4th Cir.: Cook v. Trustee- Fourth Circuit Reins in Equitable Mootness in Chapter 13 — And Quietly Preserves Appellate Rights Post-Bullard Ed Boltz Tue, 04/14/2026 - 02:56 Summary: The Cook v. Chapter 13 Trustee decision is one of those deceptively modest Chapter 13 cases that, on closer inspection, carries outsized importance for consumer practitioners. At first glance, this is a fairly routine plan confirmation dispute: debtor proposes a low-payment plan, trustee objects, bankruptcy court denies confirmation, debtor ultimately confirms a higher-payment plan—and then tries to appeal the denial of the earlier, more favorable plan. The district court dismissed that appeal as equitably moot. The Fourth Circuit reversed. And that matters. A lot. The Holding (In Plain Terms) The Fourth Circuit did two key things: 1. Rejected Equitable Mootness in a Simple Chapter 13 Case The Court emphasized that equitable mootness is a pragmatic, discretionary doctrine—not a jurisdictional bar—and is generally reserved for complex Chapter 11 cases involving numerous parties and irreversible transactions. Here, there was: No asset transfers No unwinding of complex transactions No disruption to third parties Only a request to adjust payments going forward As the Court put it, “there is no egg to unscramble.” That alone doomed the district court’s dismissal. 2. Reached the Merits—and Affirmed the Bankruptcy Court On the substance, the debtor still lost. The bankruptcy court’s denial of confirmation of the first plan—based largely on lack of good faith and inconsistent financial disclosures—was affirmed. So yes, the debtor ultimately loses the battle. But consumer debtors as a whole won something bigger.   The Real Story: A Narrowing of Equitable Mootness This opinion draws a bright line that has long been blurred: Equitable mootness should not be casually applied in consumer Chapter 13 cases. The Fourth Circuit essentially says what many of us have argued for years: This doctrine was built for mega Chapter 11 reorganizations It has no business short-circuiting appeals in individual wage-earner cases The Court’s analysis of the Mac Panel factors is particularly instructive: Failure to seek a stay? Not dispositive. Payments already made? Irrelevant if relief is prospective. Impact on creditors? Minimal and manageable. This is a course correction. The Bigger Win: A Path Around Bullard The shadow looming over all of this is, of course, Bullard v. Blue Hills Bank. In Bullard, the Supreme Court held that: Denial of confirmation of a Chapter 13 plan is not a final, appealable order. That decision significantly constrained appellate review of plan denials—forcing debtors to either: Confirm a different plan, or Seek dismissal to create finality (a risky move) Cook provides a workaround—without saying so explicitly. Here’s how: The debtor confirmed a later plan (creating a final order) Then appealed the earlier denial The district court tried to shut it down via equitable mootness The Fourth Circuit said: Not so fast The Result: Chapter 13 debtors still have a viable path to appellate review of denied plans—so long as they can get to a confirmed plan and frame relief prospectively. That is a significant preservation of appellate rights in the wake of Bullard. Practice Implications (Where This Really Hits Home) For consumer bankruptcy attorneys, this case should immediately change how you think about preserving issues for appeal: 1. Don’t Assume the Door is Closed After Bullard There is a path: Confirm a plan (even under protest) Preserve objections Appeal the denial of the preferred plan 2. Frame Relief Prospectively The Fourth Circuit repeatedly emphasized: No clawbacks No unwinding distributions Just forward-looking adjustments That framing is critical to defeating equitable mootness. 3. Equitable Mootness is Now a Weak Defense in Chapter 13 Expect trustees (and sometimes courts) to continue raising it—but: This opinion sharply limits its reach Especially in routine consumer cases 4. NACBA / NCBRC Impact Notably, amici included the National Association of Consumer Bankruptcy Attorneys and the National Consumer Bankruptcy Rights Center—and their fingerprints are visible in the Court’s reasoning. This is exactly the kind of doctrinal narrowing consumer advocates have been pushing for. Final Take Cook is a quiet but important win for consumer bankruptcy law. Yes, the debtor loses on the merits. But the Fourth Circuit: Rejects overuse of equitable mootness Reinforces meaningful appellate review in Chapter 13 And—most importantly—keeps alive a post-Bullard pathway to challenge plan denials For practitioners, that’s not just academic. That’s leverage. Addendum: Amici NACBA & NCBRC—And a Well-Earned “Told You So” No discussion of Cook v. Chapter 13 Trustee would be complete without recognizing the amicus brief filed by Richard P. Cook (no relation to the debtor) on behalf of the National Association of Consumer Bankruptcy Attorneys and the National Consumer Bankruptcy Rights Center. That brief did not merely participate—it framed the issue the Fourth Circuit ultimately decided. Congratulations Are in Order Credit where it is due: To Richard P. Cook (no relation), for a clear, disciplined brief that stayed focused on the doctrine rather than the debtor’s underlying merits. To NACBA and NCBRC, for continuing to do what they do best—identify systemic risks to consumer bankruptcy rights and intervene at precisely the right moment. This is exactly the kind of case where amicus participation matters: The debtor wins the procedural battle The doctrine is narrowed And appellate rights are preserved for thousands of future Chapter 13 debtors To read a copy of the transcript, please see: Blog comments Attachment Document cook_v._trustee.pdf (163.8 KB) Document cook_v._trustee_amicus_brief_of_nacba-ncbrc.pdf (273.16 KB) Category 4th Circuit Court of Appeals

Bankr. W.D.N.C. : In re Perez- No Shortcuts to Appeal—Rule 54(b) Requires More Than “Magic Words” in Perez Adversary Stafford Patterson Mon, 04/13/2026 - 15:57 Summary: Judge Laura Beyer delivers a straightforward—but instructive—reminder that not every adverse ruling is immediately appealable, and that Rule 54(b) remains the exception, not the rule. The Setup In this Chapter 13 adversary proceeding, the debtor, Luis Perez, attempted to bring a third-party claim for unfair and deceptive trade practices against Fernando Ycaza. That claim was dismissed with prejudice. Perez then tried to salvage an immediate appeal by filing a motion asking the court to either: Add Rule 54(b) “magic language” (i.e., no just reason for delay), or Convert the dismissal to without prejudice. The Ruling The court denied both requests—firmly. Applying the Fourth Circuit’s Braswell Shipyards framework, Judge Beyer acknowledged that the dismissal was “final” as to that claim, but emphasized that finality alone is not enough. The real question is whether there is no just reason for delay, and the burden rests squarely on the movant. Perez fell short. The court found: The dismissed and remaining claims were closely intertwined. Future developments could moot the need for appeal entirely. Immediate appeal risked duplicative appellate review. The alleged hardship—delay and expense—was simply the ordinary consequence of litigation, not