Bankr.  E.D.N.C.: In re Matusak- Timeliness of Motion to Modify; Judicial Estoppel and Unanticipated Changes in Circumstances; Extension of Plan LengthBankr.  E.D.N.C.: In re Matusak- Timeliness of Motion to Modify; Judicial Estoppel and Unanticipated Changes in Circumstances; Extension of Plan Length


Mr.  Matusak’s plan provided, obviously among things, that he was required to produce  verified updated Schedules of income and expenses during the 36 months Applicable Commitment Period of his plan whenever such were requested by the Chapter 13 Trustee or Ms.  Brown,  his ex-wife and a creditor.  Based on that financial information, Ms.  Brown filed a motion to modify Mr.  Matusak’s plan in November 2016, seeking both an increase in the monthly payment and an extension of the plan from 36 to 60 months.

Prior to the hearing on the Motion to Modify in April 2017, Mr.  Matusak made the 36th payment under the original confirmed plan and argued that, the bankruptcy court no longer had authority to modify his plan as 11 U.S.C. § 1329(a) allows modification  “[a]t any time after confirmation of the plan but before the completion of payments under such plan . . . .”  As the Motion was filed when Mr.  Matusak still had five remaining payments due, the bankruptcy court rejected this argument.

The bankruptcy court then held that the 73% increase in Mr.  Matusak’s income from $90,000 a year at the beginning of the case in 2014 to  $155,371 in 2016 was a “substantial” change as required by In re Murphy, 474 F.3d 143, 150 (4th Cir. 2007).  This increase was not, however, “unanticipated”  as Mr.  Matusak’s income was largely based on commissions that varied substantially.  Ms.  Brown was “acutely familiar with Mr. Matusak’s pay structure and its resulting fluctuation as his former spouse and as an employee in the same field.”  This notwithstanding, the bankruptcy court held that because the plan was only confirmed after Ms.  Brown withdrew her objects following Mr.  Matusak’s representations that the plan could be modified later if finances justified it, the doctrine of judicial estoppel precluded Mr.  Matusak from now asserting the contrary position.

Ms.  Brown’s request that the plan be extended for an additional 24 months was, however, rejected as  “[c]ourts should not use the issue of plan extension to coerce debtors to do something for unsecured creditors that is not required….”  In re Karayan, 82 B.R. 541, 544 (Bankr. C.D. Cal. 1988).

Accordingly, the remaining five payments due at the time of filing of the case were increased with Mr.  Matusak required to pay an additional $8,672.95.

For a copy of the opinion, please see:

Matusak- Timeliness of Motion to Modify; Judicial Estoppel and Unanticipated Changes in Circumstances; Extension of Plan Length

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Bankr. E.D.N.C.: McInnis v. Phillips- Determination of Whether Debts are Primarily Consumer; Creditor Does Not Have Standing to Bring Avoidance Actions


In determining whether 11 U.S.C. § 707(b) was applicable, the bankruptcy court held that despite the debtors having thirteen consumer debts totaling $296,775.43 and eight business debts totaling $294,595.56, “[b]ecause of how easily a mortgage can skew the claims in favor of consumer debt” the debt secured by real property should be excluded from this consideration. In re Jones, 2009 WL 102442, *1 (Bankr. E.D.N.C. Jan. 12, 2009) (citing In re Booth, 858 F.2d 1051, 1054 (5th Cir. 1998)). After this adjustment, the debtors had primarily non-consumer debts and 11 U.S.C. § 707(b) did not apply.

Additionally, the bankruptcy court held that only a Trustee and not a creditor had authority to bring avoidance actions under 11 U.S.C. § 548. It similarly rejected the creditors argument that it could bring a derivative suit, that the right to appear and be heard under 11 U.S.C. § 1109 conferred standing and that their was some nebulous constitutional right to bring an avoidance action.


The ability to segregate home mortgages from other consumer debts in calculating whether 11 U.S.C. § 707(b) is applicable is a powerful tool for helping debtors driven to bankruptcy primarily due to a failed business by recognizing that such debts skew the computation and could have the affect of precluding such business debtors from obtaining a fresh start merely by having a home.

