out. First, pro se status is a shield against technical traps—not a license for procedural chaos. Judge Kahn consistently construed filings liberally, but he did not excuse frivolous arguments, collateral attacks on state-court judgments, or fabricated law. Second, consumer cases can morph into high-conflict litigation quickly when prepetition disputes involve allegations of intentional harm. When that happens, nondischargeability litigation is no longer theoretical. Third, AI has officially entered the Rule 9011 conversation. Courts will not accept “the chatbot said so” as a substitute for reasonable inquiry. Bottom Line The Bryant case is not about a flashy holding. It is about judicial case management in the modern consumer bankruptcy environment. Judge Benjamin Kahn’s opinions show how a bankruptcy court can: Protect the integrity of the process, Enforce procedural rules evenly, And still provide meaningful access to justice for unrepresented debtors. For practitioners, the message is simple: The old rules still apply—even when the briefs are written by a machine. To read a copy of the transcript, please see: To read a copy of the transcript, please see: Blog comments Attachment Document in_re_bryant_i-_denial_of_mtd.pdf (779.96 KB) Document in_re_bryant_ii-_show_cause_regarding_ai.pdf (529.48 KB) Document bryant_iii.pdf (713.84 KB) Document bryant_iv.pdf (512.15 KB) Category Middle District

Are you embarrassed that you can’t get by at 48.07 per hour? Forty-eight dollars per hour, actually $48.07, is a hundred thousand dollars a year. That sounds like a lot of money, but people who are making that much are contacting me in record numbers. Maybe you should, too. The truth is $100,000 annually doesn’t go very far around here. (Last week, one really rich guy in the news said he considers $140,000 for a family of four as the “poverty line.”) By contrast, Patrick Mahomes, one of the highest paid athletes ever, makes about $48 million a year. Is he worth that?  While he’s having a bad season, he is still better at football than you or me or almost anybody. Elon Musk makes $48 million an hour. If you are making $100,000 a year, you aren’t Patrick Mahomes. And you certainly aren’t Elon Musk. You shouldn’t be too embarrassed to contact a bankruptcy lawyer. Elon Musk Makes $48 million an hour Recently, Elon Musk had his hand-picked board of directors at Tesla vote him a trillion dollars over ten years.  That’s $48 million an hour! Musk makes as much every hour as Mahomes does in an entire season. That means if you are making $48 an hour, a hundred thousand a year, Elon Musk thinks he’s a million times better than you. Are you struggling to make ends meet? So if you are struggling to make ends meet, even if you make a hundred thousand dollars, don’t be embarrassed to call a bankruptcy lawyer. I talk to a dozen people a month who are making more than $100,000. Let’s talk about whether bankruptcy can fix your cash flow problems. I understand that it costs a lot to live around here, and I know you are not Elon Musk. Chapter 13 Bankruptcy Two or three times a month, I suggest Chapter 13 for high income families.  As a rule of thumb, Chapter 13 can reduce your monthly payments by about one-third.  (Sometimes more. Now and then, a lot more.) And, unlike the so called debt settlement or debt consolidation outfits, your creditors can’t bypass the Chapter 13 plan and sue you in state court. Chapter 7 Bankruptcy Often even high income people ar eligible for Chapter 7 bankruptcy, and can discharge their debts. Even high income families can be eligible.   Let’s talk As long as you are not as rich as Patrick Mahomes or Elon Musk, the bankruptcy law can probably help you. Donald Trump is embarrased to talk about his business bankruptcies, but he wasn’t too embarrased to file (business) bankruptcy. He said it’s “just business” to use “the chapters” to “pare debt.”  He said, “I’ve used it three, maybe four times, and came out great.” If Donald Trump wasn’t too embarrassed to use the “laws of this counrty,” Find out if you can clear your debt, too.       The post Too embarassed to talk to a bankruptcy lawyer? appeared first on Robert Weed Virginia Bankruptcy Attorney.

