ABI Blog Exchange

Broadway Realty Ruling Reinforces Adequate Protection Standard in Multi-Debtor Real Estate Cases

Weekly News – July 11

Holdouts make a comeback! Del Monte gets canned, Wolfspeed meme stock frenzy, Citgo getting complicated, and much, much more…  Creditor Corner Your weekly curated content from the Creditor Rights Coalition…

Bankr. E.D.N.C: In re Ross-DeSantos- Homestead Exemption Allowed for Real Property Located outside of North Carolina

Bankr. E.D.N.C: In re Ross-DeSantos- Homestead Exemption Allowed for Real Property Located outside of North Carolina Ed Boltz Fri, 07/11/2025 - 22:41 Summary: Judge Pamela McAfee overruled a Chapter 7 trustee’s objection to a North Carolina debtor’s homestead exemption claimed in real estate located not in Wake County, but in Corentyne Berbice, Guyana. The case highlights two recurring issues in exemption law: (1) whether a spouse living abroad may qualify as a “dependent” for purposes of N.C.G.S. § 1C-1601(a)(1), and (2) whether North Carolina’s homestead exemption applies extraterritorially. The debtor, Natoya Ross-DeSantos, filed Chapter 7 in the Eastern District of North Carolina, claiming a $30,000 homestead exemption in her interest in a property in Guyana, which she jointly owns with her non-filing spouse. While she lives in North Carolina as a public school teacher on a J-1 visa, her spouse and her mother (who pays the mortgage) reside in the Guyanese home, along with her minor nephew. The trustee objected, arguing (1) the spouse was not a “dependent” and (2) the exemption could not apply to property outside North Carolina. The court overruled the two bases for trustee’s objection, holding: Dependency Met – The debtor’s uncontroverted testimony that she sends financial support “when she can,” and that her husband is unemployed and living in the home due to medical issues, was sufficient to show “actual substantial dependence,” adopting the standard for a "dependent spouse" as articulated in Suggs, Preston, and under N.C.G.S. § 50-16.1A(2). Dependency was determined based on actual financial and emotional support as of the petition date, not mere technical definitions or speculative future plans. Extraterritorial Application Allowed – The court found no language in § 1C-1601 limiting the exemption to in-state property and emphasized the statutory mandate to interpret exemptions liberally in favor of the debtor. Since the debtor resides in North Carolina and is the one claiming the exemption, the location of the property abroad was not disqualifying. Notably, the court cited Crawford and Davila as examples where the location of the homestead outside North Carolina had not precluded application of the state’s exemption. Commentary: Excellent job by Phillip Sasser, particularly in the face of John Bircher's solid, but fair and respectful, objection. This decision is a well-grounded affirmation of the debtor-protective policies behind North Carolina’s exemption laws and demonstrates the flexibility bankruptcy courts maintain in evaluating real-life family and financial dynamics. In substance, Judge McAfee recognized that modern households — especially those involving immigration, work visas, and international families — may not conform neatly to the traditional “white picket fence” model. The court took a pragmatic approach: focusing not on the theoretical legal domicile or the ZIP code of the property, but on the reality of who lived there and who depended on whom. Dependency Doesn't Require Formal Support Agreements – Informal but credible testimony about support, even irregular remittances and non-monetary arrangements, may suffice to establish a spouse as a dependent for exemption purposes. Having found most easily that Mr. Ross-DeSantos met the statutory definition of a dependent spouse, the court did not directly address whether Ms. Ross-DeSantos' mother and/or minor nephew were also dependents. That notwithstanding, it would seem that the standard for other asserted dependents should be evaluated under the same standard as anyone "who is actually substantially dependent ... for his or her maintenance and support or is substantially in need of maintenance and support...." (Emphasis added.) This should not require finding that the person meets the higher IRS standard for a dependent but instead that the person is substantially dependent on support and needs that support. Allowing them to live in the house could by itself be sufficient to show the support, although the debtor would need to show the need for that support. No Territorial Limitation in § 1C-1601(a)(1) – Until the North Carolina appellate courts say otherwise, nothing in the statute prevents the homestead exemption from being claimed in property outside the state, provided the debtor resides in North Carolina. Anticipate Equity Issues – Though the court noted the trustee's uncertainty about whether the Republic Bank of Guyana held a perfected lien, the trustee wisely sought a ruling on the exemption issue first. Practitioners should similarly bifurcate legal questions where valuation or enforceability is uncertain. In re Ross-DeSantos will likely become a citation staple for North Carolina debtors and their counsel facing objections based on “residence” and “dependency,” especially in cross-border or nontraditional family situations. It serves as a reminder that bankruptcy courts, even while operating under rigid statutes, can and do account for the lived realities of their debtors. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_ross-desantos.pdf (261.27 KB) Category Eastern District

