ABI Blog Exchange

December 2025 Ponzi Scheme Roundup

By Kathy Bazoian Phelps Below is a summary of Ponzi scheme activity reported for December 2025. There were at least 15 new Ponzi schemes revealed this month, 1 guilty plea, 1 criminal conviction, and about 18 years of prison sentences. The average

4th Cir.: Hultz v. Bisignano- Subjective Medical Evidence: Lessons for Student Loan Discharges under the Brunner Test and Chapter 13 Hardship Discharges

4th Cir.: Hultz v. Bisignano- Subjective Medical Evidence: Lessons for Student Loan Discharges under the Brunner Test and Chapter 13 Hardship Discharges Ed Boltz Wed, 12/31/2025 - 19:48 Summary: In Hultz v. Bisignano, the United States Court of Appeals for the Fourth Circuit reversed the denial of Social Security Disability benefits to Crystal Hultz, a claimant whose primary disabling condition was fibromyalgia. Relying heavily on its earlier decision in Arakas v. Commissioner, the Fourth Circuit held that Administrative Law Judges may not discount a claimant’s subjective testimony about the severity of fibromyalgia symptoms based on the absence of objective medical evidence—even as one factor among many. The court emphasized that fibromyalgia is a condition that eludes objective measurement, waxes and wanes, and is proven largely through consistent subjective reports corroborated by treatment history and lay testimony. Because the ALJ repeatedly relied on objective findings, treatment gaps, and periods of apparent improvement to discredit Ms. Hultz’s testimony—and improperly discounted her treating rheumatologist’s opinion—the Fourth Circuit reversed outright and remanded for calculation of benefits rather than another hearing. Commentary: Although Hultz arises in the Social Security context, bankruptcy courts —especially those adjudicating hardship discharges under Chapter 13 and undue hardship claims under the Brunner standard for student loans—should take careful notice. At its core, Hultz is not just a fibromyalgia case. It is a judicial reminder about how courts must evaluate human suffering when medicine cannot neatly quantify it. The Fourth Circuit makes explicit what bankruptcy courts too often forget: when a condition is inherently subjective, demanding objective proof of severity is not “skepticism”—it is legal error. This matters enormously in bankruptcy. Hardship discharges under § 1328(b) and Brunner-based student loan discharges routinely turn on judicial assessments of a debtor’s medical condition, functional capacity, and future prospects. Too often, those determinations devolve into a search for lab results, imaging, or physician statements phrased with actuarial certainty—precisely the kind of evidence that conditions like fibromyalgia, chronic fatigue, severe depression, long COVID, and many autoimmune disorders simply do not generate. What Hultz reinforces—echoing Arakas—is that subjective evidence is not second-class evidence when the disease itself is subjective in manifestation. Consistent testimony, corroborating family statements, long treatment histories, medication trials, and waxing-and-waning functionality are not red flags; they are clinical hallmarks. Translating that to bankruptcy practice: In Chapter 13 hardship discharge cases, a debtor should not be denied relief because they occasionally function, attend appointments, or experience partial symptom relief. As Hultz underscores, intermittent capacity is fully consistent with total inability to sustain full-time work. In student loan cases, Brunner’s “additional circumstances” and “certainty of persistence” prongs must be evaluated through this same lens. A debtor with fibromyalgia (or similar conditions) does not fail Brunner simply because their MRI looks fine or their doctor notes temporary improvement. Most importantly, bankruptcy courts should resist the impulse—explicitly rejected by the Fourth Circuit—to treat the absence of objective medical findings as evidence of exaggeration, malingering, or insufficient hardship. There is a quiet but important throughline here: law must adapt to the limits of medicine, not punish debtors for them. The Fourth Circuit has now said, more than once, that courts err when they substitute demands for clinical certainty in places where science itself cannot deliver it. Bankruptcy judges within the Fourth Circuit—and practitioners litigating these issues—should treat Hultz as persuasive authority well beyond Social Security law. When evaluating medical hardship, the question is not “Where is the objective proof?” but rather: Is the debtor’s lived experience credible, consistent, and supported by the record as a whole? That shift in framing can—and should—change outcomes. To read a copy of the transcript, please see: Blog comments Attachment Document hultz_v._bisignano.pdf (252.83 KB) Category 4th Circuit Court of Appeals

N.C. Ct. of App.: Horne v. Ginkgo Aurora- Chapter 75, Debt Collection, and the Problem of Injury

