Bankr. M.D.N.C.- Cournoyer v. Adrian Bruckner- Sanctions against Bankruptcy Petition Preparer Ed Boltz Sat, 11/23/2024 - 22:14 Summary: The bankruptcy court granted a default judgment in favor of the  Bankruptcy Administrator (BA) against Adrian Nathaniel Buckner, a non-attorney who acted improperly as a bankruptcy petition preparer (BPP) finding that Shemeika Ann Fuller filed a Chapter 7 bankruptcy petition and later converted the case to Chapter 13, then, when unable to fund her plan,  back to Chapter 7.  Buckner initially provided legal advice and prepared Fuller’s bankruptcy documents for compensation, despite not being an attorney.  After learning of Buckner's improper assistance to Fuller from her subsequent attorney,  the BA commenced suit and Buckner failed to respond to the adversary proceeding, leading to a default judgment. Findings of Violations: The bankruptcy court found that Buckner committed multiple violations of the Bankruptcy Code, including: Failure to Disclose: Buckner did not include his name, address, or social security number on documents he prepared (§ 110(b), (c)) and failed to file required disclosures of compensation (§ 110(h)). Unauthorized Practice of Law::  Buckner provided  (inaccurate) legal advice, including guidance on exemptions, debt classification, and reaffirmation agreements (§ 110(e)). Misrepresentation:  Buckner advised the debtor that her property could not be liquidated, which was false (§ 526(a)(3)). Failure to Provide Required Notices:  Buckner did not provide written notices or contracts outlining services, fees, or debtor rights (§ 526, § 527, § 528). Damages and Penalties: Turnover of Fees: Buckner must forfeit $450 of the $600 paid by Fuller. Damages: Actual damages of $1,354, including filing fees, attorney fees, lost wages, and mileage costs. Statutory damages of $2,000, totaling $3,354. Fines: Buckner was fined $500 per violation of § 110, tripled to $7,500 for failing to disclose his identity. Injunctive Relief: Granted: Buckner is permanently enjoined from acting as a bankruptcy petition preparer. Not Granted: The court declined broader injunctions under § 110(j)(2)(B) and § 526(c)(5), finding insufficient evidence of a consistent pattern of violations. Referral to Authorities:  The court directed the Clerk to forward the judgment and findings to the North Carolina State Bar and Pennsylvania Bar Association for review of Buckner’s unauthorized practice of law. Commentary: It is rather odd that while the bankruptcy court here appropriately found in this case that the failure to respond to a complaint  constituted a waiver of both Mr.  Buckner's right to a jury trial and to assert that this matter be adjudicated by an Article III tribunal,  but that in In re Martin (Case No. 10-81271) 01/26/2011  the bankruptcy court held that the failure to  object to a Chapter 13 plan did not constitute acceptance of that plan.  That  constitutional rights can be waived through silence but bankruptcy protections cannot seem an inversion and an inconsistency.  Perhaps the Local Form Chapter 13 plans  (See EDNC  MDNC  and WDNC)  or non-standard provisions included in those pursuant to Trantham could define procedures for obtaining assent to a Chapter 13 plan,  including implicit assent ("qui tacet consentire videtur") following the lack of objection.  This could include  providing additional due process safeguards,  such as the commencement of an Adversary Proceeding for declaratory judgment and/or determination of the (continuing) extent of a lien under Rule 7001,  requiring additional heightened service of the plan or allowing extended periods of time to later object to the plan.   This implicit assent has been  inferred by other bankruptcy courts in North Carolina,  for example In re Rose,  which found the assent to a coerced foreclosure, subject to certain requirements and restrictions. It is also rather odd that while a complete listing of Grievance Committee and DHC Actions is published quarterly in the NC Bar Journal,   any actions taken by the Authorized Practice of Law Committee,  to whom this matter was referred,  for the unauthorized practice of law,  do not appear to be published anywhere,  including even on the NC Bar website.  