For a copy of the opinion, please see:

McInnis v. Phillips- Determination of Whether Debts are Primarily Consumer; Creditor Does Not Have Standing to Bring Avoidance Actions

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Law Review: Eraslan, Hulya et al.- The Anatomy of U.S. Personal Bankruptcy Under Chapter 13


By compiling a novel data set from bankruptcy court dockets recorded in Delaware between 2001 and 2002, the authors build and estimate a structural model of Chapter 13 bankruptcy. This allows them to quantify how key debtor characteristics, including whether they are experiencing bankruptcy for the first time, their past-due secured debt at the time of filing, and income in excess of that required for basic maintenance, affect the distribution of creditor recovery rates. The analysis further reveals that changes in debtors’ conditions during bankruptcy play a nontrivial role in governing Chapter 13 outcomes, including their ability to obtain a financial fresh start. The authors’ model then predicts that the more stringent provisions of Chapter 13 recently adopted, in particular those that force subsets of debtors to file for long-term plans, do not materially raise creditor recovery rates but make discharge less likely for that subset of debtors. This finding also arises in the context of alternative policy experiments that require bankruptcy plans to meet stricter standards in order to be confirmed by the court.


The conclusion that Trustees and courts that are more stringent with Chapter 13 debtors decrease the likelihood of discharge is not surprising. That such stringency does not significantly increase dividends to unsecured creditors, however, is telling. For example, the paper finds that increasing plan length to 60 months decreased discharge rates from 44% to 37%, but only increased returns to creditors (and the paper is not terribly clear on whether this is returns to all creditors, including priority and secured, or just unsecured creditors) from 28% to 29% . Similarly, having minimum dividends for confirmation, decrease the likelihood of discharge without substantial improvement in return for creditors.

This conclusion points to ways that Chapter 13 practice can be improved to increase discharges without significant harm to creditors. Among those would be to allow and encourage Chapter 13 cases, even for above median debtors, to conclude in shorter periods of time. While the Applicable Commitment Period for confirmation of a plan is a fixed time period, either 36 or 60 months depending on whether the debtor is above or below the state median income, Chapter 13 cases can be converted to Chapter 7, debtors can be granted hardship discharges under 11 U.S.C. § 1328 and plans can be modified to be shorter than 36 or 60 months, since the requirements for modification under § 1329 does not incorporate either the Means Test or the Applicable Commitment Period.

Courts and Trustees can, in addition to actions taken by debtors and their attorneys, rather than simply seeking dismissal of struggling cases, seek conversion as the default, as §1307(c) provides that either is equally valid depending on the best interests of the creditors and estate. Similarly, Trustees can also move pursuant to § 1329(a) to modify plans to shorten them. Since this papers shows that lengthening a plan does not provide a statistically significant increase in returns to creditors, neither should be problematic.

For a copy of the paper, please see:

The Anatomy of U.S. Personal Bankruptcy Under Chapter 13

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Bankr. E.D.N.C.: In re Price – True Lease or Disguised PMSI; Rule 60(b) Reconsideration


On March 23, 2017, the bankruptcy lifted the automatic stay for Peak Leasing with regard to one of four trailers Mr. Price had obtain from Peak and took under advisement whether the remaining claims were “true leases” or disguised PMSIs. To determine such the bankruptcy court applied the UCC “Bright-Line” Test, which provides as follows:

A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and:

(1) The original term of the lease is equal to or greater than the remaining economic life of the goods;

(2) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods;

(3) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement; or

(4) The lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.

N.C. Gen. Stat. § 25-1-203(b) (2006).

Finding that Mr. Price had no express rights to terminate the contracts the first part of the test was satisfied and then the $1.00 final purchase price met the fourth criteria. Accordingly, the claims were held to be disguised PMSIs.

As such, the bankruptcy court held that under Rule 60(b)(5) it was appropriate to reconsider its previous order regarding payments due under the “lease”.

