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Insolvency Service “reframes” view of creditor – IPs can apply their discretion (UK)

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4th Cir.: Al-Sabah v. World Business Lenders, No. 24-1345 & 24-1382 (4th Cir. Nov. 26, 2025)- Willful Blindness Is Not Mere Sloppiness

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

Law Review: Andrea Freeman, The Roots of Credit Inequality, 49 SEATTLE U. L. REV. 25 (2025).

Law Review: Andrea Freeman, The Roots of Credit Inequality, 49 SEATTLE U. L. REV. 25 (2025). Ed Boltz Thu, 12/04/2025 - 18:04 Available at: https://digitalcommons.law.seattleu.edu/sulr/vol49/iss1/4/ Abstract: Debt oppression began before the United States became a country. Settlers enslaved Africans and Indigenous people, treating them as property that they could buy and sell for their economic and personal benefit. When enslavement became illegal, new economic systems and laws that included sharecropping, Black Codes, and Jim Crow kept Black people in servitude. Laws that prohibited enslaved people from owning property or selling goods to white people evolved into restrictions on Black people’s occupations and market participation, both formal and informal. When Black entrepreneurs overcame these obstacles and built wealth within Black business enclaves, white people enforced their racist norms through violence. Segregated access to credit and different credit terms and conditions in retail, housing, and government loans played a large part in maintaining racial wealth gaps throughout the twentieth century. This system is a vestige of slavery that violates the Thirteenth Amendment. And the laws and policies that uphold a segregated credit system that harms Black, Indigenous, and Latine consumers violate the Fourteenth Amendment’s Equal Protection clause. These constitutional violations require strong remedies that include an amnesty on past debts, rehabilitative reparations, and a reimagining and restructuring of our credit system. This article documents the early roots of the United States’ use of debt as a tool of oppression and is the first in a three-part series. Summary: Andrea Freeman argues that the United States has deployed debt as a system of racial domination from colonization to Emancipation. The article digs deeply into how credit was weaponized against Indigenous and Black people—not incidentally, but as a core instrument of the American administrative state. 1. Debt as a Colonial Tool Freeman traces how French, Spanish, and later U.S. traders extended “credit” to Indigenous nations in ways designed to induce dependency, provoke conflict, and ultimately justify land seizures. The French incited violence over trivial unpaid accounts; Spanish missionaries used coerced labor in “missions” where Native Californians accrued debts they could never pay; and then President Jefferson institutionalized the practice. Freeman’s discussion of Jefferson’s confidential 1803 letter (the infamous “ run them into debt” plan) is particularly damning: the United States would sell goods below cost, encourage Native “leaders” to go into arrears, and then accept land cessions as payment. Within decades, millions of acres shifted from Indigenous control to the U.S. under the guise of settling trading debts. 2. Enslavement and the Criminalization of Black Debt Under slavery, African Americans were treated as involuntary debtors, forced to “repay” their value through uncompensated labor. After the Civil War, this logic persisted: Convict leasing, Sharecropping, Black Codes, and Fabricated “debts” to planters all operated as systems of quasi-bankruptcy without discharge, trapping Black people in perpetual obligation with no exit. 3. Debt in Modern Indigenous Communities Freeman shows that today’s financial deserts on reservations are a lineal descendant of Jefferson’s policy. She recounts modern debt spirals triggered not by wrongdoing but by bureaucratic failures, such as Indigenous patients being sent to non-IHS hospitals and then improperly billed—ending in collections, damaged credit scores, and blocked homeownership. These effects are intensified by: fragmented land titles under the Dawes Act, BIA trust restrictions, and reliance on fringe lenders charging triple-digit APRs. 4. Constitutional Argument Freeman’s polemic turn: because racially-stratified debt is a direct vestige of slavery and colonization, she argues it violates both the Thirteenth Amendment (as a badge and incident of slavery) and the Fourteenth Amendment (as intentional systemic discrimination). She calls for bold remedies: debt amnesty, reparative programs, and structural redesign of the credit system. Commentary: Freeman’s article may resonate with many bankruptcy practitioners—not as abstract history, but as an excavation of the very soil from which our modern consumer-credit system sprouted. If Professor Rafael Pardo has spent the past decade showing that bankruptcy is never merely a neutral commercial doctrine, Freeman demonstrates that consumer credit itself was engineered through racial subordination, and that bankruptcy is the belated, imperfect attempt to mop up the damage. Connecting to the Articles by Rafael Pardo: Earlier blogs on Pardo’s work set up the intellectual scaffolding for Freeman’s argument: Rethinking Antebellum Bankruptcy (2024): Pardo’s careful reconstruction of how early bankruptcy policy grew out of selective legal protections for white commercial interests, not egalitarian relief. On Bankruptcy’s Promethean Gap: Building Enslaving Capacity into the Antebellum Administrative State (2021): Pardo’s thesis that federal bankruptcy administration was built to exclude enslaved people—law’s “gift of fire” extended only to white debtors, while others remained permanently liable. Bankrupt Slaves (2017): Pardo’s key insight: enslaved people were simultaneously property and persons, meaning they lived in a legal universe where debt was omnipresent, yet discharge impossible. Freeman’s article can be read as a prequel to all three—tracing the genealogies of debt before the earliest American bankruptcy laws even existed. Why This Matters for Consumer Bankruptcy Today Freeman’s historical narrative is not nostalgia—it is an indictment of ongoing systems we see every day in Chapter 7 and 13 practice: medical debt disproportionately hitting Native and Black families; auto loan markups and “dealer reserves” that feel like modern-day trading posts; credit card penalty-rate spirals targeting “revolvers” (a term whose etymology would look familiar to 19th-century convict-lease financiers); consumer shaming for “financial irresponsibility” that echoes Jefferson’s manufactured debt narratives. In other words: where others have documented bankruptcy law's selective mercy, Freeman and Pardo diagnosed the credit market’s history of discriminatory cruelty. And her constitutional argument—however polemical in tone—is remarkably coherent with modern bankruptcy practice: Chapter 13 dockets are full of “debtors” whose debts arise not from choices but from structural coercion. To read a copy of the transcript, please see: Blog comments Attachment Document the_roots_of_credit_inequality.pdf (527.86 KB) Category Law Reviews & Studies