A sheriff’s sale is one of the final stages of the foreclosure process and is often the last opportunity for homeowners to save their properties from being sold. Before a sheriff’s sale can commence, the relevant parties, including the homeowner, must be notified in accordance with strict legal rules and procedures. If you are not properly notified of the sheriff’s sale before it happens, you and an attorney may be able to halt the sale, at least for a while. Multiple forms of notice are often sent, and if any notice is missing, the sheriff’s sale may be invalid. Your attorney can help you initiate legal action to halt the sale until the issue with the notice is corrected. This may give you more time to cure the default or come up with another solution to help you keep your home. Contact our Pennsylvania foreclosure defense lawyers at Young, Marr, Mallis & Associates to request a free case review by calling (215) 701-6519. What Are Notice Requirements Related to Sheriff’s Sales in Pennsylvania? Notice requirements provide transparency in legal proceedings, such as foreclosure. Notice requirements prevent lenders or creditors from surprising homeowners, thereby giving homeowners a stronger chance to protect themselves legally. Who Must Be Notified? All parties involved in the foreclosure or who have an interest in the property being foreclosed must be notified. While homeowners are often required to be notified directly, lenders, creditors, and lienholders may not be. For example, a homeowner must receive a posted handbill in addition to Act 6 or 91 notices by registered mail. Lenders or creditors may receive notice through public notices, such as newspapers. When Must Notice Happen? For homeowners, notice must happen well in advance of the sheriff’s sale. Under the Loan Interest and Protection Law, the Act 6 Notice must be sent to the homeowner at least 30 days before the lender plans to initiate foreclosure proceedings. Act 91 notices inform homeowners of their access to the Homeowners’ Emergency Mortgage Assistance Program (HEMAP). This notice must be sent by certified mail to the homeowner when they are 90 days delinquent with mortgage payments. What Should I Do if I Did Not Receive Proper Notice Before a Sheriff’s Sale? If you find yourself facing foreclosure but have not received any notice of the foreclosure, call a lawyer for help immediately. Contact a Foreclosure Defense Lawyer Call a lawyer who knows how to defend against unfair foreclosure proceedings. If notice is not served, or is served incorrectly, our Pennsylvania foreclosure defense lawyers can take action to halt the foreclosure process. While we might not be able to totally prevent the sheriff’s sale, we may be able to delay it. This may give us time to come up with a legal strategy to help you keep your house. Gather Documentation and Evidence Once you realize that the notice was not served, begin compiling all the documentation related to your home, mortgage, and the foreclosure that you have. Much of your case will likely revolve around documentation and paperwork. If we can prove that notice was served improperly, or perhaps not at all, we can delay the sheriff’s sale. How to Stop the Sale Again, we might not completely stop the sale simply because you did not receive proper notice. At best, we may delay the sale. However, this extra time may be used to determine how we can save your home. For example, this may give us time to file for Chapter 13 bankruptcy. Under this Chapter, a court-ordered automatic stay would prevent foreclosure, and your home would not be seized and liquidated by a bankruptcy trustee. You may instead develop a payment plan to help you regain control of your debts, allowing you to keep your home. FA Qs About Improper Notice Before a Pennsylvania Sheriff’s Sale When Must Notice Be Served Before a Sheriff’s Sale in Pennsylvania? An Act 6 Notice that notifies the homeowner of the lender’s intent to foreclose must be served at least 30 days before the lender files the foreclosure complaint. An Act 91 Notice, which informs the homeowner of the HEMAP program, must be served when payments are approximately 90 days past due. The sheriff must post a physical handbill about the foreclosure on your property at least 30 days before the sale. How is Notice Served Before a Pennsylvania Sheriff’s Sale? Notice is served in several ways. Handbills must be posted on your property, usually on your front door. Notices under Act 6 and Act 91 must be sent to the homeowner by first-class mail or certified or registered mail. What Happens if Notice is Not Properly Served Before a