the “undue hardship” required for Rule 54(b). Just as importantly, the court rejected the notion that labeling a dismissal “with prejudice” somehow entitles a party to immediate appeal. Rule 54(b) doesn’t turn on that distinction. Commentary This is a clean, practical opinion that bankruptcy practitioners should keep handy—particularly in multi-party adversary proceedings where the temptation for piecemeal appeals is strong. Two takeaways stand out: First, Rule 54(b) is not a drafting oversight doctrine. Perez’s motion essentially read as if the court had forgotten to include the required language. Judge Beyer makes clear: those words are not automatic—they must be earned. Second, litigation inconvenience is not “undue hardship.” The desire to avoid delay, expense, or even a second trial is baked into the system. If that were enough, Rule 54(b) would swallow the rule against interlocutory appeals. In short, this decision reinforces what most of us already know—but occasionally need to be reminded of: appeals come at the end, not along the way. To read a copy of the transcript, please see: Blog comments Attachment Document ameris_bank_v._perez.pdf (204.4 KB) Category Western District

EDNC: Steinke. v Harris ventures- “Effective Date” Means Confirmation — and Post-Petition Events Matter Ed Boltz Fri, 04/10/2026 - 15:13 Summary: In Steinke v. Harris Ventures, Chief Judge Richard Myers affirmed what the Bankruptcy Court had already made clear: for purposes of the Chapter 13 liquidation test under § 1325(a)(4), the “effective date of the plan” is the confirmation date—not the petition date. That seemingly dry statutory interpretation has very real consequences—particularly where, as here, life intervenes between filing and confirmation. The Setup: Death Changes Everything When the Steinkes filed Chapter 13, they owned their Raleigh home as tenants by the entirety, shielding it from an individual creditor (Harris Ventures). But before confirmation, Mrs. Steinke passed away. Under North Carolina law, that meant the property vested in Mr. Steinke in fee simple, eliminating the entireties protection and dramatically increasing what unsecured creditors could reach. The debtors argued that the liquidation test should be frozen as of the petition date—when the property was still protected. The Bankruptcy Court disagreed, and the District Court affirmed. The Holding: Confirmation Date Controls The District Court adopted the majority view nationally: A plan becomes “effective” when it is confirmed and binding. Therefore, the liquidation test must be applied as of confirmation, not filing. Relying heavily on Hamilton v. Lanning and Rake v. Wade, the court emphasized that identical language elsewhere in § 1325 has already been interpreted to mean the confirmation date—and consistency matters. Equally important, the court leaned on § 1306: A Chapter 13 estate includes property acquired after filing but before the case is closed, dismissed, or converted. In other words, Congress expected the estate to change—and required plans to account for those changes. Commentary: When Entireties Protection Disappears Mid-Case This decision is a direct sequel to the Bankruptcy Court ruling discussed here: 👉 https://ncbankruptcyexpert.com/2025/01/27/bankr-ednc-re-steinke-death-debtor-and-tenancy-entireties There, the Bankruptcy Court recognized the harsh reality: Entireties property that was fully protected at filing Became fully exposed upon the death of one spouse And that change had to be reflected in the Chapter 13 plan The District Court now confirms that result was not just equitable—it was required by the Code. The Strategic Question: Why Not Convert? Which raises the most interesting—and still unanswered—question in this case: Why not convert to Chapter 7? Based on the timeline, it appears that Ms. Steinke died 205 days after filing—outside the 180-day window of § 541(a)(5). That matters enormously. In Chapter 13, § 1306 sweeps in post-petition property and changes—so the estate captures the fee simple interest. But upon conversion to Chapter 7, § 348 would generally fix the estate as of the petition date. Meaning: 👉 The Chapter 7 estates of both Mr. and Mrs. Steinke would likely still hold the property as tenants by the entirety, preserving the exemption against individual creditors. That is a dramatically different outcome from the Chapter 13 result, where the estate now holds the property in fee simple and fully exposed. It is unclear from the opinion what factors precluded conversion—whether practical, procedural, or strategic—but from the outside, that option appears at least worth serious consideration. The Danger of Dismissal Voluntary dismissal, meanwhile, is no safe harbor. With an aggressive judgment creditor like Harris Ventures waiting in the wings, dismissal would likely: Lift the automatic stay immediately; and Allow the creditor to pursue execution, potentially leading to a sheriff’s sale of the property. In other words, dismissal may trade a difficult bankruptcy outcome for an even worse state-court one. Final Thoughts: Chapter 13 Is a Moving Target The lesson from Steinke is both simple and sobering: Chapter 13 is not a snapshot—it’s a moving picture. Property interests can change Exemptions can evaporate And the liquidation test will capture those changes at confirmation For debtor’s counsel, this reinforces two critical points: Timing matters—especially in cases involving entireties property, health concerns, or other foreseeable changes. Conversion strategy must always be on the table—because § 1306 and § 348 can lead to radically different estates. And for creditors, Steinke is a roadmap: Wait long enough, and sometimes the law—and life—will do the work for you. To read a copy of the transcript, please see: Blog comments Attachment Document steinke_v._harris_ventures.pdf (218.58 KB) Category Eastern District

W.D.N.C.: Carter .v Primelending- ​Another Foreclosure, Another Federal Detour Ed Boltz Thu, 04/09/2026 - 15:48 Summary: In Carter v. PrimeLending, the Western District of North Carolina (Judge Orso) delivered a straightforward—but important—reminder: federal district courts are not appellate courts for state foreclosure proceedings. Ms. Carter, proceeding pro se, attempted to halt a completed foreclosure by asserting an expansive set of claims—thirty-five causes of action invoking RESPA, TILA, FDCPA, and even criminal statutes. She challenged, among other things, the securitization of her loan, the validity of assignments, and the authority of the foreclosing party. None of that gained traction.   