Advisory Opinion On An Issue Resolved By Stipulation Of The Parties (In re Whittaker—Part 5)

By: Donald L Swanson Here’s a curious thing: That’s exactly what we have in In re Whittaker Clark & Daniels, Inc., Case Nos. 24-2210 & 24-2211 (3rd Cir., decided September 10, 2025)(see first concurring opinion).## No Controversy The Whittaker case involves a receiver appointed by a South Carolina state court over a New Jersey corporation.  When... Continue Reading →

W.D.N.C.: Asbestos Claimants v. Semian - Interlocutory Appeal Denied

W.D.N.C.: Asbestos Claimants v. Semian - Interlocutory Appeal Denied Ed Boltz Wed, 12/03/2025 - 17:16 Summary: The Western District of North Carolina (Judge Volk, sitting by designation) issued a consolidated Memorandum Opinion and Order denying attempts by asbestos claimants in Bestwall and Aldrich Pump/Murray Boiler to take an interlocutory appeal challenging the bankruptcy courts’ refusal to dismiss the Texas Two-Step cases for bad faith. The opinion is both unsurprising and important: it reaffirms that Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989), remains a nearly insurmountable gatekeeping standard for dismissing a Chapter 11 on bad-faith grounds, and that interlocutory appeals under § 1292(b) are not the place to argue “the bankruptcy court applied the test wrong.” The asbestos claimants sought leave to appeal the bankruptcy courts’ denial of motions to dismiss in both Bestwall and Aldrich Pump, arguing: The debtors are solvent (in fact, ultra-wealthy “Texas Two-Step” creations), The bankruptcy courts misapplied Carolin, and The continued bankruptcy cases deprive asbestos victims of jury trial rights. Judge Volk rejected the § 1292(b) appeal by holding: 1. No “controlling question of law.” The appeal raised no abstract, clean legal question, but only whether the bankruptcy courts misapplied Carolin to the facts. That is classic “you just disagree with the judge” territory. “Appellants reiterate … that the basis for their appeal is the bankruptcy courts’ purported misapplication of Carolin, which is sufficient to doom their request.” 2. No “substantial ground for difference of opinion.” Whatever broader policy concerns exist about solvent debtors using bankruptcy, the bankruptcy courts applied settled Fourth Circuit law, and the district court wasn’t going to create new doctrine by interlocutory review. 3. Immediate appeal would not materially advance the litigation. Even if the Fourth Circuit took the appeal, reversed, or invented a new Carolin standard, the cases would come back down for more proceedings. Nothing would end quickly. Thus, the motion failed at all three § 1292(b) prongs. The court also noted (for Bestwall) that the bankruptcy judge had not even reconsidered Carolin on the merits—the law-of-the-case doctrine resolved the renewed motion. That meant there literally was no bad-faith ruling to appeal. Commentary: 1. Carolin remains the Fort Knox against bad-faith dismissals. As much as academics, judges, and asbestos claimants may lament the “Texas Two-Step,” the Fourth Circuit’s decision in Carolin—requiring both: Objective futility, and Subjective bad faith —continues to protect even wealthy, fully-funded corporate entities from early dismissal. 2. Nothing irritates a district judge more than being asked to review fact-finding midstream. Judge Volk politely-but-firmly reminds litigants that: § 1292(b) is for pure questions of law, not “you weighed the evidence wrong.” District courts won’t rewrite Fourth Circuit doctrine by interlocutory appeal. Dissatisfaction ≠ jurisdiction. This matters for consumer attorneys: whenever a creditor tries to bring a mid-case appeal (e.g., stay extension, plan confirmation issues, dismissal denials), Semian reinforces that interlocutory review is nearly impossible. 3. The elephant in the room: the Texas Two-Step isn’t going away (in the Fourth Circuit). The Fourth Circuit already held in Bestwall that federal courts have jurisdiction over solvent debtors. The court, again, declined to revisit the big questions: Is the Texas Two-Step a permissible restructuring tactic? Should solvent debtors be allowed into Chapter 11? Does this deny tort claimants their Seventh Amendment rights? Judge Volk was explicit: “The bankruptcy courts simply applied settled precedent.” Translation: If Carolin is to be fixed, it must happen en banc or at the Supreme Court—not via clever interlocutory appeals. Whether this case is just being set up for that certiorari request remains to be seen III. How Consumer Bankruptcy Lawyers Can Use This Case Believe it or not, Semian provides several tools for everyday practice in Chapter 7 and Chapter 13 cases: 1. When creditors or trustees argue “bad faith,” cite the case to show the Fourth Circuit’s standard is extraordinarily high. Creditors routinely throw around “bad faith” when: A debtor has high income, A debtor files on the eve of foreclosure, A debtor discharges business debts while keeping assets, A debtor files multiple cases. Use Semian to reinforce: Bad faith under Carolin is narrowly confined. Creditors rarely satisfy either prong, let alone both. Bankruptcy courts apply settled law, and district courts won’t intervene midstream. This is particularly effective in: 362(c)(3) “good faith” disputes (to show the bar is high); motions to dismiss under § 707(b)(3) (suggesting subjective bad faith alone is insufficient); Attempts to bring post-petition assets into a converted Chapter 7 estate under § 348 through an assertion of bad faith; post-confirmation modification fights (“debtor acted in bad faith by incurring debt,” etc.). 2. Strengthen arguments that bankruptcy courts may apply law-of-the-case and decline to relitigate repetitive creditor motions. Judge Beyer’s refusal to reconsider bad-faith allegations in Bestwall was upheld “The focus is on substantially the same facts… and [this] was the law of the case.” For consumer practice: When a mortgage creditor repeats objections to confirmation or subsequently objects to an amended plan which had not previously been raised. When a trustee brings serial motions to dismiss, When a repeat filer debtor faces rehashed allegations, Semian can be cited for the proposition that Bankruptcy courts may decline to revisit identical issues, even if the movant changes. 3. Reinforce that bankruptcy protection is not limited to insolvent debtors. The opinion reaffirms what consumer lawyers already know: Solvency is not a barrier to Chapter 11, and by analogy, not a barrier to Chapter 13 or Chapter 7. Every time a creditor argues: “The debtor could pay these debts outside bankruptcy!” You can respond with authority: The Fourth Circuit and district courts have repeatedly confirmed that seeking a centralized forum to resolve liabilities—even for solvent or funded debtors—is a legitimate bankruptcy purpose. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document asbestos_claimants_v._semian.pdf (374.49 KB) Category Western District

Why It Is Too Late For Asset Protection Planning After A Claim Arises

Why is it Too Late for Asset Protection Planning after a Claim or Litigation Arises? Jay Adkisson has written a very informative article about why it is difficult to do Asset Protection Planning after a claim or lawsuit arises. The article was

Law Review: Janger, Edward J., Consumer Bankruptcy, Household Debt, and the Big Picture -- Pamela Foohey, Bob Lawless and Deborah Thorne, Debt’s Grip (November 24, 2025). Brooklyn Law School, Legal Studies Paper No. 806, American Bankruptcy Law Journal...