Sheriff’s Sale? If notice is not served or it is served incorrectly, you may have legal grounds to challenge the sale. For example, if the sheriff posted a handbill on the wrong property or Act 6 or 91 notices were mailed to the wrong address, your lawyer can help you block the sheriff’s sale. Do I Need a Lawyer Before a Sheriff’s Sale? Yes. Even if you cannot save your home from foreclosure, you still need an attorney to protect you. Lenders and creditors might still be coming after you for unpaid debts, and your attorney can help you protect yourself and whatever other assets you have. Additionally, your attorney should be able to determine whether the foreclosure process went wrong and, if so, halt the process. Can I Stop a Sheriff’s Sale for a Lack of Proper Notice? Possibly. If you do not receive notice, or notice is served improperly, your attorney can help stop the sheriff’s sale, at least temporarily. If the sale has already occurred, your lawyer may help you overturn the sale. This tends to delay rather than completely stop the sale. However, it may buy you more time to consult with your lawyer about how you can save your home from foreclosure. How Can I Prevent a Sheriff’s Sale of My Property? One way to stop a sheriff’s sale is to file for bankruptcy. The bankruptcy court will impose an automatic stay that halts any pending legal action, including foreclosures. It also prevents lenders and creditors from initiating new legal action, at least until the automatic stay is lifted. Many homeowners file for bankruptcy, regain control over their debts, and save their homes from foreclosure. Get Legal Help from Our Pennsylvania Foreclosure Defense Attorneys Contact our Philadelphia foreclosure defense lawyers at Young, Marr, Mallis & Associates to request a free case review by calling (215) 701-6519.

Bankruptcy is never an easy process, and it may be more complicated if you share assets or accounts jointly with someone else. If you are filing for bankruptcy and not the other person, there may be ways that you can protect the joint accounts. You may protect a jointly held account if the other person you hold it with is your spouse. When only one spouse files for bankruptcy, assets and accounts that are held jointly are held by both spouses. As such, joint accounts may be off-limits during bankruptcy. Even if you are not married, certain accounts may be protected under specific laws or exemptions in Pennsylvania. Call our Pennsylvania bankruptcy attorneys at Young, Marr, Mallis & Associates at (215) 701-6519 and ask for a free case review to begin. How Can I Protect a Joint Bank Account from Bankruptcy in Pennsylvania? When a person files for bankruptcy, their assets and accounts might be at risk. This may be concerning if you share a joint account with someone, such as your spouse or partner. Fortunately, you can take steps to protect joint assets and accounts. Marriage If you have a joint account with your spouse, it may be protected because you are married. When a married couple owns assets, accounts, or property, the they each own all of it. Similarly, when a married couple owns a home together, the house can be protected from bankruptcy too if it is owned as a “tenancy by the entirety.” If only one spouse files for bankruptcy but the other does not, jointly held accounts cannot be seized by a bankruptcy trustee because the account is also owned by the non-filing spouse alongside the filing spouse. Bankruptcy courts have no access to assets belonging to people who are not filing for bankruptcy. Do Not File Jointly Since accounts may be protected if only one person on the account files for bankruptcy, it may be a good idea to avoid filing for bankruptcy jointly with your spouse. Our Pennsylvania bankruptcy attorneys can review your debts and assets and determine if filing jointly with your spouse is necessary. It is possible that only one of you needs to file for bankruptcy to resolve your financial problems, and jointly held accounts may be shielded. Paperwork and Documentation Protecting joint accounts or any other assets during the bankruptcy process often comes down to paperwork. Make sure everything about the account you wish to protect is properly documented. Save all account-related paperwork and review it with your attorney. How to Protect Joint Accounts by Utilizing Existing Bankruptcy Protections Numerous bankruptcy protections exist to help people shield some of their assets. Your attorney can help you determine if any protections, exemptions, or legal strategies are available for you. File Chapter 13 Bankruptcy How you file for bankruptcy