For a copy of the opinion, please see:

In re Price – True Lease or Disguised PMSI; Rule 60(b) Reconsideration


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E.D.N.C.: U.S. v. Cox- In rem Jurisdiction for Judicial Foreclosure


Mr. And Mrs. Cox, through their then attorney, entered into a settlement agreement in a civil forfeiture action brought for the collection of taxes, wherein they agreed to pay the government more than $3 million and granted Deeds of Trust against thirty-five tracts of land located throughout Alabama and North Carolina. After entering into this settlement, the government then initiated criminal prosecution of both of the Coxes and they subsequently pleaded guilty, with Mr. Cox being sentence to 33 months imprisonment, Mrs. Cox to 3 years probation, and each being fined $50,000. The when the Coxes failed to pay the agreed amount (perhaps in part because they were in prison), the government sought to judicially foreclose on the properties.

The Coxes successfully argued that the District Court for the Eastern District of North Carolina only had in rem jurisdiction to authorize foreclosure for real property located in its district. Accordingly, the foreclosure actions against properties located elsewhere were dismissed. The judicial foreclosures against the property within the Eastern District was, however, allowed.

The Coxes claims that the criminal prosecution following the civil settlement constituted Double Jeopardy was rejected following United States v. Ursery, 518 U.S. 267 (1996). Their contention that their prior lawyer had no authority to enter into the civil settlement was also rejected, as the district court found that their behavior, including personally signing the Deeds of Trust, clearly indicated that the settlement was authorized.

For a copy of the opinion, please see:

U.S. v. Cox- In rem Jurisdiction for Judicial Foreclosure

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E.D.N.C.: Collins v. First Financial Services- Sanctions for Failure to Comply with Discovery Orders


Ms. Collins, representing herself pro se, in an action alleging multiple claims arising from a mortgage lending scheme by the defendants failed to comply with multiple orders regarding discovery. Upon the motions of the defendants, the district court (lamenting that no attorneys from the Pro Bono Panel had stepped up to assist Ms. Collins) applied the four-part test from Belk v. Charlotte-Mecklenburg Bd. of Educ., 269 F.3d 305, 348 (4th Cir. 2001) to determine what sanctions to impose:

1) whether the non-complying party acted in bad faith;
(2) the amount of prejudice that noncompliance caused the adversary;
(3) the need for deterrence of the particular sort of non-compliance; and
(4) whether less drastic sanctions would have been effective.

Finding that Ms. Collins repeated failures constitute bad faith that prejudice, while not absolutely, but nonetheless significantly the defendants’ ability to evaluate and prepare their case, the district court awarded reasonable attorney’s fees (to be determined separately) and stayed the prosecution of the case by Ms. Collins until such fees were paid, at which time a new time line for compliance with discovery would again be set. Failure to pay those fees would result in dismissal of the action.


Ms. Collins as a pro se plaintiff seems to have escaped this with far fewer consequences than an attorney would have in the same situation.

For a copy of the opinion, please see:

Collins v. First Financial Services- Sanctions for Failure to Comply with Discovery Orders

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Bankr. M.D.N.C.: In re Macy- Reaffirmation Is Voluntary for Both Debtor and Creditor


Following receipt of an Reaffirmation Agreement from World Omni, the Macys completed and signed the statutorily prescribed form and both returned the documents to World Omni and filed a copy with the bankruptcy court.

The bankruptcy court sua sponte held that the filing of the Reaffirmation “absent a signature of an authorized representative” of World Omni was improper and of no binding effect, despite that it may be necessary for a debtor to establish that the requirements of 11 U.S.C. § 521(a)(2) were met, since only partially executed “creates uncertainty with the vital and powerful discharge injuction….” The court did allow, however, that debtor’s counsel can file a certificate of service reflecting compliance with the requirements of 11 U.S.C. § 521.


This is a step towards clarifying how debtors and their attorneys in the Middle District can both comply with the requirements of 11 U.S.C. § 521 and also move towards the “ride through” option that was revivified in Coastal Federal Credit Union v. Hardiman, 398 B.R. 161 (E.D.N.C. 2008), but in which the route is much clearer in the Eastern District.

Of course, these reaffirmation opinions still seem to make the false assumption that debtors are the one that want a reaffirmation and will try to trick creditors into such. In fact, debtors just want their cars and generally do not care one whit about the reaffirmation and resulting personal liability, especially since in North Carolina, with its lack of wage garnishment, there is no real means of enforcing and collecting a judgment. Even more, if a debtor falls delinquent on car payments following a Chapter 7, he or she is very likely to file Chapter 13 to keep the vehicle (and thus their job).