As this  is a particularly prevalent problem arising in the bankruptcy courts,  see for an additional example the recent opinion (and referral)  from the Eastern District of North Carolina in In re Bowen,  not only should  the bankruptcy courts and bankruptcy attorneys benefit  from being alerted to the illegal behavior of these BP Ps,  but  the general public would certainly also be better protected by being warned against obtaining assistance from non-attorneys that fail to comply with the important protections and restrictions,  which the North Carolina Bar  describes on its Unauthorized Practice of Law website, as follows: Unauthorized practice of law allegations have increased over the last few years. While some complaints of unauthorized practice of law reflect an attempt to gain an advantage of an opposing party in litigation or in a personal matter, other complaints manifest the victimization of members of the public that the unauthorized practice of law statutes were meant to prevent. People with limited funds are often those who seek legal services from non-attorneys in an effort to save money. The non-attorneys typically act in a manner detrimental to the legal rights and obligations of those hiring them, leaving those who can least afford it with a legal mess in what, in many cases, should have been a simple matter. Assistance with the preparation of legal documents is an area in which this victimization commonly occurs. Bankruptcy debtors receive bad advice from non-attorneys helping them fill out bankruptcy forms. The importance of this notwithstanding,  actions taken against individuals can only be discovered and followed by requesting information by name,  which, without knowing the names first,  is something of an impossibility.  I  do not have sufficient hubris that my7 blogging about these bankruptcy cases is a sufficient warning,  so hopefully the NC Bar Journal will consider inclusion and disclosure of these actions by the Authorized Practice of Law committee. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_fuller.pdf (881.99 KB) Category Middle District

Law Review: Boyack, Andrea J., Just Consumer Financial Protection: Prevention or Cure (August 09, 2024). University of Missouri School of Law Legal Studies Research Paper No. 2024-27 Ed Boltz Fri, 11/22/2024 - 17:06 Available at:  https://ssrn.com/abstract=4921426 Abstract: This article examines the relationship between two complementary and related consumer financial protection approaches: regulatory oversight of financing terms (ex ante protection) and bankruptcy discharge of consumer debts (ex post protection). Although often conceptualized as distinct areas of law, consumer financial regulation and consumer bankruptcy are two sides of the same coin and function together to treat the harms of financial distress. This article seeks to explore the relationship and tensions between these various approaches by juxtaposing consumer debtor-creditor law attitudes and legal developments in continental Europe (primarily France and Germany) with those in the United States. After a brief overview of consumer indebtedness in the United States, Part I examines consumer financial regulation trends in the United States, France, and Germany. Part II compares and contrasts US, German, and French approaches to consumer bankruptcy and outlines some recent developments in insolvency law in these systems. Part III explains why optimal consumer protection laws should recognize the importance of both ex ante regulation and ex post bankruptcy discharge and should embrace the complexity inherent in debtor-creditor law. The article concludes with a brief consideration of how and why legal reforms should act holistically to improve the financial wellbeing of the most economically vulnerable consumers in society.  Commentary: While this article contrasts consumer protection in its ex post  form of  American bankruptcy discharges  with ex ante European financial regulation,  describing "consumer financial regulation and consumer bankruptcy are two sides of the same coin and function together to treat the harms of financial distress",  similarly I have often compared  (and bemoaned) how even in just within the U.S.  there has been a lack engagement  by both  attorneys (including their organizations  such as NACBA and NACA) and policymakers (including the Department of Justice and the CFPB)  on either side of the gulf between bankruptcy  and consumer rights statutes such as the FDCPA and FCRA.  Hopefully,  this article and Prof.  Boyack herself  can serve as an additional encouragement to bridging that gap. The comparison of the bankruptcy regime in the United States,  focused on Chapter 7,  with those particularly in Germany and France,  which appear to require repayment efforts (or at least debtor oversight)  for 6 and 2 years,  respectively,  would likely have benefited from a deeper evaluation of the success rates of those and also with Chapter 13 bankruptcy in the U.S.,  which,  with its 3-5 year plans,  has a far lower discharge rate and is held in a consequently lower opinion by many American legal academics. Knowing how debtors fare under these European insolvency plans  would be enlightening. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document just_consumer_financial_protection_1.pdf (837.1 KB) Category Law Reviews & Studies