The Holding: Rooker-Feldman, Mootness, and Familiar Ground Judge Orso dismissed the case in its entirety on multiple, well-worn grounds: Rooker-Feldman barred the federal court from reviewing or effectively overturning the state foreclosure order. The request to stop the foreclosure was moot, as the sale had already occurred on January 8, 2026. Challenges to securitization and assignment failed as a matter of law and for lack of standing. The complaint itself was conclusory and procedurally deficient, and service was not even completed on all defendants. In short, this was not a close call. The 10-Day Upset Bid Period—and Why Timing Matters One of the quieter but critical aspects of this case is what happens after the foreclosure sale. Under North Carolina law, the 10-day upset bid period following a foreclosure sale is the debtor’s final meaningful window to alter the outcome. As Judge Orso recognized, once that period runs—and especially once the sale is complete—the ability of any court (state or federal) to unwind the foreclosure becomes extraordinarily limited. That reality has direct implications for bankruptcy strategy. Ms. Carter has now filed her third Chapter 13 case on March 13, 2026, following dismissal of her prior case in August 2024. But given the timing—after the foreclosure sale and outside the upset bid window—this latest filing will almost certainly not reverse that foreclosure. At best, it may address deficiency issues or provide temporary breathing room; it is unlikely to restore ownership of the property. The “Expert” Problem: When Pseudo-Legal Help Hurts More Than It Helps An additional—and telling—aspect of this case is Ms. Carter’s apparent reliance on Joseph R. Esquivel, Jr., who operates Mortgage Compliance Investigations, an entity that purports to “educate and inform homeowners about the avenues of relief that are available to them in reference to their home mortgage.” That “assistance” did not help her here. In footnote 3, Judge Orso explicitly declined to consider Mr. Esquivel’s “legal conclusions,” noting that he lacked competence to provide legal advice. Defendants went further, pointing out that this is not the first time courts have rejected his work—citing McKenzie v. M&T Bank, where a federal court observed that borrowers have relied on his “inaccurate legal conclusions” despite his not being a lawyer and not demonstrating competence on chain-of-title issues. This is, unfortunately, a recurring problem in consumer cases. Non-lawyer “consultants” or “auditors”: package legally defective theories, present them with the trappings of expertise, and leave debtors worse off—both financially and procedurally. A Troubling Disconnect in the Bankruptcy Filing That concern becomes even more pointed in Ms. Carter’s most recent Chapter 13 case. In her petition, she affirmatively stated that she did not “pay or agree to pay someone who is not an attorney to help [her] fill out her bankruptcy forms.” That representation deserves scrutiny given her apparent reliance on Mr. Esquivel’s work in the district court litigation. To be clear, there may be explanations—but the record raises questions. Compounding that, Ms. Carter has not yet filed her Statement of Financial Affairs (SOFA), which is the document that would require disclosure of payments to non-attorneys for assistance related to her financial situation or litigation. If any payments were made to Mr. Esquivel or his company, that filing would be the place they should appear. For practitioners and trustees, this is a familiar—and sensitive—issue: undisclosed payments to non-attorney advisors, potential § 110 concerns (if bankruptcy assistance was provided), and broader questions about the influence of third-party “consultants” on debtor decision-making. Commentary: Desperation, Pro Se Litigation, and the “Internet Defense” Trap There is a deeper story here—one we see far too often. Ms. Carter’s arguments reflect a familiar pattern of “internet-sourced” foreclosure defenses: securitization invalidates the loan, assignments must be challenged through technicalities, “show me the note,” criminal statutes as civil remedies. These theories persist not because they work—but because they offer hope. And that hope often arises from desperation. When homeowners cannot find or afford counsel, they turn to online resources or quasi-professional services that promise a way to fight back. The result is frequently a detour into arguments that: have been repeatedly rejected, do not address the real procedural posture of the case, and consume the limited time available to take effective action. By the time a case like this reaches federal court—or a third bankruptcy filing—the window for meaningful relief has usually closed. Practice Pointer: Timing Over Theory If there is one lesson here, it is this: In foreclosure defense, timing matters far more than creative legal theories. The critical moment is before the foreclosure sale, or at the latest during the 10-day upset bid period. Bankruptcy can be a powerful tool—but only if filed before rights are extinguished under state law. Federal court is not a workaround for an unfavorable state-court result. And reliance on non-lawyer “experts” advancing debunked theories can actively harm a debtor’s chances—while potentially creating additional disclosure and compliance issues in bankruptcy. Final Thought Carter v. PrimeLending is not a groundbreaking decision—but it is an important and cautionary one. It highlights not just the limits of federal jurisdiction, but the very real human consequences of delay, misinformation, and desperation—and, increasingly, the role that non-lawyer “experts” can play in steering debtors down paths that courts will not—and cannot—accept. For consumer practitioners, it reinforces the need to reach debtors early, to provide clear guidance, and to ensure that when help is offered, it is both competent and lawful—before the clock runs out.   To read a copy of the transcript, please see: Blog comments Attachment Document carter_v._primelending.pdf (282.88 KB) Category Western District

Law Review (Note): C. Sam D’Alba- Defining the Undefined: Reimagining the “Undue Hardship” Standard in Light of Its Harmonious Interpretation Ed Boltz Wed, 04/08/2026 - 15:40 Available at: https://scholarship.law.stjohns.edu/lawreview/vol99/iss3/7/ Abstract: Part I of this Note provides background on the student loan crisis and the history of the nondischargeability of student loan debt. Part II of this Note examines the DOJ’s Guidance on litigating “undue hardship,” the intra-circuit criticism of the Brunner framework, and the need for harmony in understanding “undue hardship” in light of other authority governing student loans. Part III of this Note argues for a shift in the analysis of “undue hardship” based on practical guidance from the DOJ, the DOE, and the courts. This shift focuses on the subjectivities of each bankruptcy case and the need for harmony in light of constantly evolving policy on student loan forgiveness. Finally, this Note will address concerns about the reliability and predictability of a more discretionary, subjective approach to student loan dischargeability. Defining the Undefined: Reimagining “Undue Hardship” A recent student note by C. Sam D’Alba in the St. John’s Law Review takes aim at one of the most stubborn features of modern bankruptcy law: the elusive meaning of “undue hardship” under 11 U.S.C. § 523(a)(8). The article surveys the history of student loan nondischargeability, critiques the dominance of the Brunner test, and argues that courts should move toward a more flexible framework informed by the 2022 Department of Justice and Department of Education guidance on student loan discharge litigation. The Student Loan Exception to Discharge The Note begins with the now-familiar backdrop: the explosion of student loan debt. More than 40 million Americans collectively owe roughly $1.8 trillion, making student loans one of the largest categories of consumer debt in