may determine whether certain assets or accounts are protected. If you file for Chapter 7 bankruptcy, your accounts may be seized by the bankruptcy trustee assigned to your case and liquidated. However, if you instead file for Chapter 13 bankruptcy, your accounts will not be liquidated. Instead, you will develop a payment plan that you must keep up with for several years until your debts are under control. Exemptions Many protections exist for certain accounts, like retirement accounts. If you have a retirement account, perhaps a joint account with your spouse, it may be exempt from the bankruptcy process. However, you should consult your lawyer to confirm that your accounts meet the exemption criteria. Separating Finances Before Bankruptcy A legal strategy that might work for you is separating your finances from your spouse or partner before you file for bankruptcy. If your accounts and assets are mingled, it may be wise to separate them. When you file for bankruptcy, your partner’s assets will not be subject to bankruptcy. An attorney can help you separate money and accounts before filing your bankruptcy petition. FA Qs About Protecting Joint Bank Accounts in Pennsylvania Bankruptcy Cases Can I Protect Joint Accounts from Bankruptcy in Pennsylvania? Yes. Joint accounts may be shielded from bankruptcy if only one person who owns the account files for bankruptcy. This is common when married couples have joint accounts and only one spouse files for bankruptcy. What Happens to Joint Accounts if Only One Spouse Files for Bankruptcy? When only one spouse files for bankruptcy, joint accounts may be protected by the legal principle of tenancy by the entirety. The account belongs to both spouses. The account may not be subject to seizure in bankruptcy unless both spouses file. How Should I File for Bankruptcy if I Want to Protect Joint Accounts? Many people file for Chapter 7 or Chapter 13 bankruptcy. If you file for Chapter 13 bankruptcy, you may set up a payment plan to tackle your debts without liquidating any assets or accounts, whether they are jointly owned or not. As long as you maintain your payment plan, your assets, including joint accounts, should be safe. Are Any Accounts Protected Under Bankruptcy Laws in Pennsylvania? Certain accounts may be shielded from bankruptcy under specific legal exemptions. Retirement accounts may be protected from bankruptcy if they meet certain requirements. Review your retirement accounts with a bankruptcy attorney to determine if they can be protected under this exemption. Do I Need a Lawyer to Help Protect Joint Accounts During Bankruptcy? Yes. Filing for bankruptcy is a complicated process, and you must thoroughly account for all your assets, properties, and accounts. If anything is owned jointly with someone who is not filing for bankruptcy, such as a spouse, your attorney may be able to help you protect it. What Happens if the Bankruptcy Trustee Tries to Come After Joint Accounts? If the bankruptcy trustee on your case tries to seize joint accounts, your attorney can assert available protections. If there is a legal exemption or some other rule that allows you to shield the account from the bankruptcy process, your attorney should know. Ask Our Pennsylvania Bankruptcy Lawyers for Help with Your Case Call our Pennsylvania bankruptcy attorneys at Young, Marr, Mallis & Associates at (215) 701-6519 and ask for a free case review to begin.

4th Cir.: DiStefano v. Tasty Baking Co. — A Contract Means a Contract, A Notice of Default means Default Ed Boltz Mon, 12/08/2025 - 18:46 Summary: The Fourth Circuit affirmed summary judgment against DiStefano, a TastyKake distributor terminated after receiving three breach notices in three months for leaving expired product on shelves and failing to meet store service requirements. The contract explicitly allowed termination after more than two notices in a 12-month period, and DiStefano admitted it had no evidence the notices were wrong. Claims that Tasty Baking acted in bad faith — targeting inspections, offering less support, sabotaging the route — collapsed because Pennsylvania law limits the implied covenant of good faith to termination decisions only, and even then requires actual evidence. There was none. Post-termination claims also failed. The contract required only “reasonable efforts,” and DiStefano provided no record evidence of unreasonable conduct. The agreement also made clear that DiStefano owed money to Tasty, not the other way around. Commentary: DiStefano may be a franchise case about stale snack cakes, but the contractual principles it applies reverberate