Bankr. E.D.N.C.: In re Island Breeze Grill- Binding Effect of Confirmation & Limitations on Standing for Plan Modification Ed Boltz Wed, 11/20/2024 - 15:35 Summary: The bankruptcy court for the Eastern District of North Carolina denied Signature Capital, LLC's motion to amend or set aside the order confirming Chapter 11 bankruptcy reorganization plan. Signature Capital sought relief under Rule 60(a) and Rule 60(b) of the Federal Rules of Civil Procedure, arguing that the plan failed to recognize a subordination agreement that granted it lien priority over the IRS for certain assets. Key points: Background: Island Breeze Grill filed for Chapter 11 bankruptcy to reorganize debts associated with its commercial property. The reorganization plan designated the IRS as holding the first priority lien, followed by Signature Capital. This designation was based on public records and testimony during the confirmation hearing. The Subordination Agreement: A 2022 agreement subordinated the IRS's lien to Signature Capital's lien, but it was neither filed with public records nor considered during the confirmation process. Signature Capital discovered the agreement months after the plan was confirmed. Rule 60(a) and (b) Arguments: Signature Capital argued that the omission of the subordination agreement was a clerical mistake (under Rule 60(a)) or excusable neglect/newly discovered evidence (under Rule 60(b)). The court rejected these claims, noting: The confirmation order reflected the court's intent at the time, and altering lien priorities would substantively change the parties’ rights, which is beyond Rule 60(a)’s scope. Signature Capital failed to exercise due diligence in identifying the subordination agreement before the confirmation hearing, negating claims of excusable neglect or newly discovered evidence under Rule 60(b). Bankruptcy Code Precedence: The court emphasized that 11 U.S.C. § 1144 is the sole method to revoke a Chapter 11 confirmation order, and only in cases of fraud. Rule 60(b) cannot override the Bankruptcy Code’s limitations. As Signature Capital did not allege fraud, no relief was available. Plan Modification: The court noted that only the debtor (Island Breeze Grill) or the plan proponent can seek post-confirmation plan modifications under 11 U.S.C. § 1127(b). Signature Capital lacked standing to request modifications. Outcome: The motion was denied, and the court reaffirmed the confirmed reorganization plan, binding the parties to its terms. This decision underscores the strict limitations on altering bankruptcy confirmation orders and the necessity of due diligence by creditors during the bankruptcy process Commentary: It is important to always contrast and conserve the differences and similarities between Chapter 11 and Chapter 13 reorganizations.  For example,  while under under 11 U.S.C. § 1127(b)  only "the proponent of the plan*( or the reorganized debtor"  can seek a modification,  unser under 11 U.S.C. § 1329 the debtor,  trustee or holder of an allowed unsecured claim can seek a modification.  Signature Capital,  holding a secured claim,  would not be able to seek a modification in Chapter 13 either. Additionally,  while bankruptcy courts seem to repeat as rote Gospel in Chapter 11 cases that  pursuant to §1141(a) a confirmed plan is  a contract which "is binding on the debtor and all creditors, whether or not they have accepted the plan" In re Coastline Care, Inc., 299 B.R. 373, 378 (Bankr. E.D.N.C. 2003),  it often seems much harder to get those same courts to recognize that under §1327(a)  the same,  if not even more expansive since there are no comparable exceptions to §1141(d)(2) or (3),  new binding contract applies. *  Query for Chapter 11 practitioners- Since under under 11 U.S.C. § 1121,  unlike §1321,  more parties than just the debtor can, in appropriate circumstances,  file the plan,  is the proponent just a synonym for debtor or is it whomever proposed the plan that was ultimately confirmed? With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document in_re_island_breeze_grill.pdf (158.01 KB) Category Eastern District