Law Review: Janger, Edward J., Consumer Bankruptcy, Household Debt, and the Big Picture -- Pamela Foohey, Bob Lawless and Deborah Thorne, Debt’s Grip (November 24, 2025). Brooklyn Law School, Legal Studies Paper No. 806, American Bankruptcy Law Journal... Ed Boltz Tue, 12/02/2025 - 17:23 Available at: https://ssrn.com/abstract=5798042 Abstract: Debt’s Grip opens with a bracing number: one in 11 Americans will file for bankruptcy; approximately 34 million people will file at some point in their lifetime. (1)This, of course, is just the visible part of the iceberg. The percentage of people who experience financial distress either pervasively or at some point in their lives is a multiple of that 1:11 figure. Foohey, Lawless and Thorne (“FLT”) seek to show who those bankruptcy filers are, how they got there, and what that means for the bankruptcy system. Along the way, they offer an indictment of the role that debt plays in our economy. This essay seeks to tell, in abbreviated fashion, the story told by Debt’s Grip, and then offers an appraisal, both of the limits of the methodology, of the policy prescriptions for consumer bankruptcy, and of their suggestions for structural reform. The takeaway is threefold: (1) the data they provide generates a thirst for more data from outside the bankruptcy system; (2) the proposal for consumer bankruptcy reform is constructive but falls short of the comprehensive rethink the system may require; and (3) sadly, the need for structural reform is clear, but has never been less in the cards. Summary: Ted Janger offers a generous but clear-eyed reading of Debt’s Grip, the latest product of the Consumer Bankruptcy Project’s (CBP) now-four-decade exploration of who files bankruptcy and why. The book’s authors—Pamela Foohey, Bob Lawless, and Deborah Thorne—appear in the article under the simple abbreviation FLT. Janger abbreviates Foohey, Lawless & Thorne simply as “FLT,” which I cannot help noting that those initials also echo the physics shorthand for “ faster-than-light” — an oddly fitting coincidence, given how routinely their empirical work has illuminated the consumer-bankruptcy universe long before Congress manages to catch up. FLT’s central thesis is familiar to anyone practicing in the trenches of consumer bankruptcy: the people who file are honest but unfortunate, clinging to the middle class with fingernails worn to the quick, and filing only when every other option—borrowing, privation, prayer—has been exhausted. Janger walks readers through the key themes: Debt is now the default shock absorber for nearly every American household crisis. “Life in the sweatbox” is not a metaphor; it is an empirical category. Filers are not the poorest—they are the strugglers who tried to save something. Race, gender, and age intensify risk: Black households file at disproportionately high rates. Black debtors are routed into Chapter 13 at double the rate of whites. Single mothers and older Americans struggle the longest. The “can-pay debtor” is a myth, confirmed across decades of CBP data. Debt is functioning as a shadow social safety net, a role it is fundamentally unsuited to play. FLT propose reforms—most mirrored in the Consumer Bankruptcy Reform Act of 2024—including mortgage modification, student-loan discharge, federal exemptions, and a unified consumer chapter. Janger sees the merit but doubts the politics. The article ends with realism shading towards pessimism: the CBP’s data points to structural solutions, but Washington is currently dismantling what little consumer protection infrastructure existed. Commentary: If Debt’s Grip is the MRI of American household financial life, Janger’s review is the radiologist’s report: “multi-system failure, chronic, progressive.” FLT—our “faster-than-light” researchers—continue their decades-long project of showing the world what consumer bankruptcy lawyers see daily: that modern debt relief is not a tool of prosperity, but of triage. The Missing Strugglers: the unseen majority Janger’s most stinging observation—drawn from FLT and work like Dalie Jimenez’s “Missing Strugglers”—is that bankruptcy filers are only the ones who finally fell. The unseen universe of non-filers—those facing garnishments, lawsuits, utility cutoffs, medical collections, and credit-card minimum-payment purgatory—remains largely unmeasured. Bankruptcy’s data tells the story of those who broke. It tells us nothing about the millions still bending. Debt is no longer investment—it is life support As in your earlier commentary, the review reinforces that consumer credit today functions not as a ladder but as a life raft. People do not buy luxuries with credit cards; they buy time, groceries, brakes for the car, emergency dental care, asthma inhalers. Student loans—once the golden ticket to upward mobility—now resemble a regressive tax on ambition. Mortgages, stripped of any modification authority in bankruptcy and even before the absurd suggestion of having a 50-year term, can be more of a trap than asset for the working poor. Reform: applying bandages to an arterial wound FLT (and Janger) correctly support the essential reforms: mortgage modification federal exemptions dischargeability of student loans elimination of the means test unification of consumer chapters But even if enacted, these would treat symptoms of a deeper illness: the privatization of risk and the abandonment of social investment. As your earlier post put it, you cannot cram down the cost of eldercare. You cannot discharge wage stagnation. You cannot lien-strip insulin prices. The long view: the CBP will still be here when Congress wakes up The CBP has been documenting household financial distress for forty years. It will almost certainly be needed for forty more. Reform is unlikely in the short term; political winds are blowing in the wrong direction. But eventually—after enough damage—there will be an appetite for structural solutions. When that time comes, FLT’s faster-than-light research may be the map policy makers finally follow. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document ssrn-5798042.pdf (572.34 KB) Category Law Reviews & Studies

November 2025 Ponzi Scheme Roundup

By Kathy Bazoian Phelps Below is a summary of Ponzi scheme activity reported for November 2025. There were at least 6 new Ponzi schemes revealed this month, 5 guilty pleas, 1 criminal conviction, and about 100 years of prison sentences. The average

Can Bankruptcy Courts Ever Create a Federal Common Law Choice-Of-Law-Rule? (In re Whittaker–Part 4)