the United States. Unlike most unsecured obligations, student loans are presumptively nondischargeable in bankruptcy under § 523(a)(8). Discharge is permitted only if repayment would impose an “undue hardship” on the debtor and dependents—a phrase Congress never defined. That omission left courts to fill the gap. And most circuits did so by adopting the three-part test first articulated in Brunner v. New York State Higher Education Services Corp. (2d Cir. 1987). Under Brunner, a debtor must prove: They cannot maintain a minimal standard of living if forced to repay the loan. Their financial circumstances are likely to persist for a significant portion of the repayment period. They have made good-faith efforts to repay. In practice, the second prong often morphed into the notorious requirement that the debtor demonstrate a “certainty of hopelessness.” The Circuit Split The Note highlights that not all courts have embraced this strict approach. The First and Eighth Circuits apply a “totality-of-the-circumstances” test that looks more broadly at the debtor’s finances and situation without rigid elements. But most circuits—including the Fourth Circuit—continue to apply Brunner. This dominance matters, because under the traditional interpretation of Brunner, failure to satisfy any one of the three prongs ends the analysis and bars discharge. DOJ and DOE Guidance: A Quiet Shift One of the most significant developments discussed in the article is the 2022 DOJ/DOE guidance on student loan discharge litigation. That guidance encourages government attorneys to stipulate to undue hardship in appropriate cases and establishes rebuttable presumptions that repayment will remain impossible when certain factors are present, including: Age 65 or older Long-term disability Prolonged unemployment Failure to complete the educational program Loans that have been in repayment status for ten years or more The results have been dramatic. Since the guidance was implemented, the overwhelming majority of litigated cases—nearly 98% in some reported data—have resulted in partial or full relief. Criticism of Brunner The Note also catalogues growing judicial skepticism toward the Brunner test itself. Bankruptcy courts applying it have called the doctrine: “a relic of times long gone,” “without textual foundation,” and burdened by layers of “judicial gloss.” Even courts that continue to apply Brunner have acknowledged that phrases like “certainty of hopelessness” appear nowhere in the statute and were added later by judicial interpretation. A Proposed Middle Ground Rather than abandoning structure entirely, the author proposes a hybrid approach: Retain the first two Brunner prongs regarding present inability to pay and the persistence of that inability. Adopt DOJ-style presumptions to guide the future-hardship inquiry. Treat “good faith” as relevant but not dispositive, creating a safe harbor if the debtor made any meaningful effort to address repayment. The goal is to balance administrability and fairness while aligning bankruptcy law with modern student-loan policy. Commentary This article arrives at a moment when the law of student loan discharge is already evolving—not through Congress, but through executive policy and litigation practice. For decades, student loan discharge was widely viewed as a near impossibility. Many borrowers—and, frankly, many lawyers—believed the debt was simply non-dischargeable. That belief was reinforced by the harsh rhetoric surrounding Brunner, particularly the “certainty of hopelessness” language. But the DOJ/DOE guidance has quietly undermined that assumption. By encouraging government attorneys to stipulate to discharge when the facts support it, the federal government has effectively relaxed the practical application of Brunner without requiring courts to formally abandon the test. For consumer bankruptcy practitioners, that shift is significant. Student loan adversary proceedings that once seemed futile now have real traction. Still, the Note correctly identifies the deeper doctrinal problem: Brunner was built for a very different era of student lending—when loans were smaller, repayment periods shorter, and nondischargeability applied only for a limited time. Today’s system bears little resemblance to that world. Congress removed the temporal limitation in 1998, leaving debtors permanently subject to the undue-hardship standard. Yet courts continue to apply a framework shaped by fears of recent graduates racing to bankruptcy court immediately after finishing school. That historical mismatch helps explain why the doctrine often feels disconnected from modern student-loan realities. The proposed hybrid framework—combining Brunner’s structure with DOJ-style presumptions and a softer view of good faith—may represent a practical way forward. It preserves predictability while allowing courts to acknowledge the systemic dysfunction of the student loan system. In the end, however, the real problem may not be doctrinal at all. The persistent uncertainty surrounding “undue hardship” is largely the result of Congress’s decision to leave the phrase undefined. Until Congress revisits § 523(a)(8), bankruptcy courts will continue to wrestle with a standard that is at once central to the statute and fundamentally ambiguous. And in that sense, the title of the article captures the challenge perfectly: bankruptcy courts are still trying to define the undefined. To read a copy of the transcript, please see: Blog comments Attachment Document defining_the_undefined_reimagining_the_undue_hardship_standard.pdf (380.99 KB) Category Law Reviews & Studies

4th Cir.: (Dale v. Peoples Bank Corp- Banks Are “Ministerial Middlemen” When Enforcing Judgments Ed Boltz Mon, 04/06/2026 - 15:14 Summary: The Fourth Circuit recently issued a published opinion in Dale v. Peoples Bank Corp. addressing a question that arises whenever creditors pursue bank accounts to satisfy a judgment: can a bank be sued for conversion when it turns over funds pursuant to state judgment-enforcement procedures? The court’s answer was a clear no. The Facts Signal Ventures obtained a $703,886 Texas state-court judgment against Hugh Dale and his companies. To collect, the creditor domesticated the judgment in West Virginia and used the state’s judgment-enforcement procedures, including writs of execution and “suggestions” (a process somewhat analogous to garnishment). Signal suggested that Peoples Bank held property belonging to the judgment debtors. After receiving the court paperwork, the bank identified several accounts in which Dale or his company appeared as co-owners and debited roughly $107,000, sending cashier’s checks to the judgment creditor. But there was a twist. Those accounts also listed several partnerships managed by Dale as co-owners. The partnerships later claimed the money was their property alone and sued the bank for conversion, arguing that the bank wrongfully seized funds that did not belong to the judgment debtor. The district court dismissed the case, and the Fourth Circuit affirmed. The Fourth Circuit’s Reasoning Judge Wilkinson’s opinion emphasized that banks play a limited, ministerial role in judgment enforcement. When a bank receives a lawful court document directing it to turn over funds belonging to a judgment debtor, compliance with that process is not wrongful conduct. The court rejected two theories advanced by the plaintiffs: 1. Alleged account-setup negligence decades earlier The partnerships argued that the bank had originally opened the accounts incorrectly in the early 2000s by listing Dale or his company as co-owners. But even assuming that were true, the Fourth Circuit found it irrelevant to the conversion claim. By 2023 the bank had no reason to doubt the ownership records, especially since Dale himself had signed the deposit agreements and used the accounts for decades without objection. 