N.C. Ct. of Appeals: East Bay v. Baxley- No Tolling of Statute of Limitations for Judgment Renewal Ed Boltz Tue, 11/19/2024 - 16:17 Summary: The North Carolina Court of Appeals affirmed the trial court’s dismissal of a complaint by East Bay Company, Ltd. to renew a judgment against defendant Brandon Baxley. East Bay had obtained a judgment in 2010, which included principal, interest, and attorney’s fees, but the statutory ten-year period for renewing the judgment expired in July 2020. The defendant filed for Chapter 7 bankruptcy in 2018, triggering an automatic stay under federal law, with discharge being denied in that case in June of 2020. While East Bay argued that this stay tolled the statute of limitations for renewing the judgment under 11 U.S.C. § 362 and related provisions, the court disagreed. It found that the stay did not extend the statutory deadline beyond 30 days after the stay was lifted in June 2020,  as   N.C.G.S. § 1-23 provides that the Statute of Limitations is tolled only:  "When the commencement of an action is stayed by injunction or statutory prohibition, the time of the continuance of the injunction or prohibition is not part of the time limited for the commencement of the action." As East Bay did not renew its judgment by July 2020, the attempt to file in 2022 was untimely.  Consequently, the dismissal of East Bay's complaint was upheld, and the judgment renewal was denied. Commentary: The import of this case could actually be rather large on the practice of bankruptcy in North Carolina,  especially in conjunction with other N.C.  Court of Appeals decisions regarding the interplay of bankruptcy and Statutes of Limitation,  especially  Person Earth Movers v. Buckland,  that held  a payment by a bankruptcy trustee "is not ...an acknowledgment of the debt as will stop the running of the Statute of Limitations." This may result in more judgment creditors seeking,  during bankruptcy cases,  to obtain relief from the stay in order to renew judgment liens,  but that should be resisted in cases where the debtor is performing under the plan. Further,  this is another factor to consider in regards to vesting.  In a cases where assets vest in the debtor at confirmation and where the stay has terminated as to the debtor,  for example due to a second bankruptcy  filing without, as is the norm in jurisdictions such as the M.D.N.C. which follow   In re Paschal, 337 B.R. 274 and In re Jones  being extended under 11 U.S.C. § 362(c), not only might a creditor be able to commence a lawsuit and obtain a judgment and lien(s),  but would then also be able to execute on those liens.  At the same time,  however,  absent taking such action,  a creditor could find its claims become stale (often under a 3 year Statute of Limitations) during the Chapter 13 plan and subject to disallowance. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document east_bay_v._baxley.pdf (166.36 KB) Category NC Court of Appeals

Quick: tell me all you know about FRBP 7041. Maybe you’re like me and never gave it much thought. My encounter with the rule ended up at the 9th Circuit, so I now know a lot more about how it impacts bankruptcy motion practice. I concluded that the “Withdraw” event on ECF enabled a trap […] The post Don’t Dismiss FRBP 7041 appeared first on Bankruptcy Mastery.

Law Review: Sara Sternberg Greene et al., Getting to Home: Understanding the Collateral Consequences of Negative Records in the Rental Housing Market, 74 Duke Law Journal 269-352 (2024) Ed Boltz Fri, 11/15/2024 - 18:28 Available at:  https://scholarship.law.duke.edu/dlj/vol74/iss2/1   Abstract: The United States faces a rental housing crisis marked by a scarcity of housing supply, leading to intense competition among prospective tenants. This crisis is a particular challenge for the more than one hundred million U.S. residents burdened with negative records such as criminal records, debts in collections, and evictions. Landlords have more access than ever to applicants’ information, yet little is known about how landlords process and think about these records to make housing decisions. This Article draws on theories of cultural sociology to provide a data-driven understanding of how landlords conceptualize the value of several types of personal records and what it means to use them legally and fairly. It offers a window into how decision-makers evaluate and ascribe meaning to records—including negative records, for which tenants can be denied housing—and how these meanings subsequently guide landlords’ rental decisions. Through eighty-eight interviews with landlords, property managers, rental company executives, and tenant-screening company executives, this interdisciplinary, multistate study leverages comparisons across record type and organization size. It shows how access to housing largely depends on cultural understandings of the morality of different types of negative records. Depending on the type of risk landlords perceive, they call upon different cultural archetypes when deciding how and why to include certain records in their decision-making. However, the processes by which landlords incorporate these cultural considerations vary