By: Donald L Swanson It’s not every day that the author of a Circuit Court opinion also authors a concurring opinion. But that’s exactly what happens here: In re Whittaker Clark & Daniels, Inc., Case Nos. 24-2210 & 24-2211 (3rd Cir., decided September 10, 2025).## Overview The issue in the concurring opinion deals with this question:... Continue Reading →

Receiverships v. Bankruptcies = The Wild West v. The Rule Of Law

By: Donald L Swanson When comparing proceedings under the Bankruptcy Code with receivership proceedings under state law, there is a similarity: And there is a huge difference: And so, if given a choice between receivership proceedings and a bankruptcy, I’d almost always favored the certainty of bankruptcy laws over the wild west of receiverships. An Illustrative... Continue Reading →

Can Personal Injury Settlements Be Protected from Bankruptcy in Pennsylvania?

The last thing you want is for a personal injury settlement to be taken by greedy creditors rather than going to the very real damages you have incurred and need […]

Weekly News – November 21

Anti-coop provisions rear their ugly head, the kinder – gentler, pro rata LMEs are back in Urban One and Transcom, the fight continues in TPI Composites, private credit CLOs breaking…

The Next Gen Corner: The Vector Rebellion: When the Excluded Creditor Fights Back

The Vector Rebellion: When the Excluded Creditor Fights Back   By Luke Hubbard, a sophomore studying Finance at Fordham University’s Gabelli School of Business.  So you thought the ConvergeOne ruling was…

M.D.N.C.: Custer v. Simmons Bank & DMI: Cause of Action for Loss-Mitigation Fees Survive, Bad Threats Don’t — A Middle District Tune-Up on Servicing Litigation

