Court remands Chapter 13 case but leaves counsel sanction intact

The 4th U.S. Circuit Court of Appeals has ruled that plaintiff’s unapproved sale of her home breached a confirmed Chapter 13 plan because the plan expressly incorporated a local rule requiring court permission to dispose of real property.

The panel rejected the plaintiff’s belated attack on that rule, noting she agreed to be bound when the plan was confirmed and that paying the remaining plan balance did not automatically divest the bankruptcy court of jurisdiction while her three‑year commitment period was still running. The court also dismissed the plaintiff’s claim that her residence was fully exempt, explaining that North Carolina’s homestead exemption protects only a dollar amount and leaves any residual equity non‑exempt, making the property “partially exempt” at best.

Although the violation stood, the appellate judges found the bankruptcy court’s chosen sanctions — dismissal of the Chapter 13 case and a five‑year refiling bar — were insufficiently explained. The lower court, they said, failed to consider evidence that the plaintiff acted on incorrect legal advice from counsel when concluding she intentionally disregarded the plan. Because reliance on counsel’s advice bears directly on bad‑faith and sanction gravity, the panel vacated the dismissal and bar and remanded for a fresh assessment with explicit findings.

By contrast, the court affirmed the $15,000 monetary sanction imposed on the plaintiff’s attorney, observing that counsel alone bore responsibility for misadvising the plaintiff that the home was fully exempt and could be sold without court approval. The record, the panel concluded, demonstrated no abuse of discretion in penalizing counsel for that erroneous guidance.

Accordingly, the judgment was reversed in part, vacated in part, and remanded for further proceedings consistent with the opinion.

The 34-page opinion is Sugar v. Burnett, Lawyers Weekly No. 001‑070‑25.