August 28, 2025|Franchise Frontlines
August 28, 2025 | United States Bankruptcy Court for the Western District of Louisiana | Published Opinion
Executive Summary
In a detailed opinion addressing widespread abuses in consumer bankruptcy filings, the United States Bankruptcy Court for the Western District of Louisiana found that a group of individuals and entities operated a coordinated nationwide scheme designed to delay residential foreclosures by filing bare-bones Chapter 13 petitions for homeowners. The court determined that the defendants functioned together as part of a coordinated enterprise that prepared bankruptcy filings without complying with statutory requirements governing bankruptcy petition preparers and debt relief agencies. The defendants argued they operated as independent actors and were not legally responsible for one another’s conduct. The court rejected that argument, concluding that the evidence demonstrated that the defendants knowingly coordinated their efforts and participated in a common scheme. The court imposed substantial sanctions, ordered disgorgement of fees, awarded damages to the debtor, and referred aspects of the matter for further regulatory and disciplinary review.
Relevant Background
The case arose after a homeowner facing foreclosure sought assistance from a company offering loan-modification and foreclosure-defense services. The debtor ultimately filed a Chapter 13 bankruptcy petition that contained minimal information and was prepared without the involvement of a properly retained bankruptcy attorney. The bankruptcy filing temporarily halted the foreclosure process through the automatic stay.
The court determined that the filing was not an isolated incident but part of a broader pattern. Evidence showed that multiple individuals and entities collaborated in a system designed to generate revenue by enrolling homeowners in foreclosure-assistance programs and directing them into pro se bankruptcy filings that delayed foreclosure proceedings. The evidence showed that hundreds of such filings occurred nationwide.
Participants in the system performed different roles. Some entities marketed foreclosure-assistance services to distressed homeowners. Others collected fees, gathered financial information from customers, and prepared bankruptcy forms. In certain cases, individuals affiliated with the operation provided guidance to homeowners regarding the filing of bankruptcy petitions even though they were not authorized to practice law.
The defendants argued that they were independent actors and not responsible for the actions of others involved in the process. According to their position, the absence of a formal partnership or joint entity precluded liability for a coordinated scheme.
Decision
The bankruptcy court rejected the defendants’ arguments and concluded that the record demonstrated a coordinated enterprise operating in violation of several provisions of the Bankruptcy Code governing bankruptcy petition preparers and debt relief agencies.
The court found that the defendants functioned as bankruptcy petition preparers within the meaning of the Bankruptcy Code because they assisted debtors in preparing documents filed with the court. The court also determined that the defendants qualified as debt relief agencies subject to statutory requirements governing disclosures and conduct when providing services to consumer debtors.
Evidence showed that the defendants prepared or assisted with numerous pro se bankruptcy filings that lacked required disclosures and were filed primarily to delay foreclosure proceedings rather than to pursue legitimate reorganization efforts. The court concluded that the filings were part of a coordinated system in which different participants played defined roles, shared information, and generated revenue through a common process.
In addressing the defendants’ contention that they could not be held responsible for one another’s conduct, the court emphasized that liability does not depend on the existence of a formal partnership or joint entity. Instead, the relevant inquiry is whether the participants knowingly coordinated their activities and acted in concert to carry out the scheme. The court concluded that the evidence demonstrated that the defendants understood their respective roles and participated in a coordinated effort that produced a large number of improper filings.
Based on those findings, the court imposed extensive remedies. These included civil penalties against multiple defendants, disgorgement of fees collected from debtors, damages awarded to the debtor involved in the case, and injunctive relief designed to prevent future violations. The court also directed that aspects of the matter be referred for potential disciplinary and regulatory review.
Looking Forward
Although the decision arises in the context of bankruptcy petition preparation, it highlights a broader principle that courts frequently apply when evaluating liability within multi-actor business structures: courts will examine the operational realities of a system rather than relying solely on the formal legal relationships among the participants.
When multiple actors coordinate their conduct, share operational roles, and pursue a common commercial objective, courts may treat the participants as part of a coordinated enterprise even in the absence of a formal partnership or corporate structure. The court’s analysis illustrates how shared operational roles and coordinated activities can support liability when participants knowingly contribute to a system that violates applicable law.
For franchisors and other operators of multi-entity systems, the case serves as a reminder that courts often look closely at how different participants interact within a broader network. Legitimate franchise systems typically operate with clear contractual boundaries, defined roles, and compliance structures that distinguish them from loosely organized networks that lack oversight or accountability.
The decision therefore underscores the importance of maintaining strong compliance frameworks and clearly defined operational relationships within multi-party systems. Where business models rely on networks of independent actors—whether franchisees, vendors, consultants, or other service providers—carefully structured agreements and oversight mechanisms can help ensure that system participants operate within applicable legal and regulatory boundaries.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