M.D.N.C.: Custer v. Simmons Bank & DMI: Cause of Action for Loss-Mitigation Fees Survive, Bad Threats Don’t — A Middle District Tune-Up on Servicing Litigation Ed Boltz Fri, 11/21/2025 - 15:08 Summary: In a detailed but pragmatic opinion, Chief Judge Catherine Eagles offers a tidy roadmap for mortgage-servicing litigation in the Middle District — clarifying what sticks at the pleading stage (loss-mitigation fee violations, RESPA damages, UDTPA claims) and what gets tossed to the curb (negligence, joint venture fantasies, and the perennial “they threatened foreclosure!” count that courts treat like the boy who cried wolf). The result: Custer’s strongest claims live another day, and mortgage servicers get a reminder that North Carolina’s Mortgage Debt Collection and Servicing Act (MDCSA) actually has teeth — especially the 30-day fee-disclosure rules in N.C. Gen. Stat. § 45-91. Personal Jurisdiction: If You Service in NC, You Answer in NC : Simmons Bank tried the predictable “we’re nowhere near North Carolina” argument — but once you service a North Carolina mortgage, communicate with a North Carolina borrower, and collect North Carolina payments, the long-arm statute and Due Process Clause converge in perfect harmony. Judge Eagles had no trouble finding specific jurisdiction, especially where DMI was acting as Simmons’ agent and the alleged misconduct arose out of the servicing relationship itself. Practice Point: Servicers who acquire loans on NC property should stop pretending they’re “not doing business” here. The MDNC is not impressed by that argument. No Rule 8 “Shotgun Pleading” Here : Simmons also lobbed the increasingly popular “shotgun complaint” argument. Judge Eagles — correctly — found this complaint was not one of those sprawling, defendant-lumping monstrosities that courts love to mock in footnotes. Custer actually separated his allegations and counts with some clarity. Claim-Splitting Defense Rejected : DMI argued that Custer improperly brought two separate cases: Custer I – a narrow class action about illegal pay-by-phone fees. Custer II – an individual action about loss-mitigation misconduct, RESPA violations, and wrongful account handling. Even though both involve the same subservicer and overlapping time periods, the factual nuclei were distinct. Judge Eagles correctly held that North Carolina plaintiffs are not required to p ut every egg in the same basket just because one of them got mentioned in a demand letter. This support the argument that while an Objection to Claim in a Chapter 13 case might appropriate deal with the disallowance of illegal mortgage servicer fees under N.C. G.S. § 45-91 , a debtor could raise claims for damages in separate actions or even in other forums than the bankruptcy court. Surviving Claims 1. NCDCA — Loss-Mitigation Fees (Count I) This is the heart of the opinion. Custer allege d that DMI: charged “Loss Mitigation Attorney Fees,” failed to send the required clear and conspicuous explanation within 30 days, and passed through stale fees older than 30 days — all in violation of § 45-91(1)(b) and § 45-91(3). Judge Eagles recognizes that violations of the MDCSA constitute unfair acts under Chapter 75, and emotional distress is a cognizable injury under the NCDCA. This claim stays in. Why This Matters: The MDCSA m ay be North Carolina’s most underutilized consumer-protection statute. Servicers routinely treat the 30-day disclosure rule as optional. It isn’t — and Custer shows courts will enforce it. 2. NCDCA — False Representations About the Amount Owed (Count III(b)) Custer allege d that after signing a loan-mod agreement: the servicers sent him incorrect payment amounts, misrepresented the amount owed, and later admitted they had done so. That’s enough to survive dismissal. Even a single incorrect statement, if used to collect a debt, satisfies N.C. Gen. Stat. § 75-54(4). 3. RESPA — Loss-Mitigation Handling (Count II) DMI argued Custer failed to allege “actual damages.” Judge Eagles disagreed. Allegations that: RESPA delays forced him into a worse modification, increased capitalized interest, and brought him closer to foreclosure are more than sufficient. This tracks the increasingly borrower-friendly reading of RESPA damages that’s shown up in recent Fourth Circuit and district-court decisions. 