Bankruptcy & Employment Discrimination Claim (Palmer v. Union Pacific)

By: Donald L Swanson Here’s an interesting employment discrimination case that’s related to a prior bankruptcy: Palmer v. Union Pacific Railroad Co. (In re Palmer), Case No. 24-1212 (8th Cir., decided June 12, 2025).[Fn. 1] Background Debtor starts working for The Railroad in March 1998 as a Switchman/Brakeman, after disclosing a diabetes condition. Later, Debtor moves... Continue Reading →

BOLO Alert: Community Property in Unexpected Places

In law enforcement, BOLO stands for Be On the Look Out. But even outside of law enforcement, BOLO alerts operate. In this case, we as bankruptcy lawyers need to be on the look out for community property. It’s easy to think that community property is an issue only for practitioners in the 9 community property […] The post BOLO Alert: Community Property in Unexpected Places appeared first on Bankruptcy Mastery.

Clarifying s.234 Insolvency Act 1986:Lessons from Carvill-Biggs & Anor v Reading [2025] (UK)

The Court of Appeal decision in Carvill‑Biggs & Anor v Reading [2025] EWCA Civ 619, clarifies the scope and application of section 234 of the Insolvency Act 1986, which empowers an office-holder to compel the delivery up of company property or documents from third parties, in relation to mortgaged land. This blog considers the unique...... Continue Reading