2. Acting “too quickly” The plaintiffs also argued the bank should have waited before turning over the funds so the account holders could challenge the suggestion. West Virginia law, however, expressly allows a bank to turn over funds immediately upon receiving a suggestion, and doing so shields the bank from liability to the debtor. Because the bank acted pursuant to the statute, the court concluded there was no “wrongful” exercise of dominion, which is a required element of conversion. The Deeper Problem: A Collateral Attack The Fourth Circuit went a step further and observed that the lawsuit was essentially a collateral attack on the Texas judgment itself. Allowing judgment debtors to sue banks that comply with execution procedures would undermine the enforcement of judgments. Banks, the court said, are “ministerial middlemen” in this process, and the economy depends on their ability to comply with court orders without fear of liability. Commentary This opinion is not a bankruptcy case, but it contains lessons that will be familiar to anyone practicing in the consumer insolvency world. 1. Banks Are Not the Proper Target Debtors (and sometimes their business entities) often respond to aggressive collection activity by suing the nearest available actor—frequently the bank holding their funds. Dale is a reminder that when the bank is simply complying with lawful execution procedures, it is extremely difficult to frame that conduct as tortious. The real fight belongs elsewhere: attacking the judgment itself, challenging domestication, or raising procedural or constitutional objections to the enforcement process. Trying to convert a ministerial compliance act into a tort claim rarely works. 2. Ownership Records Matter—A Lot The partnerships’ core complaint was that the accounts should never have included Dale as a co-owner. But that alleged mistake went unchallenged for more than twenty years. That highlights a practical point: When accounts list a debtor as an owner, creditors—and banks responding to court process—will assume the funds are subject to execution. Untangling those ownership issues after a judgment is entered is extraordinarily difficult. 3. Bankruptcy Would Have Changed the Playing Field From a consumer bankruptcy perspective, this dispute illustrates why financially distressed debtors often benefit from entering bankruptcy before collection reaches the bank-account stage. A bankruptcy filing would have triggered: the automatic stay, halting the execution process, a centralized forum to determine ownership of disputed funds, and potentially avoidance or exemption arguments unavailable in post-judgment collection proceedings. Instead, the parties ended up litigating a tort claim against the bank—a procedural detour that predictably went nowhere. The Big Picture The Fourth Circuit’s message is straightforward: Banks that comply with lawful judgment-enforcement procedures are not liable for conversion simply because the debtor disputes ownership of the funds. For debtors, the real lesson is procedural rather than doctrinal. Once a creditor reaches the bank account stage, the strategic options narrow dramatically. The better time to challenge the debt—or to seek bankruptcy protection—is usually before the sheriff, writ of execution, or garnishment arrives at the bank. To read a copy of the transcript, please see: Blog comments Attachment Document dale_v._peoples_bank.pdf (202.14 KB) Category 4th Circuit Court of Appeals

Bankr. E.D.N.C.: J Smith v. Clancy & Theys: Turnover Is Not a Shortcut for Contract Litigation Ed Boltz Fri, 04/03/2026 - 15:48 Summary: In J Smith v.  Clancy & Theys, Judge Joseph Callaway addressed a familiar temptation in bankruptcy litigation: trying to convert an ordinary contract dispute into a turnover action under 11 U.S.C. § 542. The court allowed most of the debtor’s claims to proceed—but drew a clear line around turnover. Background J Smith Civil, LLC, a construction subcontractor, filed Chapter 11 in September 2023. The dispute arises from four North Carolina construction projects where the general contractor, Clancy & Theys Construction Co., retained 10% retainage from periodic payments until project completion. J Smith left (or was removed from) the projects before completion and later sued to recover more than $2 million in alleged unpaid amounts, including the retainage. The adversary complaint asserted seven causes of action: Turnover under § 542 Breach of contract 3–6. Quantum meruit and unjust enrichment (in the alternative) Disallowance of the contractor’s $5.6 million proof of claim under § 502(d). The defendants moved to dismiss everything under Rule 12(b)(6). Judge Callaway granted the motion only as to turnover. 1. Turnover Cannot Be Used to Liquidate a Disputed Contract Claim The debtor’s primary bankruptcy theory was that the retainage constituted an account receivable and therefore property of the estate subject to turnover. The court acknowledged that accounts receivable generally do qualify as property of the estate under § 541. But that alone does not make them appropriate for turnover. Turnover is limited to collection of a matured, undisputed debt, not the creation or liquidation of liability. As the court noted, turnover is often improperly used as a “Trojan Horse for bringing garden-variety contract claims.” Here, the complaint alleged the amount owed but failed to plead any accounting showing how the number was calculated, such as: progress payment records offsets for completion costs documentation of the retainage balances. Without that accounting, the court concluded the alleged debt was not plausibly “matured” for purposes of § 542. Result: turnover dismissed. The claim belongs in state-law contract litigation, not a turnover proceeding. 2. Breach of Contract Survives The defendants argued that J Smith’s claim failed because it did not complete the projects, suggesting that its own breach barred recovery. Judge Callaway rejected that argument at the pleading stage. The complaint plausibly alleged: valid written contracts services performed failure to pay more than $2 million for that work. Whether J Smith’s departure from the projects constituted a material breach is a defense, not a basis for dismissal under Rule 12(b)(6). So the breach of contract claim proceeds. 3. Quantum Meruit Claims May Be Pleaded in the Alternative Defendants also argued that quantum meruit and unjust enrichment cannot apply where an express contract exists. True—but that rule only applies once a valid contract is established. At the pleading stage, the debtor may assert those claims in the alternative, which is exactly what J Smith did. The court therefore allowed the quasi-contract claims to survive. 