4. UDTPA (Count IV) Servicers argued that the NCDCA provides the exclusive remedy and bars a standalone UDTPA claim. Not necessarily so. Judge Eagles notes that: the MDCSA and SAFE Act impose duties beyond pure “debt collection,” the defendants have not yet admitted they are “debt collectors” under the NCDCA, and a factual record is needed before declaring exclusivity. The UDTPA claims survive, at least for now. Commentary: This is important. Servicers love arguing that Chapter 75 only applies through the NCDCA. This opinion confirms what practitioners know: mortgage servicing involves more than “debt collection.” Servicers have independent statutory duties — especially under § 45-93 — and violating those duties can support a UDTPA claim. Dismissed Claims : 1. NCDCA — Communicating With a Represented Consumer (Count III(a)) Custer didn’t identify any specific communication after the attorney-rep notice. Courts don’t accept “they kept calling me” without dates or examples. This was correctly dismissed. 2. NCDCA — Threatening an Illegal Foreclosure (Count III(c)) Simply alleging “they pursued foreclosure” isn’t enough. North Carolina courts have long held that lawful foreclosure threats are not UDTPA violations unless the borrower alleges the foreclosure itself was unlawful. This claim dies — again, correctly. 3. Negligence (Count V) Custer conceded dismissal. 4. Joint Venture (Count VI) The “Simmons + DMI = Joint Venture” theory gets a swift judicial eye-roll. Joint ventures require: shared profits, and mutual control. Servicer and subservicer do not share profits, and DMI does not get to boss Simmons Bank around. Dismissed with prejudice. Takeaways : 1. The MDCSA is no longer the forgotten stepchild of NC consumer law. Judge Eagles treats § 45-91’s fee-disclosure rule as a meaningful, enforceable statute — and one that can trigger treble damages via Chapter 75. These protections are well known in bankruptcy courts from cases including Saeed, Peach and most recently Rogers. Mortgage servicers should now be on notice that violations of these restrictions and notice requirements will result in requests for treble damages. 2. Servicing misconduct during loan modifications is fertile litigation ground. RESPA, MDCSA, NCDCA, UDTPA — all survived in some form. North Carolina homeowners are uniquely well-protected if counsel knows the statutory landscape. 3. Not every misdeed equals a foreclosure-threat claim. Courts require specificity — and borrowers must allege the threat itself was unlawful. 4. Joint venture theories between servicers and subservicers should be permanently retired. We can stop wasting keystrokes on them. Final Commentary : Custer v. Simmons Bank & DMI is a solid example of how North Carolina’s layered statutory scheme protects mortgage borrowers — and how servicers’ casual treatment of fee disclosures, modification timelines, and payment accuracy can open them to real litigation risk. As more cases like Custer develop, expect to see: More MDCSA enforcement, More RESPA damages claims tied to loan-mod failures, and More UDTPA claims survive despite NCDCA “exclusivity” defenses. Debtors in bankruptcy cases seeking treble damages for violation of N.C.G.S. § 45-91 (whether in bankruptcy court claims objection or subsequent suits in federal district court.) North Carolina continues to be one of the few states where mortgage servicers can’t treat homeowners as an afterthought — and the federal courts are beginning to treat these statutes as more than decorative wall hangings. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document custer_v._simmons_bank.pdf (280.21 KB) Category Middle District

Businesses Prepare Now for Indiana’s New Data Privacy Law Effective January 1, 2026!

The INCDPA is Indiana’s first comprehensive data privacy law, modeled after similar privacy laws enacted in other states. It grants Indiana consumers significant rights to Indiana residents regarding their personal data and imposes obligations on businesses that control or process that data.