Bankr. E.D.N.C.- In re JSmith- Arbitration in Bankruptcy

Bankr. E.D.N.C.- In re JSmith- Arbitration in Bankruptcy Ed Boltz Wed, 07/09/2025 - 17:10 Summary: In this post-confirmation Chapter 11 dispute, the Bankruptcy Court for the Eastern District of North Carolina granted a motion by Fourth Elm Construction, LLC to compel arbitration and stay the adversary proceeding brought by the debtor, JSmith Civil, LLC. The adversary complaint asserted state-law claims for breach of contract and quantum meruit arising from a terminated subcontracting agreement. Fourth Elm relied on the contract’s Article 24 arbitration clause, invoking Section 3 of the Federal Arbitration Act (FAA). JSmith Civil resisted arbitration, arguing first that the contract’s damage-limiting clause (Article 22) rendered the arbitration agreement void under Lischwe v. Clearone Advantage (In re Erwin), a case involving impermissible waivers of claims under North Carolina’s UDTPA. Judge Callaway distinguished Erwin, finding that no such statutory or fraud claims were actually alleged—only garden-variety breach and quasi-contract. JSmith’s second argument—that compelling arbitration would impair bankruptcy case administration—also failed, as the claims did not arise under the Bankruptcy Code and were not core proceedings. The Court compelled arbitration but explicitly warned Fourth Elm that it could not file any counterclaims or assert a §553 setoff in the arbitration without first obtaining stay relief. Fourth Elm, through counsel, disavowed any intent to seek such relief, and the Court noted it would enforce that commitment under pain of sanctions. Commentary: This decision highlights the entrenched enforceability of arbitration clauses in bankruptcy, particularly when the debtor brings state-law claims post-confirmation and the dispute lacks any core bankruptcy component. Judge Callaway’s ruling reflects a straightforward application of the Federal Arbitration Act (FAA), even in the Chapter 11 context, and follows the familiar maxim that “[a]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” But what about in the consumer Chapter 13 context, where debtors frequently interact with contracts that contain arbitration clauses—credit card agreements, auto loans, rent-to-own contracts, and debt relief services? Unlike in business cases, a unique opportunity may exist for consumer debtors to proactively address arbitration in their Chapter 13 plan. Specifically, a nonstandard Chapter 13 plan provision may be used to expressly reject or eliminate arbitration clauses in executory contracts or to declare that the debtor does not consent to arbitration of any disputes related to a given agreement. Because Chapter 13 plans function as binding contracts between the debtor, creditors, and the trustee upon confirmation, and because 11 U.S.C. § 1322(b)(2), (b)(6), and (b)(11) permit substantial flexibility in how a debtor restructures obligations and provides for treatment of claims, courts may allow debtors to include such provisions. While not all courts will enforce such plan terms (and some creditors may object), there is a growing recognition that plan provisions may alter dispute resolution rights where the arbitration clause is part of a contract the debtor is assuming, modifying, or curing under the plan. In this way, the plan operates as both shield and sword, binding creditors who fail to object and thus creating a limited window to neutralize otherwise enforceable arbitration rights. Moreover, if a creditor fails to timely object to confirmation, courts may hold it bound by the plan under §1327(a), and therefore estopped from later enforcing arbitration provisions in an attempt to derail claims administration or fair debt relief remedies under the Code. Practice Tip for Consumer Debtors: Practitioners should consider whether their standard Chapter 13 plan templates adequately address arbitration—and if not, propose a nonstandard provision rejecting arbitration clauses in applicable agreements. For example: “Any arbitration provision in any prepetition agreement between the Debtor and any creditor is expressly rejected and shall be of no force or effect with respect to any dispute arising during the pendency of this bankruptcy case or relating to any claim provided for under this Plan." This may be particularly valuable where the debtor has viable claims under state consumer protection laws (e.g., UDTPA, FDCPA) or disputes related to vehicle repossession or predatory lending. It also reduces the risk of post-confirmation motion practice or removed arbitrations that sap the estate’s resources. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_jsmith.pdf (279.94 KB) Category Eastern District

The “12 month” rule in a Members Voluntary Liquidation (MVL) means the company must pay in that period – not simply be able to pay (UK)

Judge Agnello in a recent court decision[1] concluded that a company must pay its debts within the period of 12 months from the start of an MVL, and if it does not, the liquidator is obliged to convert the MVL to a company voluntary liquidation (CVL). Depending on how you interpret the requirement that the...... Continue Reading

Law Review: Tavera, Daniel, The Benefits of Hindsight: Determining Whether a Receipt of Benefits Is a Necessary Element of the Fraud Exception to Discharge

Law Review: Tavera, Daniel, The Benefits of Hindsight: Determining Whether a Receipt of Benefits Is a Necessary Element of the Fraud Exception to Discharge Ed Boltz Tue, 07/08/2025 - 15:10 Available at: https://ssrn.com/abstract=5295095 Abstract: There is a circuit split on the meaning of the phrase “obtained by” under the Bankruptcy Code. Courts disagree on the proper interpretation of the portion of the statute relevant to this issue: whether a debtor needs to receive a benefit from the fraud to find the debt nondischargeable. Some courts have forgone a receipt of benefits test. Creditors now often argue that a debtor need not benefit from the asset obtained by fraud to except an underlying debt from discharge. But the fraud exception could include the requirement that a debtor receive a benefit from the assets “obtained” for certain frauds. This Article examines the history of the fraud exception and the split in the courts. This Article then analyzes the word “obtained” under the Code, and judicial interpretations of what it means to obtain assets. This Article summarizes the strengths and weaknesses on the different approaches of statutory construction applied to the word “obtained.” Based on the Supreme Court’s recent suggestion that a receipt of benefits is a necessary element of the fraud exception, this Article then concludes the exception for a willful and malicious injury appropriately addresses facts where nothing was “obtained.” Commentary: Tavera’s article will be of practical value to consumer bankruptcy attorneys litigating § 523(a)(2)(A) claims—especially in small business, guarantor, or insider-debtor scenarios where the money trail doesn’t end with the debtor. We’ve all seen cases where a debtor signs a loan for a struggling business, uses rosy projections, or co-signs a note to help a relative. When the creditor sues for nondischargeability, the debtor’s defense is often: “I didn’t benefit.” Under the logic that some courts have adopted, that could be enough to avoid a judgment under § 523(a)(2)(A). Tavera’s piece warns against that defense and provides an academic yet accessible explanation of why it should not be determinative. Fraud, not benefit, is the statutory touchstone. With proper attribution, please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document the_benefits_of_hindsight_determining_whether_a_receipt_of_benefits_is_a_necessary_element_of_the_fraud_exception_to_discharge.pdf (807.14 KB) Category Law Reviews & Studies