throughout consumer bankruptcy practice — especially when it comes to default notices in mortgages, auto loans, and other consumer credit agreements. The Fourth Circuit enforced the agreement as written: the contract required specific breach notices, Tasty sent them, and the distributor admitted no evidence to the contrary. Everything else — accusations of unfair targeting, lack of assistance, unequal treatment — collapsed because the contract did not impose those duties, and the implied covenant of good faith could not create them. That framework is directly useful when evaluating whether written notice is required before creditors may (1) declare a default, (2) accelerate the loan, (3) assess attorney fees, or (4) pressure a debtor into reaffirmation. 1. Mortgage Notes: Notice of Default Is Often Mandatory — and Strictly Construed The Fannie/Freddie Uniform Note (§ 22) requires written notice of default before acceleration or foreclosure. Failure to send a compliant notice can invalidate acceleration, derail foreclosure, or justify objections to a Rule 3002.1 notice or proof of claim. In contrast to DiStefano, where the franchisor followed the contractual process exactly, many servicers shortcut or misstate § 22 requirements — a defect courts take seriously because the contract creates the right to accelerate. 2. Auto Loans and RISA: Written Right-to-Cure Notices Often Required Many retail installment sales contracts — and statutes like North Carolina’s RISA — require a written right-to-cure notice before repossession or collection of deficiencies. Omitting or botching that notice can trigger UDTPA liability. DiStefano teaches the flip side: if a contract does not require notice, courts won’t imply one from “good faith.” Conversely, when a statute or contract does require it, failure to comply is fatal. 3. Attorney Fees: Written Default Notice May Be a Prerequisite North Carolina law (e.g., N.C. Gen. Stat. § 6-21.2) requires: A written notice of default, A five-day opportunity to cure, Before attorney fees on a note may be assessed. Creditors regularly overlook this. And in bankruptcy, when a servicer claims prepetition attorney fees or postpetition legal expenses, the absence of the statutory notice can defeat the claim. Here, DiStefano is instructive because the creditor won only because it complied with the contract’s notice mechanism. Consumer creditors must do the same — statutory notice requirements are not optional. 4. Reaffirmation Agreements: Written Default Notices Can Affect Enforceability For a reaffirmation to be valid, especially on secured debts: Some loan agreements require a written notice of default before the creditor can demand reaffirmation to avoid repossession. Absent such a notice, a creditor’s request for reaffirmation may be coercive or invalid. Courts look skeptically at reaffirmations demanded without following the contract’s written procedures — much as DiStefano shows skepticism for claims unsupported by contractual duties. If the creditor didn’t send a contractually required default notice, its insistence on reaffirmation may violate § 524(c), FDCPA/UDTPA standards of coercion, or state motor vehicle title rules.  5. The Evidentiary Lesson: Bring the Paper Just as DiStefano failed because it had no evidence the breach notices were false or unfairly issued, consumers challenging default notices must produce: The actual notice (or proof of its absence), Mailing logs, Servicer records, Transaction histories. Speculation is useless; documents win.  Bottom Line: DiStefano reinforces a simple but powerful rule: If a contract or statute requires written notice of default, creditors must give it. If it doesn’t, courts won’t invent one. This matters enormously for: Mortgages (acceleration & foreclosure) Auto loans (right-to-cure before repossession) Attorney-fee claims under § 6-21.2 Reaffirmation negotiations under § 524(c) When written notice is required, failure to send it spoils the creditor’s entire enforcement — far more consequential than a few stale snack cakes left on a convenience-store shelf. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document distefano_v._tasty_baking.pdf (137.22 KB) Category 4th Circuit Court of Appeals