Chapter 7 Business Bankruptcy Filings in SDNY and EDNY

Chapter 7 Business Bankruptcy Filings in SDNY and EDNY In today’s challenging economic climate, many businesses are struggling due to declining sales, high interest rates, tariffs, supply-chain pressures, or other factors. As a result, an increasing

Bankr. M.D.N.C.: In re Lombrano- No Automatic Stay for 3rd Filing

Bankr. M.D.N.C.: In re Lombrano- No Automatic Stay for 3rd Filing Ed Boltz Thu, 11/20/2025 - 15:29 Summary: In In re Lombrano, Judge Kahn confronted the all-too-common BAPCPA problem of repeat filings colliding head-on with the automatic stay provisions. Ms. Lombrano—pro se—had filed three bankruptcy cases in under five months, two Chapter 7s (one dismissed for filing defects and jurisdictional issues, the next for nonpayment of the fee) followed by this Chapter 13. Facing eviction, she filed an “Urgent Motion to Impose Stay.” Facing her motion, she did not appear at the hearing. Facing the statute, the Court had essentially no choice. Accordingly, the stay was denied. But the real significance of Lombrano comes from what doesn’t apply: the familiar “narrow reading” of § 362(c)(3) from In re Paschal and In re Jones—a doctrine still followed in the Middle District (even though it originated under Judge Small in the EDNC), but entirely unavailable when two prior dismissals appear on the debtor’s recent record. Why § 362(c)(3) Doesn’t Help Here: Paschal/Jones Narrow Interpretation Becomes Irrelevant Had there been only one prior dismissal within the year, Ms. Lombrano might have benefitted from MDNC’s continued adherence to: Paschal, 337 B.R. 274 (Bankr. E.D.N.C. 2006) Jones, 339 B.R. 360 (Bankr. E.D.N.C. 2006) Under those decisions, § 362(c)(3) terminates the stay: Only as to the debtor, Not as to property of the estate, and Only as to creditors who acted following the prior dismissal. This nuanced and debtor-protective interpretation frequently gives repeat filers at least some breathing room, and it remains the prevailing rule in the MDNC (even though the EDNC has occasionally shown signs of wavering from Judge Small’s original view). But none of that applies when the debtor has two prior dismissals. With two prior dismissed cases in the past 12 months, this filing falls squarely under § 362(c)(4): No automatic stay arises at all. The debtor must request that the stay be imposed. The debtor must overcome a presumption of bad faith. And must do so by clear and convincing evidence. The Court is prohibited from granting retroactive relief (§ 362(c)(4)(C)). Most importantly: § 362(c)(4) completely displaces Paschal/Jones. You don’t get to argue that the stay remains in place as to estate property. You don’t get to argue that it terminates only as to certain creditors. There is no stay—period—unless and until the Court decides otherwise. And here, Ms. Lombrano didn’t appear, didn’t testify, and didn’t rebut the statutory presumption. As Judge Kahn succinctly concluded: the stay cannot and will not be imposed. Commentary: A Predictable, Avoidable Outcome Cases like Lombrano should be stapled to the intake materials of every consumer bankruptcy practice. They illustrate three recurring truths: 1. § 362(c)(3) is irritating but manageable. Especially in the MDNC, the Paschal/Jones narrow reading keeps the practical effect modest—even after one prior dismissal. 2. § 362(c)(4) is a brick wall. Two prior dismissals transform the stay from automatic to aspirational. The debtor must earn the stay back. And pro se litigants almost never clear the “clear and convincing” bar. 3. Showing up matters. A stay-imposition motion under § 362(c)(4) is an evidentiary hearing, not a formality. Miss it, and the case collapses under its own procedural weight. 4. Timing matters even more. Had Ms. Lombrano obtained counsel after the first dismissal (or even the second), someone could have course-corrected: By addressing the filing-fee issue, Or fixing the jurisdictional defect, Or ensuring future filings were prosecuted properly. Instead, three filings in rapid succession triggered the worst possible statutory outcome. Takeaway: In the Middle District, debtors with two dismissals in a year cannot look to the friendly shelter of Paschal and Jones—those cases simply do not apply. Once § 362(c)(4) governs, the stay never arises, the evidentiary burden is steep, and as Lombrano shows, failing to attend the hearing makes denial virtually automatic. In short: You rarely get a third chance to make a second impression—especially in bankruptcy court. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_jones.pdf (142.66 KB) Document in_re_lombrano.pdf (404.86 KB) Category Middle District

Equitable Tolling & Nondischargeability Filing Deadline (In re Osborn)

By: Donald L Swanson I recently published this linked article on equitable tolling of a deadline for filing a dischargeability complaint or a motion to extend that deadline: Here’s another opinion on that same subject with an unusual set of facts In re Osborn, Case No. 24-40202, Nebraska Bankruptcy Court (decided July 9, 2024; Doc. 90). ... Continue Reading →