4. Confirmation Order Controls Over Plan Language Finally, the defendants argued the debtor’s claim objection (§ 502(d)) was filed too late. The Chapter 11 plan contained conflicting deadlines: 90 days after the Effective Date, and two years for adversary proceedings and claim objections. The confirmation order, however, clearly allowed actions within two years of the petition date. When the plan and confirmation order conflict, the confirmation order controls. Because the adversary was filed exactly two years after the petition date, the claim objection was timely. Commentary This opinion is a useful reminder that turnover is not a substitute for litigation. Debtors (and trustees) frequently attempt to reframe ordinary disputes as turnover actions because turnover offers procedural advantages: it is a core proceeding it suggests entitlement to immediate payment it bypasses state-law litigation framing. But bankruptcy courts have repeatedly warned that § 542 cannot be used to determine liability. It only compels delivery of property that is already indisputably owed. Judge Callaway’s decision fits squarely within that line of cases. The Construction Context This ruling is particularly important in construction bankruptcies, where retainage and progress payments are often disputed. Retainage rarely qualifies as a turnover claim because: the amount usually depends on completion costs offsets must be calculated breach allegations must be resolved. That makes the claim unliquidated and contested—the opposite of what turnover requires. A Pleading Lesson The opinion also highlights a practical litigation lesson: accounting matters. If the debtor had attached: payment histories retainage ledgers completion cost estimates, the turnover claim might have survived. Instead, the complaint provided only bottom-line numbers, which was not enough to plead a mature debt. Confirmation Orders Still Matter Finally, the opinion offers a small but helpful procedural reminder: when plan provisions conflict with the confirmation order, the order governs. That principle can be surprisingly important in reorganizations where drafting inconsistencies slip through. Bottom line: Turnover remains a narrow remedy, not a procedural shortcut for resolving disputed contract claims. When the amount owed requires litigation to determine, the Bankruptcy Code expects parties to litigate the claim the old-fashioned way—through breach of contract and related state-law theories. To read a copy of the transcript, please see: Blog comments Attachment Document jsmith_v._clancy_theys.pdf (213.2 KB) Category Eastern District

N.C. Ct. of App.: Israel v. Zachary- Landlord Interference With Tenant’s Property Leads to Conversion Liability (Damages Remanded) Ed Boltz Thu, 04/02/2026 - 15:13 Summary: In Israel v. Zachary, the North Carolina Court of Appeals affirmed that a landlord who interferes with a tenant’s efforts to retrieve property after eviction can be liable for conversion and unjust enrichment, though the court vacated the damages award for lack of sufficient valuation evidence. The Dispute Stephen Israel leased roughly 97 acres of farmland in Alamance County. After the lease expired, a dispute arose over whether it had been extended. While the landlord, Janet Zachary, pursued summary ejectment, Israel attempted to remove farm equipment and structures he had brought onto the property during the lease. The trial court found that Zachary interfered with those efforts—contacting the sheriff and confronting individuals helping Israel move equipment. After the writ of possession issued, Israel attempted to retrieve the remaining property within the statutory seven-day period but was slowed by health issues and weather. When he returned to finish removing the equipment, deputies ordered him off the property. The equipment remained there for years, exposed to the elements. The trial court concluded that Zachary had converted the equipment and been unjustly enriched, awarding $45,584 in damages. The Court of Appeals The Court of Appeals largely affirmed. First, it held there was competent evidence that Zachary interfered with Israel’s efforts to remove his property, supporting liability for conversion. Second, the court rejected the argument that the property was automatically abandoned after seven days under North Carolina’s eviction statutes. Those statutes allow disposal of tenant property only if the landlord follows specific procedures and does not block the tenant’s retrieval efforts. However, the court vacated the damages award. Although the record contained purchase prices and insurance valuations, it lacked evidence establishing the difference in fair market value before and after the alleged damage, which is required to calculate depreciation. The case was therefore remanded for a new damages determination. A Parallel Issue in Consumer Finance This decision also raises an interesting question for consumer creditors: when does insisting on procedural rights become “conversion”? In many consumer cases—particularly in bankruptcy—debtors do not voluntarily surrender collateral. Instead, they insist that creditors follow the proper legal procedures: In bankruptcy, a creditor must obtain a Motion for Relief from the Automatic Stay before repossessing collateral. Outside bankruptcy, the creditor must pursue replevin or claim-and-delivery remedies in state court. Creditors sometimes portray that insistence as wrongful “retention” of collateral. But the procedural protections exist for an important reason: due process ensures that the property is actually delivered to the correct party and not seized, stolen, or disposed of improperly. In other words, insisting on statutory procedures is not obstruction—it is the system working exactly as designed. A Practical Alternative: “Cash for Keys” Of course, the formal legal route—stay-relief motions, replevin actions, hearings, and orders—can be expensive and adversarial. If creditors truly want quick possession of collateral, there is often a simpler solution: pay the consumer to cooperate. In mortgage and foreclosure cases this practice is widely known as “Cash for Keys.” Rather than litigating possession, the creditor offers a modest payment to the occupant in exchange for an orderly turnover of the property. The same concept could work just as well in consumer repossession cases. Instead of spending thousands of dollars on attorneys’ fees and court costs, a creditor might simply offer a few hundred dollars for the debtor’s assistance in delivering the collateral promptly. That approach reduces litigation, preserves due process, and avoids disputes over who actually converted what. Takeaway: Israel v. Zachary is a reminder that interfering with someone’s ability to retrieve their property can easily create conversion liability. But it also highlights a broader point: when possession of property is disputed, the safest path is usually the procedural one—or better yet, a negotiated one. <strong>To read a copy of the transcript, please see:</strong> </strong><embed height="500" src="https://ncbankruptcyexpert.com/sites/default/files/2026-04/israel-v-zachary_0.pdf" width="100%"></embed> Blog comments Attachment Document israel-v-zachary.pdf (271.2 KB) Category NC Court of Appeals