Doctrine Of Equitable Mootness Explained (In re Boy Scouts)

By: Donald L. Swanson The recent Boy Scouts opinion from the U.S. Court of Appeals for the Third Circuit (decided May 13, 2025) provides this Q & A illumination on the doctrine of equitable mootness: Question: Does the doctrine of equitable mootness preclude the requested relief on appeal? Answer: In light of the limited relief Appellants... Continue Reading →

How to Navigate an Adversary Proceeding in Bankruptcy

Weekly News – July 4

Happy 4th of July — We will be back next week! Creditor Corner Your weekly curated content from the Creditor Rights Coalition Over 3,100 member subscribers and growing! We bring…

Law Review: Shachmurove, Amir, Last Rites and Licit Resurrections: The Problematic Pillars of Section 546(A)'S Oft-Presumed Preemption of Non-Bankruptcy Statutes of Repose (July 22, 2022). 30 Am. Bankr. Inst. L. Rev. 141 (2022)

Law Review: Shachmurove, Amir, Last Rites and Licit Resurrections: The Problematic Pillars of Section 546(A)'S Oft-Presumed Preemption of Non-Bankruptcy Statutes of Repose (July 22, 2022). 30 Am. Bankr. Inst. L. Rev. 141 (2022) Ed Boltz Thu, 07/03

Sub Rosa Plan Issues Explained (In re Boy Scouts)

By: Donald L Swanson Sub rosa plan issues have been around since the earliest days of my bankruptcy practice. Back in those days, unfortunately, I was never quite sure what a sub rosa plan might be. The dictionary definition of the term, “ sub rosa,”

Ploughing New Furrows: Bestwall, LLC Explores the Limits of Federal Courts’ Bankruptcy Jurisdiction with Novel Arguments (US)

What does it mean to be “bankrupt?” The Fourth Circuit recently held oral arguments to determine this question in Bestwall, LLC v. The Official Committee of Asbestos Claimants. [1] There, the Asbestos Claimants asserted that the United States

E.D.N.C.: In re Port City Contracting Services, Inc.- Discovery Appeal Dismissed as Interlocutory

E.D.N.C.: In re Port City Contracting Services, Inc.- Discovery Appeal Dismissed as Interlocutory Ed Boltz Wed, 07/02/2025 - 15:44 Summary: Pro se litigant Robert Paul Sharpe appealed two discovery-related denials from Bankruptcy Judge David M

4th Cir.: Martin v. Parker- No Denial of Discharge for embezzlement where debtor acted on good-faith advice from financial institutions despite conflicting estate documents

4th Cir.: Martin v. Parker- No Denial of Discharge for embezzlement where debtor acted on good-faith advice from financial institutions despite conflicting estate documents Ed Boltz Wed, 07/02/2025 - 04:53 Summary: After prevailing in a Virginia

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

The Insolvency Service have held a long-established view that creditors are classed as such at the point of entry into an insolvency process. This view was brought into question and challenged in the cases of Pindar and Toogood where in essence the

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

The Insolvency Service have held a long-established view that creditors are classed as such at the point of entry into an insolvency process. This view was brought into question and challenged in the cases of Pindar and Toogood where in essence the

Judicial Mediator: Do You Want A Judge From Your Home District Or From Afar?

By: Donald L Swanson Hypothetical: Your client in a complex Chapter 11 case has a dispute on a core issue with another party. The disputing parties decide that mediation might help resolve their dispute, and they can choose, under local rules