N.C. Ct. of App.: Horne v. Ginkgo Aurora- Chapter 75, Debt Collection, and the Problem of Injury Ed Boltz Tue, 12/30/2025 - 19:37 While this decision is, on its face, a fairly ordinary residential rental dispute—replete with mold allegations, maintenance requests, and implied-warranty skirmishing—the part that should actually catch the attention of consumer and bankruptcy attorneys is the Court’s treatment of the North Carolina Unfair and Deceptive Trade Practices Act and its companion Debt Collection Act provisions. Strip away the habitability noise, and what remains is a clear and instructive appellate holding: a technically incorrect debt demand, standing alone, is not actionable under Chapter 75 without proof of actual injury. That theme runs quietly but consistently through the opinion, and it is where the case does its real work for consumer-side practitioners . The Backdrop (Briefly) The tenant vacated his apartment and sued the landlord over alleged habitability issues. The landlord counterclaimed for unpaid rent and fees, initially asserting the tenant owed $9,339.21. At trial, the landlord conceded that figure was overstated because it included rent during a renovation period when the unit could not have been re-rented. The correct amount was $7,251.21, which is exactly what the trial court awarded. The tenant appealed across the board—but critically did not challenge the trial court’s findings of fact, a mistake that narrowed the appeal to questions of law almost immediately. The Debt Collection Act Claim: Error Without Consequence For consumer and bankruptcy attorneys, the key issue is the tenant’s claim under N.C. Gen. Stat. § 75-54(4), which prohibits falsely representing the character, extent, or amount of a debt. Importantly, the Court of Appeals did not say the landlord’s conduct was acceptable. It acknowledged that the landlord should not have represented the higher amount once it was clear the rent could not lawfully be charged. That concession matters—and future litigants should not gloss over it. But acknowledgment of a misstatement is not the same thing as liability. To prevail under the North Carolina Debt Collection Act, the plaintiff must still satisfy the familiar Chapter 75 framework, including proximate injury. On that point, the tenant’s case failed completely. The Court emphasized: The tenant never paid the overstated amount. The tenant did not rely on the incorrect figure. The tenant believed he owed nothing and stopped paying rent altogether. There was no evidence that the difference between $9,339.21 and $7,251.21 caused any specific, identifiable harm. Generalized assertions that the tenant’s credit was harmed were not enough. The Court noted the absence of evidence tying any credit impact to the overstatement, as opposed to the undisputed fact of nonpayment itself. Wrong number, corrected before judgment, no injury—no Chapter 75 claim. Why This Holding Matters Beyond Landlord-Tenant Law This is the part bankruptcy and consumer lawyers should underline. The opinion reinforces a trend that shows up repeatedly in Chapter 75 and FDCPA-adjacent litigation: technical violations are not self-executing damages triggers. North Carolina courts continue to insist on proof that the statutory violation actually mattered. For bankruptcy practitioners, the parallels are obvious: overstated proofs of claim, inflated pre-petition demand letters, incorrect payoff figures, sloppy post-default accounting. This case signals that while those errors may be improper—and may need to be corrected—they will not automatically support Chapter 75 liability without evidence of real, causally connected harm. The Rest of the Opinion (Why It Fades into the Background) The habitability, constructive eviction, and UDTPA claims all fell quickly because the tenant failed to challenge the trial court’s factual findings. Once those findings were binding, the appellate court had little choice but to affirm. Those sections are less doctrinally interesting and largely fact-bound. They matter to landlord-tenant practitioners, but they are not where this case earns its citation value. Bottom Line Horne is not a retreat from consumer protection law. It is a reminder that consumer protection statutes still require proof. A debt can be misstated and still be non-actionable. A collection error can exist without damages. And in North Carolina, Chapter 75 remains a powerful tool—but only when the plaintiff can show that the unfair act actually caused injury. For consumer and bankruptcy attorneys, that is the real takeaway—and the reason this otherwise routine rental dispute deserves a closer read. To read a copy of the transcript, please see: Blog comments Attachment Document horne_v._ginkgo_aurora.pdf (184.25 KB) Category NC Court of Appeals

N.C. Ct. of App.: Roach v. Wells Fargo Bank, N.A. — When “That’s Not Right” Still Isn’t Enough (and Timing Is Everything)