Bankr. E.D.N.C.: In re Williams- Yet another Forged Bankruptcy Court Order

Bankr. E.D.N.C.: In re Williams- Yet another Forged Bankruptcy Court Order Ed Boltz Wed, 11/19/2025 - 16:32 Summary: Judge Warren’s latest sanctions order reads like a greatest-hits compilation of the Eastern District’s prior encounters with bankruptcy document forgery— Wilds, Purdy, and now Williams—but with one glaring distinction: unlike Ms. Sugar, whose saga wound its way to the Fourth Circuit and back on the strength of a plausible (and ultimately successful) reliance on counsel argument, Deja Williams had no attorney to blame but herself. And that turns out to matter—a lot. The Facts: Fiverr, a Fake Order, and a Leasing Agent Who Asked Too Many Questions Ms. Williams filed two prior Chapter 13 cases—both dismissed for failure to comply with the most basic statutory requirements—and then filed a Chapter 11 for her salon business, Hairoin, which was promptly tossed because the LLC never obtained counsel. When those bankruptcies appeared on her credit report, they posed an obstacle to securing a commercial lease. The solution she chose? A $15 fake bankruptcy order purchased from a seller on Fiverr, complete with the name and signature block of a bankruptcy judge in Raleigh. Unsurprisingly, when she tendered this “order” to a leasing agent, the agent did what landlords too rarely do: she attempted to verify it. That inquiry led straight back to the Clerk’s Office, straight into a reopened case, and straight onto Judge Warren’s sanctions docket. The Court’s Ruling: Five-Year Bar and $1,500 Fine: Citing Wilds and Purdy, Judge Warren held that Ms. Williams’ conduct—though remorseful—was “hardly distinguishable” from prior EDNC forgery cases. The sanctions: Five-year bar on filing any bankruptcy, personally or for any entity she owns or is affiliated with $1,500 civil fine Referral to the U.S. Attorney for possible prosecution under 18 U.S.C. §§ 157 or 505 This places Ms. Williams squarely in the same penalty tier as prior debtors who forged court documents—though, critically, without the criminal sentences seen in Wilds and Purdy. Why Sugar Got Mercy—and Williams Did Not: Here is where In re Williams departs from the Sugar line of cases. When the Fourth Circuit remanded In re Sugar, Judge Agee instructed the bankruptcy court to consider the “effect of record evidence that she acted on advice of counsel.” On remand, Judge Warren found that Ms. Sugar’s reliance on her prior attorney was “justified and reasonable,” ultimately vacating severe sanctions in light of that mitigating factor. Ms. Williams had no such shield. Representing herself in all her cases, she could not invoke “advice of counsel”—good, bad, or nonexistent. There was no attorney to mislead her, no mistaken advice to lean upon, and no professional to blame. Her fabrication was: intentional, deliberate, and fully self-directed. In other words, this is the Sugar case with the safety net removed. When you fly pro se and forge a court order, there is no soft landing. Commentary: The Perils of Pro Se Practice in the Age of Fiverr The growing availability of AI-generated and gig-marketplace “legal documents” is giving rise to a new species of bankruptcy misconduct—one cheaper, faster, and more recklessly accessible than anything in the Wilds era. A $15 fake “vacate” order generated overseas is the modern equivalent of forging an attorney’s signature on the office Xerox machine. But courts—and the U.S. Attorney’s Office—are treating it the same. This case also serves as a reminder that pro se debtors don’t get a discount on the standard of honesty owed to the court. They may get leniency when mistakes arise from misunderstanding, but not when the misconduct is calculated. And unlike Ms. Sugar, who ultimately benefited from the rehabilitative power of the “advice of counsel” doctrine, Ms. Williams stands alone. If you are your own lawyer, you also become your own scapegoat. Takeaway: In re Williams reinforces the EDNC’s unwavering approach: forging court documents—no matter the motive, circumstances, or sophistication level—gets treated as a severe affront to the integrity of the system. And while the Fourth Circuit has built space for mercy when a debtor’s missteps stem from reliance on counsel, those who represent themselves don’t have that option. When you choose to go it alone, you own the consequences—including, as here, a five-year bar and a criminal referral. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_williams.pdf (295.07 KB) Category Eastern District

“Abuses Of Receiverships”—A Problem From The Late 1800s And Early 1900s

By: Donald L Swanson Here is an article from more than a century ago: Jacob Trieber, Abuses of Receiverships,” 37 Yale L.J. 275-279 (1909). What follows is a summary of that article. Receivership—A Judicial Remedy Receivership is a judicial remedy to preserve a fund or property from spoliation, waste or removal pending litigation, so it may,... Continue Reading →

Will Bankruptcy Affect Your Child’s 529 Plan in Pennsylvania?

After spending so much time, effort, and money creating and contributing to your child’s 529 college savings plan in Pennsylvania, you do not want to risk it being liquidated during […]