Law Review: Bruce, Kara- Desperation Finance: Merchant Cash Advances in Bankruptcy and Beyond Ed Boltz Wed, 04/01/2026 - 15:15 Available at SSRN: https://ssrn.com/abstract=6192358 Abstract Over the last several years, Merchant Cash Advances (MC As) have risen in prominence as a form of short-term financing for distressed small businesses. MCA transactions are distinct from most small-business lending because they are not structured as loans at all. Rather, in exchange for a lump sum of cash, the merchant purports to sell to the funder an unidentified percentage of its future receipts or receivables. This structure allows funders to sidestep the application of lending regulations and usury protections, but it strains the foundations of commercial law and generates a host of interpretive challenges. Bankruptcy, district, and circuit courts across the nation are grappling with the true nature of MCA transactions to determine what rights in the underlying receivables are transferred and when that transfer occurs. These issues rise in prominence if a merchant seeks bankruptcy protection, as the extent of the estate’s interest in property—and by extension the application of any number of bankruptcy provisions—hangs in the balance. This essay provides a comprehensive analysis of MCA agreements and other forms of revenue-based financing. Drawing from a robust literature involving recharacterization of financial transactions, this essay advances an analytical framework for evaluating the nature of MCA transactions and explores how recharacterization affects both bankruptcy and non-bankruptcy entitlements. Desperation Finance: Merchant Cash Advances and the Bankruptcy System Bankruptcy judges sometimes see financial products that look less like lending and more like a distress flare. Professor Kara Bruce’s forthcoming article, Desperation Finance: Merchant Cash Advances in Bankruptcy and Beyond, provides a thorough and deeply useful examination of one of the most troubling recent examples: Merchant Cash Advances (MC As)—a form of financing marketed to struggling small businesses but frequently carrying effective interest rates well above 100% and sometimes far higher. MC As are intentionally structured not as loans but as “sales” of a percentage of future receivables. That formal structure allows funders to argue that usury laws do not apply, even though the economic reality often resembles extremely high-interest lending. When bankruptcy inevitably follows—as it often does—the legal system must answer a deceptively simple question: Is an MCA really a sale of receivables, or is it a disguised loan? The answer determines everything from property of the estate, to preference liability, to fraudulent transfer analysis, and even Subchapter V eligibility. Bruce’s article provides a roadmap through that thicket. How Merchant Cash Advances Work The typical MCA transaction looks like this: A distressed business receives an immediate cash advance. In exchange, it “sells” a portion of future receivables. The funder collects repayment through daily ACH withdrawals from the merchant’s bank account. The arrangement is marketed as flexible—payments supposedly fluctuate with revenue. But courts increasingly find that the supposed flexibility is illusory, buried beneath reconciliation provisions that are difficult or impossible to invoke. More troubling are the economics. One example cited in the article involved: $75,000 advanced $111,750 required repayment daily withdrawals of $1,117 That translates into an effective interest rate of about 115% per year—before fees. And many MCA borrowers do not stop at one advance. Businesses often stack multiple MC As, sometimes pledging more than 100% of their anticipated revenue. That spiral usually ends in litigation or bankruptcy.   Bankruptcy Complications Once the debtor files bankruptcy, MCA agreements create several recurring legal disputes. 1. Property of the Estate MCA funders often argue that the receivables were already sold prepetition, so the revenue belongs to them—not the bankruptcy estate. But that argument runs headlong into a basic property principle: You cannot sell property that does not yet exist. Future receivables cannot be transferred until they are generated. As a result, courts increasingly hold that post-petition receivables remain property of the estate, regardless of MCA language. 2. Avoidance Litigation MCA payments frequently become the target of preference or fraudulent transfer actions. Funders argue that daily withdrawals are merely collecting their own property. Trustees respond that the withdrawals are payments on an antecedent debt. Courts increasingly accept the latter view. In other words, those daily ACH sweeps may be avoidable transfers. 3. Fraudulent Transfer Issues The question often becomes whether the debtor received reasonably equivalent value. Some courts say yes—because the MCA provided a “lifeline” when no other lender would. Others are more skeptical, especially where the transaction simply refinanced earlier MC As at astronomical cost. Why Courts Are Increasingly Recharacterizing MC As Bruce argues that the key legal battle is recharacterization—whether the transaction is really a loan. Several features push courts in that direction: Fixed repayment obligations Personal guaranties acceleration clauses aggressive collection remedies daily withdrawals regardless of revenue These features look far more like secured lending than a sale of receivables. And once recharacterized as loans, MC As can trigger: usury defenses preference liability fraudulent transfer claims regulatory enforcement Desperation Finance Is Not Limited to Small Businesses While MC As affect businesses, the same economic pattern appears throughout consumer bankruptcy practice. The common thread is simple: Borrowers with no access to conventional credit turn to lenders willing to exploit that desperation. Three examples stand out. Consumer Desperation Finance Payday Loans Payday lending has long been the consumer analogue to MC As. Typical features include: extremely short repayment terms triple-digit AP Rs automatic bank withdrawals The structure frequently leads borrowers to roll over loans repeatedly, creating a cycle nearly identical to MCA stacking. Many Chapter 7 debtors arrive with multiple payday loans outstanding, often consuming a large portion of monthly income. Title Loans Vehicle title loans may be even more destructive. These loans: are secured by the borrower’s vehicle carry extremely high interest rates permit quick repossession upon default For many debtors, losing the car means losing the ability to work, which accelerates the downward spiral into bankruptcy. Check-Cashing Loans “Check loans” and other storefront finance products operate similarly: high fees disguised as service charges repayment structures designed to force refinancing minimal underwriting All are variations on the same theme: credit extended not because repayment is likely, but because collateral or fees guarantee profit. Desperation Finance in the Legal Profession Perhaps the most uncomfortable example of desperation finance appears not in consumer lending—but in the financing of bankruptcy attorney fees themselves. Kallen v. U.S. Trustee A recent decision from the District of Arizona illustrates the risks of