4th Cir.: Al-Sabah v. World Business Lenders, No. 24-1345 & 24-1382 (4th Cir. Nov. 26, 2025)- Willful Blindness Is Not Mere Sloppiness Ed Boltz Fri, 12/05/2025 - 19:32 Summary: In a case that reads like The Wolf of Wall Street meets Fixer Upper, the Fourth Circuit waded into an international fraud, a botched lis pendens, and a high-cost lender accused of acting as the “getaway driver” for a Baltimore restaurateur who managed to siphon nearly $7.8 million from a member of the Kuwaiti royal family. Judge Agee—no stranger to unwinding complex fraud narratives after In re Sugar—writes for a unanimous panel that shows impressive discipline in keeping Maryland aiding-and-abetting doctrine from morphing into “negligence plus vibes.” And the court's bottom line? World Business Lenders (WBL) might be an aggressive, loose-underwriting, high-risk shop…but that does not make it an aider and abettor of fraud. Not on Loan One. Not on Loan Two. And certainly not on Loan Three. The Fourth Circuit reverses the district court’s only finding of lender liability, vacates all damages, and directs judgment for WBL across the board. I. Facts in Brief: A Royal Scam Meet a Hard-Money Lender The Fraudster A Baltimore restaurateur, Jean Agbodjogbe, convinces Al-Sabah to invest millions in “joint” ventures—restaurants, real estate, community projects—while secretly titling everything in entities he controlled. Her money ends up buying: multiple Baltimore commercial properties, a New York condo for her daughter, and a Pikesville house for his own family. The Lender WBL makes short-term, high-cost, rapid-turn loans secured by real estate. Think “merchant cash advance meets hard-money lender.” It funded: Loan One: $600k on the NYC condo Loan Two: $1.2M refinance, same condo Loan Three: $360k on the Pikesville home WBL saw red flags—large wires from Kuwait—but it repeatedly obtained CPA-prepared IRS gift-tax returns, spoke with the CPA, reviewed title reports, demanded attorney opinion letters, and obtained title insurance. Al-Sabah sues WBL, arguing it aided and abetted the fraud by “monetizing” the stolen equity through liens that converted her real-estate dollars into spendable cash for Agbodjogbe. The district court bought this only as to Loan Three. The Fourth Circuit did not. II. The Law: Aiding & Abetting Requires Willful Blindness, Not Hindsight Finger-Wagging Maryland recognizes aiding and abetting if: There’s a primary tort (fraud) — stipulated. Defendant knew or was willfully blind to the fraud. Defendant substantially assisted it. The Fourth Circuit focuses entirely on willful blindness: “Deliberate actions to avoid confirming a high probability of wrongdoing.” Crucially: “Willful blindness is a form of knowledge, not a substitute for it.” This opinion is a long, well-reasoned pushback against the district court’s conflation of: unconventional underwriting, sloppy due diligence, fast-paced lending, and actual knowledge of fraud. Negligence—even gross negligence—does not make a lender a co-conspirator. III. Why Loans One and Two Were Properly Dismissed The Fourth Circuit affirme as WBL investigated the suspicious wires, as it: demanded explanations, received IRS Form 3520 gift-tax filings, confirmed with a CPA, tied the wires to the condo purchase, and saw no other inconsistencies beyond the ones typical of their high-risk borrower pool. As Judge Agee noted that high-risk lenders deal with flaky revenue projections, sloppy bookkeeping, and odd behavior routinely. That is not fraud knowledge; that is their customer base.  IV. Loan Three: The District Court’s Lone Finding of Liability Implodes The trial court found WBL willfully blind because a lis pendens appeared on the initial title report for the Pikesville home. According to the district court: this should have triggered a full investigation into Al-Sabah’s fraud suit. The Fourth Circuit: No it shouldn’t have. Why? Because two independent professionals— the title insurer, and Agbodjogbe’s attorney, through a long-form opinion letter— affirmatively represented that the title was clean and that no pending litigation impaired performance. The court stresses that lenders must be able to rely on: title insurance (“the insurer bears the risk”), opinion letters (“the attorney is liable if wrong”). Importantly, WBL never saw the lis pendens notice itself—only a docket notation. The district court invented knowledge WBL never had. As the panel notes, WBL’s behavior may be “couched in terms of negligence or recklessness,” but it falls “far short” of willful blindness. Thus, the district court’s finding “collapsed” the standard into negligence. Result: Reversed. V. A Delightful Footnote: Even If the Lis Pendens Had Been Proper… It Died in 2020. Judge Agee further reminded everyone that: A lis pendens only applies to property-related equitable claims (e.g., constructive trust). The district court in the underlying fraud case denied the constructive trust. That denial was incorporated into the 2020 final judgment. No appeal. Therefore: “Any lis pendens… terminated as a matter of law.” This isn’t just a footnote—it eliminates the causation theory entirely. If the lis pendens expired years earlier, Al-Sabah couldn't have been injured by the later WBL loans.  