by organizational size and stem from their perceptions of the law. This Article thus provides a key theoretical insight: Landlords operate with broadly shared cultural understandings about the nature of risk and the morality of various types of negative records, but with different conceptions of what it means to make rental decisions legally and fairly. Differences correspond with the structure and size of decision-makers’ organizations. This means that collateral consequences play out differently depending on the type of landlord a prospective tenant is dealing with. As part of this discussion, this Article further provides a novel understanding of how state and local data-use laws, as well as the Fair Housing Act, operate on the ground. Ultimately, the theoretical insights from this study can help inform housing policy going forward.   Commentary:   Of particular pertinence to consumer bankruptcy attorneys and the advice they give to their clients are the consistent comments from landlords,  for both large and small apartment management companies,  that "[p]eople who had filed for bankruptcy often fell into the category of being worthy of  understanding, or, at a minimum, worthy of a second chance."  This counters the fears that people have that they will not be able to find rental housing after filing bankruptcy,  which can often rear its head when clients later assert that no landlords  will rent to them because of bankruptcy.  My suspicion in those circumstances are either that the client is predisposed to assume that a denial of a rental application "must be because of my bankruptcy"  or that  prospective landlords might similarly use the objective fact of a bankruptcy (and again  cultural predispositions about bankruptcy)  instead of more subjective bases (or illegal  reasons)  for a denial to avoid a debate or argument.   That said,  as practical matter,  this reinforces that bankruptcy clients likely need to be both open with their bankruptcy filings when applying for a home rental and persistent in applying to multiple landlords.   With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document getting_to_home.pdf (437.55 KB) Category Law Reviews & Studies

W.D.N.C.: Demons v. VA & Aalaam v. Movement Mortgage- Vapor Money and Mortgages Ed Boltz Thu, 11/14/2024 - 17:08 Summary: In the first of these two unrelated cases,  Ephraim Demons, representing himself, alleged that his mortgage lender (among others)  committed fraud related to his mortgage based on Demons' belief that he created “money” when signing his mortgage. Similarly,   Aalaam alleged fraud and claimed his mortgage loan was invalid under the "vapor money" theory, arguing that banks create money by recording promissory notes as assets and therefore loans don’t need repayment.  The vapor money theory, which asserts that loans funded by credit rather than cash are unenforceable, has been widely rejected by courts as frivolous as it was in these two cases as well. With proper attribution,  please share this post To read a copy of the transcript, please see: Blog comments Attachment Document demons_v._va.pdf (704.61 KB) Document aalaam_v._movement_mortgage.pdf (215.08 KB) Category Western District

W.D.N.C.: Cann v. Bankr of America- Fair Credit Billing Act Dispute Letter Ed Boltz Thu, 11/14/2024 - 17:06 Summary: The court reviewed Bank of America’s motion to dismiss claims made by Plaintiff D’Voreaux Cann, who alleged violations of the Truth in Lending Act (TILA) and Fair Credit Billing Act (FCBA). Cann claimed the bank failed to provide accurate disclosures, closed his account without notice, and did not adequately respond to a billing dispute. However, the court found Cann’s complaint lacked a specific billing error as required by the FCBA. Cann’s blanket assertion that all past, present, and future statements were billing errors did not meet the statutory requirements for notice, and thus, did not trigger any obligation on the bank's part. Consequently, the court recommended granting Bank of America’s motion to dismiss. Commentary: The Fair Credit Billing Act (FCBA) covers billing errors for open-end credit accounts, like credit cards, charge accounts, and home equity lines of credit (HELOC). The FCBA does not cover closed-end credit, such as student loans,  auto loans, mortgages, and home equity loans.   The FCBA protects consumers from unfair billing practices, including: Unauthorized charges Charges with an incorrect amount or date Calculation errors Charges for goods or services that weren't delivered Statements mailed to the wrong address The consumer must include in their letter their name, account number, and a clear description of the disputed charge and why they're disputing it.  