Instead it is car creditors, desirous of uniform nation standards that do not require differentiation between states, that want reaffirmations. Appropriately shifting the some of the onus for these reaffirmations to the creditor would increase the efficiency of the process.

For a copy of the opinion, please see:

Macy- Reaffirmation Is Voluntary for Both Debtor and Creditor

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Mann, Ronald: Bankruptcy and the U.S. Supreme Court (Cambridge University Press 2017)Mann, Ronald: Bankruptcy and the U.S. Supreme Court (Cambridge University Press 2017)


Through the lense of cases,  Prof.  Mann examines how the Supreme Court has interpreted Bankruptcy Code in recent decades, positing that while bankruptcy cases are not among the “big questions” that attract the attention of law clerks and the media, they are not quite the “dogs” of the  Supreme Court docket that tax cases might be.  P.  2.  Using the briefs, news archives and the available papers of the Justices themselves, Prof.  Mann concludes that the Supreme Court decisions are “replete with back-and-forth negotiations about the precise wording of opinions, changes of position after the initial decision and substantial changes in doctrinal approach over time.”

From this Prof.  Mann posits that bankruptcy is fairly unique in that it is an area of federal law “where political preconceptions have little power or salience”, but also where the Supreme Court has much less reliable or authoritative guidance from external sources than elsewhere, particularly as there is an “administrative vacuum” in the bankruptcy system.  Where, for example,  the EPA in questions of environmental law, the IRS regarding taxes or the Justice Department and States in criminal matters have clear institutional  expertise and presence, with bankruptcy even while the Solicitor General does frequently appear, the interest of the government are more diffuse and often less knowledgeable about the actual functioning of the bankruptcy system.

Beyond this is Prof.  Mann’s thesis that the Supreme Court has systematically under enforced the  powers of bankruptcy under the Constitution and Code, whether in its contracted view of Article I bankruptcy judges in the line of cases from Marathon to Stern, Arkinson and Wellness to the priority that labor law, environmental issues and criminal prosecution were given in Bildisco, MidLantic, and Kelly, respectively.  Prof.  Mann does point to Katz, where the Supreme Court found the Bankruptcy Clause  abrogated of state sovereign immunity, as a rare exception to this weak view of bankruptcy in the larger constitutional and statutory schema.


That the bulk of the cases reviewed are not those that are primarily focused on consumer issues, such as the more recent BAPCPA cases of Lanning, Ransom or Caukett, should not be surprising (nor that I am carping about this perennial slight) but still unfortunate.  It would have been interesting and valuable to examine whether and to what extent pro-debtor/pro-creditor opinions, often most often apparent in consumer cases, match with other (imagined) characteristics of the Justices such as political affiliation, textualism, etc.

It is, however, gratifying that Prof.  Mann recognizes that NACBA is, after the Solicitor General, the not only most frequent contributor of amicus briefs, with seventee, but that the Supreme Court has relied on sources contributed by NACBA  in seven cases, compared with drawing on NABT sources five times and NACTT once.

The lack of a strong presence of the Executive Branch in bankruptcy proceedings that Prof.  Mann identifies leads to the question of why the Executive Office of the United States Trustee system has not filed this vacuum.  This is in part due to the mixed interests of the EOUST, in general fairness,  prevention of debtor abuses, etc., but also shows that the under enforcement of the bankruptcy powers is present in not just the judicial branch.  This does lead to the idea, routinely  noted by those in the bankruptcy trenches, that the Supreme Court does not really understand how bankruptcy works.

For a copy of the book, please see:
Bankruptcy and the U.S. Supreme Court

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N.C. Court of Appeals: In re Ackah- Remedy for Statutorily Defective Notice of Foreclosure Does Not Include Overturning Sale


Reserve Homeowners Association commenced a foreclosure against residential rental property owned by Ms. Ackah for unpaid homeowner’s association dues. Notice of the sale was left at the property and notices sent (and returned unclaimed) to other family members. Ultimately, the property was purchased by the Jones Family Holdings a the sale. Finding that Ms. Ackah did not receive actual notice of the foreclosure , the superior court accordingly set aside the sale.