third-party fee financing in consumer bankruptcy cases. In Kallen v. U.S. Trustee, a Chapter 7 firm entered into a financing arrangement with EZ Legal, a company that advanced funds to the firm for debtor legal fees. Under the initial structure, EZ Legal advanced 75% of the $3,000 flat attorney fee to the firm and in return obtained the right to collect and retain the entire $3,000 fee from the debtor. Later versions of the arrangement shifted to a 62% / 38% split, with EZ Legal retaining roughly $1,149 of the $3,000 fee while the firm accepted $1,860 as payment for its services. Debtors were required to sign “Promises to Pay” making them directly obligated to EZ Legal, including default interest rates of up to 300% annually—terms that were not disclosed in the attorney compensation disclosures filed with the bankruptcy court. After extensive proceedings, the bankruptcy court found a years-long pattern of disclosure violations, conflicts of interest, and misleading statements. The court voided all retention agreements in the financed cases and imposed sweeping sanctions. Among other remedies, the court ordered: Full disgorgement of fees totaling $1,644,566, removal of negative credit reporting tied to the agreements, and a two-year ban on filing bankruptcy cases in the District of Arizona. The district court affirmed. The Lesson The facts of Kallen show how easily the economics of desperation finance can creep into bankruptcy practice itself. When third-party lenders step between a debtor and counsel—especially without full disclosure—the risks multiply: undisclosed fee-sharing, conflicts of interest, misleading compensation disclosures, and fee structures that resemble consumer credit products more than legal representation. Courts have traditionally given bankruptcy attorneys significant flexibility in structuring payment arrangements. But Kallen demonstrates that when those arrangements drift too far toward high-cost consumer lending, the consequences can be severe. A Structural Problem What links MC As, payday loans, title loans, and some bankruptcy-fee financing arrangements is not simply high cost. It is structural vulnerability. The borrowers involved share several characteristics: lack of access to traditional credit urgent need for liquidity weak bargaining power limited regulatory protection These conditions allow financial products to flourish that would never survive in ordinary credit markets. Bankruptcy as the End of the Line In many cases, bankruptcy is the only mechanism capable of stopping the cycle. But even there, the legal system must untangle complex questions about: property rights transaction characterization avoidance powers Bruce’s article shows that courts are gradually developing a coherent framework. But the broader lesson is simpler. When credit markets produce products with triple-digit effective interest rates, the problem is rarely innovation. It is desperation.  And desperation finance almost always ends in bankruptcy,  whether for the small business owner with MC As, consumers with payday loans  or consumer debtors attorney with bifucated factoring finance.  To read a copy of the transcript, please see: Blog comments Attachment Document desperation_finance_merchant_cash_advances_in_bankruptcy_and_beyond.pdf (744.54 KB) Category Law Reviews & Studies

If you have decided to declare bankruptcy, you are on your way to relief from pressing debt. As a part of this process, you must decide how you wish to handle financial agreements you entered while you were solvent. There are several options for dealing with executory contracts in bankruptcy cases, each with its own implications. One of our experienced attorneys could help you understand the issues you face as you make your decision. Contact Allmand Law Firm today for guidance. What Is an Executory Contract? An executory contract is an agreement that has not yet been fulfilled. For example, if you agree to purchase an item with payment on delivery, the contract remains executory until the merchandise is delivered and you make payment. Another type of executory contract involves an agreement where you and the other party maintain ongoing obligations to each other, such as: Residential leases Cell phone contracts Gym memberships Home security services with a monthly subscription fee Early in filing for your Chapter 7 or Chapter 13 bankruptcy case, you have to decide whether you want to continue honoring these executory agreements. Talking with one of our attorneys could help you decide if it makes sense to continue with specific contracts. How Bankruptcy Impacts Executory Agreements Many contracts contain language saying that the agreement terminates immediately if one party declares bankruptcy, but these provisions may not be enforceable. According to the federal bankruptcy law under 11 United States Code § 365, you, as the debtor, have a choice about whether to continue with the contract, and the other party must continue to honor the current arrangement until you decide which option to pursue. Assumption You can assume the contract, which means you agree to honor its terms despite your bankruptcy. If you assume a contract, you must resolve any default. The other party is entitled to seek assurances that you will honor your obligations, so you may need to make a security deposit or get a co-signer. Rejection You can choose to reject the contract, which means you will no longer be required to perform under its terms. The other party may file a claim for damages with the bankruptcy court, and your outstanding balance would be treated like the other dischargeable debts in your case. An experienced attorney can help you understand the potential implications of rejecting a specific executory contract in your case. One of our attorneys could explain the potential implications of rejecting a specific executory contract in your bankruptcy case. Assignment If the contract does not benefit you during your bankruptcy, but may be of value to someone else, you may be able to assign it. This means that you would transfer the contract to someone who can handle its obligations. You may still owe a debt to the contract holder if you defaulted before transferring it over, but sometimes the person assuming the contract is willing to cure your default as part of the assignment. Timing The timeframe in which you must decide to assume, reject, or assign your contracts depends on the form of bankruptcy you choose. If you file under Chapter 7, you have 30 days from the filing date to make your choice and notify the bankruptcy trustee, who makes the final decision. If you file under Chapter 13, you typically submit your proposed repayment plan, including your intentions regarding executory agreements, at the time of filing. The final ruling on repayment terms comes at a hearing that typically occurs two to three months after the filing date. Call Us for Help With Executory Agreements in Your Bankruptcy Case Debtors have a choice in how to handle executory contracts in bankruptcy cases. However, making your decision and persuading the trustee or creditor committee to accept it can be a complex process. If you need guidance, contact our team at Allmand Law Firm today. The post Executory Contracts in Bankruptcy Cases appeared first on Allmand Law Firm, PLLC.