A sample dispute letter from the Federal Trade Commission (FTC)  can be found here: Sample Letter for Disputing Credit and Debit Card Charges The FCBA then requires creditors to acknowledge receipt of the complaint within 30 days and investigate the dispute within two billing cycles.  Failure by the creditor to comply can result in  actual damages, statutory damages of up to $5,000,  attorney's fees and twice the finance charge due to any billing error. Just as  Requests for Information under the Real Estate Settlement Procedures Act (RESPA) often are the first step in mortgage disputes in bankruptcy,  sending an FCBA dispute letter could   be a preliminary step taken  before an objection to a Proof of Claim filed by a credit card lender (or its agents and successors),  potentially leading to damages and shifting of attorney's fees. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document cann_v._bank_of_america.pdf (190.47 KB) Category Western District

Law Review: Collusive Foreclosure Sales: The Forgotten Legacy of Northern Pacific v. Boyd Ed Boltz Wed, 11/13/2024 - 15:58 Available at: : https://ssrn.com/abstract=4692732 or http://dx.doi.org/10.2139/ssrn.4692732 Abstract: In BFP v. Resolution Trust Corp. (1994), the Supreme Court ruled that mortgage foreclosures could not be fraudulent conveyances – unless the foreclosure was “collusive.” It gave no clue what made mortgage foreclosures collusive. But in 1913, the Supreme Court defined collusive mortgage foreclosures in a famous railroad receivership case – Northern Pacific R. Co. v. Boyd. Boyd is usually thought to be the origin of the absolute priority rule in bankruptcy reorganization. Actually, it was a mortgage foreclosure sale. What made the sale collusive is that some of the shareholders of the defaulting railroad were also the shareholders of the new corporation formed to buy the assets of the defaulting railroad. The case is usually thought to be a fraudulent conveyance case. (Justice Willam O. Douglas thought so.) But it’s not. It is a case of piercing the corporate veil between the defaulting railroad and the buying railroad. Piercing the veil is inconsistent with a fraudulent conveyance theory. Furthermore, the court in Boyd did not need to pierce the veil. The plaintiff in the case (Boyd) was a secured creditor with an equitable lien on the sold assets, and the buying railroad (along with its purchase money secured lender) were bad faith purchasers subject to the lien. This was so even though the mortgage foreclosure was no fraudulent conveyance. It seems to be the case that bankruptcy’s absolute priority rule was born in a manger lined with judicial error. Boyd lives on in state law under the name of “mere continuation” of a corporate entity.  With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document collusive_foreclosure_sales_the_forgotten_legacy_of_i_northern_compressed.pdf (934.46 KB) Category Law Reviews & Studies

4th Cir.: Williams v. Brooksby- Bid Rigging at Foreclosure Auctions Ed Boltz Wed, 11/13/2024 - 15:54 Summary: Brian C. Williams and others sued defendants Craig Orson Brooksby, Lynn Pinder, Tonya Newell, and additional parties, alleging violations of the Sherman Act, North Carolina’s antitrust law, and unjust enrichment due to bid rigging at  Homeowner Association foreclosure auctions. The jury found that the defendants conspired to limit competition through bid rigging and engaged in unfair practices, including attempts to extort plaintiffs, and awarded damages. The district court also ordered defendants to reconvey a deed to plaintiff Mike Gustafson’s former spouse, which had been obtained through bid rigging and misrepresentation. On appeal, the defendants argued insufficient evidence, errors in jury instructions, and improper injunctive relief. However, the circuit court affirmed the district court’s decisions, finding that defendants failed to properly renew their evidence sufficiency motion post-verdict, and did not show plain error in the jury instructions. The court dismissed as moot the challenge to the injunctive relief, as the deed had already been reconveyed. Ultimately, the appeal was dismissed in part and affirmed in part. Commentary: It is also troubling that none of the other parties,  including the HOA attorneys or County Clerks,  paid enough attention to these HOA foreclosure sales to prevent this. For more details on this abuse  see: Charlotte Observer-  Deceit, rigged bids and extortion: How HOA foreclosures can open the door to predators With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document williams_v._brooksby.pdf (148.22 KB) Document deceit_rigged_bids_and_extortion_compressed.pdf (841.51 KB) Category 4th Circuit Court of Appeals