The majority of opinion of the Court of Appeals held that N.C.G.S. § 1A-1, Rule 4 did require the HOA to use “due diligence” in effectuating service. Since the HOA knew or had reason to know that Ms. Ackah was not residing at the property, the HOA was obliged to attempt to contact Ms. Ackah through all modes available, specifically in this case through the email address it had in its records for her.

This lack of due diligence, however, did not allow, pursuant to N.C.G.S. § 1-108, for the sale to a “good faith purchaser” to be set aside as the notice provided was constitutionally sufficient as “it was reasonably calculated to reach the intended recipient when sent[.]” Jones v. Flowers, 547 U.S. 220, 220 (2006). The majority held that it was a rational decision for the legislature to favor the interests of good faith purchasers ahead of property owners. Accordingly, Ms. Ackah is entitled to other remedies from the HOA for the improper sale, but not return of the property.

The dissent relied on Cary v. Stallings, 97 N.C. App. 484, 487, 389 S.E.2d 143, 145 (1990), which had been followed in unpublished opinions by  County of Jackson v. Moor, 236 N.C. App. 247, 765 S.E.2d 122 (2014) (unpublished) and Zheng v. Charlotte Prop., 226 N.C. App. 200, 739 S.E.2d 627 (2013) (unpublished), which held that “title to such property may in fact be affected if the court deems it necessary in the interest of justice.”


With a split opinion, where the majority seems to reject a long line of its own cases, this seems like an appropriate case for appeal to the Supreme Court and perhaps a legislative change that would protect against this.

It is also worth noting that the Jones Family Holdings are not naifs when it comes to purchasing property at foreclosure sales, particularly related to tax and homeowners’ associations. The Bennett case from the M.D.N.C. bankruptcy court, involved the Jones Family Holdings and also points towards how this case could have had a different result in a bankruptcy, as 11 U.S.C. § 548 can be used to avoid a transfer where there was a “material irregularity in the sale.”

For a copy of the opinion, please see:

Ackah- Remedy for Statutorily Defective Notice of Foreclosure Does Not Include Overturning Sale

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Bankr.  W.D.N.C.: In re Leviner- Characterization of Claim as Domestic Support Obligation


After nearly 35 years of marriage,  Thomas Leviner and Kathy Leviner divorced and negotiated a Settlement where the parties prior marital residence was retained jointly for their children to inherit,  but with Mr.  Leviner to make the mortgage payments and Ms.  Leviner to retain the property during her lifetime (unless she remarried.)  Mr.  Leviner was also pay alimony of $300 a week until Ms.  Leviner turned 67 years old.  In 2015, after refinancing the house, Mr.  Leviner sought to offset the mortgage payments from the alimony being paid.  This was rejected by Ms.  Leviner, through her domestic attorney, and Mr.  Leviner filed Chapter 13, seeking to sell the house.  Ms.  Leviner objected arguing that the obligation to pay for the mortgage was a non-dischargeable domestic support obligation.

The bankruptcy court held that Ms.  Leviner had the burden of showing that the obligation is in the nature of support based on the following a non-exhaustive factors: (1) The actual substance and language of the agreement, not merely the labels attached, with indicia of support including: (a) Long-term obligation to make regular monthly payments; or (b) Termination on the death or remarriage of the obligee.
(2) The financial situation of the parties at the time of the agreement, including:
(a) The inability of the obligee to provide for basic needs, such as food, housing, or medical care; or (b) Explicit requirement of support amounts and additional the payment of a necessary vehicle or mortgage loan.
(3) The function served by the obligation at the time of the agreement, i.e. daily necessities; and
(4) Whether there is any evidence of overbearing at the time of the agreement, including whether: (a) The parties were represented by attorneys; (b) The terms grossly favor one spouse over the other;  (c) The terms leave one spouse with no or minimal income; or (d) There were misrepresentations.
Applying these factors and reviewing similar cases, the bankruptcy court found that Ms.  Leviner was the financially dependent spouse who would be unable to pay for necessities, specifically the house,  without the support of Mr.  Leviner.  Nor were the Leviners  simply splitting up the equity and debt related to their marital residence, but Ms.  Leviner was meant to supported in the retention of her residence until her death or remarriage.

For a copy of the opinion, please see:

Leviner- Characterization of Claim as Domestic Support Obligation

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