N.C. Ct. of App.: Roach v. Wells Fargo Bank, N.A. — When “That’s Not Right” Still Isn’t Enough (and Timing Is Everything) Ed Boltz Mon, 12/29/2025 - 19:35 In Roach v. Wells Fargo Bank, N.A., the North Carolina Court of Appeals again draws a hard line between conduct that feels unfair and conduct that is legally actionable under Chapter 75. The court affirmed summary judgment for Wells Fargo Bank, N.A., holding that the borrowers’ grievances — however sympathetic — did not amount to unfair and deceptive trade practices. This is a foreclosure case with a long backstory, and that backstory matters. The Longer Backstory: Two Bankruptcies, No Durable Resolution What the Court of Appeals opinion understandably treats as background noise is, for consumer bankruptcy lawyers, a familiar and critical pattern. After the initial loan modification in 2011 and years of financial distress, Julie Roach filed two Chapter 13 cases in the Western District of North Carolina: Case No. 13-31410 (WDNC) Case No. 16-30128 (WDNC) Both cases were dismissed, apparently due to missed plan payments. That fact does not appear to have been disputed, and it quietly explains much of what followed. Repeated Chapter 13 filings that never complete often leave debtors in the worst possible posture: foreclosure delayed but not resolved, arrears growing larger, and servicer patience wearing thin. By the time the January 2016 foreclosure sale occurred, the Roaches were already deep into the cycle of “almost saved, but not quite.” The State-Court Claims: Chapter 75 as a Last Line of Defense Fast forward several years, and the Roaches sued Wells Fargo under N.C. Gen. Stat. § 75-1.1, arguing two main theories: Misrepresentation — Wells Fargo allegedly said the foreclosure sale would be postponed if “proof of funds” and a “gift letter” were submitted. Wrongful denial of reinstatement — the deed of trust allegedly allowed reinstatement during the upset-bid period. The Court of Appeals rejected both theories, and in doing so reiterated several principles that bankruptcy and consumer lawyers ignore at their peril. Why the Chapter 75 Claim Failed 1. “Eleventh-Hour” Efforts Are Not Deception The court emphasized that: Plaintiffs had long notice of the foreclosure sale. Wells Fargo had no obligation to negotiate or postpone at all. The documents submitted at the last minute were, at best, conditional and incomplete. Even assuming Wells Fargo said it would “review” documents, proceeding with the sale did not amount to substantial aggravating circumstances. Without that extra layer of egregious conduct, Chapter 75 simply does not apply. As the court essentially said: this may feel wrong, but it is not deceptive under North Carolina law. 2. Reinstatement Rights Live (and Die) in Contract Law The reinstatement argument failed for a different reason. Even if the deed of trust allowed reinstatement: A power-of-sale foreclosure is contractual, not judicial. Any wrongful refusal to reinstate would therefore be breach of contract, not an unfair trade practice. A breach claim — notably — was not what plaintiffs pled. Once again, pleading strategy mattered. The Missing Piece: Timing and the Mortgage Modification Program Perhaps the most striking feature of this case is when it all happened. Julie Roach’s second Chapter 13 case was dismissed in 2018 — just as the Western District of North Carolina’s Mortgage Modification Program (MMP) was being implemented. For those of us practicing in WDNC, the irony is hard to miss. Had the case survived long enough to meaningfully engage the MMP: There would have been structured deadlines and formal servicer accountability. Communication failures and “fax black holes” would have been less likely. Modification review would have occurred inside the bankruptcy case, not in the shadows of an imminent foreclosure sale. And, critically, the process might have produced a sustainable payment that made plan success — and case completion — possible. Instead, the Roaches were caught in the older system: informal loss-mitigation conversations, inconsistent representations, and last-minute scrambling with catastrophic consequences. Why This Case Matters to Bankruptcy Lawyers Roach is not just a Chapter 75 decision. It is a cautionary tale about what happens when distressed homeowners run out of procedural guardrails. It reinforces that: Chapter 75 is not a substitute for a viable bankruptcy strategy. Repeated dismissed Chapter 13s weaken, rather than strengthen, a borrower’s position. Once foreclosure occurs, state-law remedies narrow dramatically. Programs like the WDNC Mortgage Modification Program exist precisely to prevent this kind of end-stage collapse — but only if the case lasts long enough to use them. Bottom Line The Court of Appeals closed with a telling observation: the dispute boiled down to moral unease versus legal entitlement — and entitlement won. From a bankruptcy perspective, the deeper lesson is this: Timing matters. Programmatic tools matter. And surviving long enough in Chapter 13 to use them can make all the difference. By the time the Roaches reached Chapter 75, the foreclosure had already happened — and North Carolina law was no longer inclined to rescue them. To read a copy of the transcript, please see: Blog comments Attachment Document roach_v._wells_fargo.pdf (172.35 KB) Category NC Court of Appeals

N.C. Ct. of App.: Zuleger v. Clore- Life Estates on Paper vs. Life Estates in Bankruptcy Court

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

Bankr. E.D.N.C.: In re Clark- When Cryptocurrency Meets the Means Test

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

Bankr. E.D.N.C.: In re Clark- When Cryptocurrency Meets the Means Test

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

M.D.N.C.: Williams v. Penny Mac- A Dim View of Pay-to-Pay Mortgage Fees

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

Bankr. M.D.N.C.- In re Bryant I-V: When a Pro Se Chapter 7 Becomes a Procedural Stress Test for the Bankruptcy System

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

Weekly News – December 19

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A Primer on Preference Defenses for Consignment Agreements

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Weekly News – December 12

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Can You Protect a Joint Bank Account in Pennsylvania Bankruptcy?

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Does A U.S. Supreme Court’s Certiorari Denial Have Precedential Value?

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4th Cir.: DiStefano v. Tasty Baking Co. — A Contract Means a Contract, A Notice of Default means Default

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

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Weekly News – December 5

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