Below is a further-revised, deeply integrated NC BankruptcyExpert-style commentary that now weaves together: Al-Sabah v. WBL (4th Cir. 2025) — willful blindness requires deliberate avoidance, not negligence Bartenwerfer v. Buckley (U.S. 2023) — fraud can be imputed to innocent partners for nondischargeability Sugar v. Burnett (4th Cir. 2025) — the reliance on counsel defense is alive, well, and powerful in the Fourth Circuit, capable of mitigating even a debtor’s own missteps Commentary: Why Consumer Lawyers Should Care (Post-Bartenwerfer, Post-Sugar) 1. The Fourth Circuit Reinforces a Boundary That Bartenwerfer v. Buckley Left Intact: Sloppiness ≠ Willful Blindness ≠ Fraud Bartenwerfer teaches that fraud can be imputed—but only where someone actually committed fraud.  It does not explain what facts constitute fraud in the first place. That is where Al-Sabah now plays an essential role. If negligence, carelessness, or overlooking irregularities were enough to make a lender (or a partner, or a spouse) an “aider and abettor,” then Bartenwerfer's strict liability structure would yield a terrifying equation: Negligence → Aiding & Abetting → Fraud → Imputed Nondischargeability The Fourth Circuit stops that slippery slope cold. It demands actual knowledge or deliberate avoidance, not mere underwriting shortcuts or failure to ask one more question. In other words: You cannot impute fraud unless fraud actually exists. And you cannot create fraud out of negligence. This is doctrinally essential for protecting consumer debtors in § 523 litigation. 2. Al-Sabah + Sugar = A Sane, Human Standard for Assessing Knowledge and Intent The Fourth Circuit’s decision in In re Sugar (2025) is the perfect complement to Al-Sabah. Sugar establishes that: debtors can reasonably rely on legal advice reliance on counsel is highly probative of good faith, and even when debtors make errors, reliance can negate fraudulent intent. Judge Agee in Sugar made it explicit:  Courts must consider whether the debtor acted based on the advice of counsel when assessing misconduct or sanctionable behavior.  Judge Warren, on remand, doubled down, finding that reliance on counsel completely shifted the analysis of the debtor’s intent. Al-Sabah aligns perfectly with Sugar In Al-Sabah, WBL relied on professionals’ advice: title insurer CPA outside attorney (long-form opinion letter) The Fourth Circuit holds that this reliance defeats willful blindness.  Just like Sugar, the Fourth Circuit again reaffirms that the reliance on independent professionals is evidence of good faith, not culpability. This has profound implications for consumer bankruptcy. 3. Deploying Al-Sabah + Bartenwerfer + Sugar in § 523(a)(2) Litigation (a) When creditors argue imputed fraud under Bartenwerfer: You now respond with: Al-Sabah: negligence ≠ knowledge, and Sugar: reliance on counsel negates fraudulent intent. If the debtor relied on: a bookkeeper, a tax preparer, an accountant, an attorney, a business partner, or even a lender or servicer’s representations The debtor’s reliance becomes a powerful shield against creditor accusations of fraud or willful blindness. This is the perfect doctrinal triad: Al-Sabah — raises the bar for proving knowledge Sugar — establishes reliance on counsel as a defense to fraud-like allegations Bartenwerfer — only imputes fraud that actually exists Outcome: The debtor cannot be saddled with nondischargeable debt through hindsight claims that they “should have known” or “ignored warning signs. 4. Defending Innocent Spouses, Passive LLC Members, and “Non-Business” Partners This is now a key battleground post-Bartenwerfer. To the extent that a creditors argues  “Your client didn’t commit the fraud, but they should have known their partner was committing fraud.”, here is an answer: Al-Sabah: knowledge requires deliberate avoidance, not negligence Sugar: reliance on counsel (or on a partner’s representations) defeats bad intent Bartenwerfer: imputation requires real fraud, not carelessness or poor oversight Allowing the argument that: The debtor was not willfully blind. The debtor reasonably relied on counsel or professionals. The debtor did not participate in the fraud. Therefore, Bartenwerfer does not apply. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document al-sabah_v._world_business_lenders.pdf (224.31 KB) Category 4th Circuit Court of Appeals