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Law Review: Zhang, Jennifer, How the “One Big Beautiful Bill Act” Law Will Raise Taxes for Thousands of Student Loan Borrowers (November 06, 2025). Protect Borrowers Research Paper

Ed Boltz — Tue, 09 Jun 2026 13:57:43 +0000

Law Review: Zhang, Jennifer, How the “One Big Beautiful Bill Act” Law Will Raise Taxes for Thousands of Student Loan Borrowers (November 06, 2025). Protect Borrowers Research Paper Ed Boltz Tue, 06/09/2026 - 15:57

Available at: How the “One Big Beautiful Bill Act” Law Will Raise Taxes for Thousands of Student Loan Borrowers

Abstract

On July 4, 2025, President Trump signed into law the congressional budget reconciliation bill known as the “One Big Beautiful Bill Act” (OBBBA). The OBBBA delivers over $4 trillion in tax cuts to billionaires and large corporations, while making unprecedented cuts to Medicaid, the Supplemental Nutrition Assistance Program (SNAP), federal student aid, and many other programs that working families rely upon to make ends meet.

Among the many enormous policy changes made by the OBBBA, Congress made permanent the exclusion of cancelled student loan debt due to death or permanent disability from federal taxable income. In the Tax Cuts and Jobs Act of 2018, Congress originally exempted loans cancelled due to death or permanent disability from federal taxation from December 31, 2017, until December 31, 2025. Congress later expanded this federal tax exemption to include all cancelled federal student debt, including through Income-Driven Repayment (IDR) plans, as part of the American Rescue Plan Act of 2021. While the OBBBA permanently extended the exclusion of cancelled debts for death and disability, millions of borrowers who are currently on track to earn debt relief under an IDR plan after January 1, 2026, will see a massive increase in their federal income tax liability and therefore have to pay thousands of dollars in additional taxes.

The following memo provides an overview of the additional tax costs that working families could face if Congress and the Trump Administration fail to act.

Summary:

The Protect Borrowers memorandum paints a grim picture for borrowers approaching Income-Driven Repayment (“IDR”) forgiveness after January 1, 2026. Congress preserved tax-free treatment for student loans discharged due to death or disability, but allowed the broader American Rescue Plan Act exclusion for IDR forgiveness to expire.

That means borrowers who spent twenty to thirty years making payments under IDR plans may suddenly receive IRS Form 1099-C cancellation-of-debt income for balances that often ballooned because of negative amortization and interest capitalization. The report estimates that borrowers receiving average IDR forgiveness of roughly $49,321 could face additional federal tax liabilities ranging from approximately $5,800 to more than $10,000, with lower-income families often suffering the greatest harm because they simultaneously lose refundable tax credits such as the Earned Income Tax Credit and Additional Child Tax Credit.

The examples are staggering. A married borrower with two dependents earning $40,000 annually could move from receiving $8,534 in refundable credits to owing $1,761 in taxes—a net swing of more than $10,000. The memorandum also highlights borrowers whose balances exploded from ordinary educational debt into six-figure obligations through decades of capitalization, deferments, and servicer misconduct. One borrower who originally borrowed $42,000 reportedly saw her balance grow to $178,000 and could face over $45,000 in tax liability if that balance is forgiven and treated as taxable income.

Importantly for bankruptcy practitioners, the memorandum briefly acknowledges that borrowers may avoid cancellation-of-debt taxation if the debt is discharged in a Title 11 bankruptcy proceeding. That observation may prove far more significant than the memorandum itself recognizes.

Commentary:

For years, the conventional wisdom was that bankruptcy and student loan forgiveness occupied separate universes. Bankruptcy lawyers handled insolvency; IDR and PSLF belonged to the federal student loan servicing system. Increasingly, however, those worlds are colliding.

The key development is 34 C.F.R. § 685.209(k)(4)(iv)(K), which provides that periods during which a borrower is in a qualifying bankruptcy forbearance while making required Chapter 13 plan payments count toward IDR forgiveness and PSLF credit. Put simply, Chapter 13 has become “time served” toward eventual student loan discharge.

That changes everything.

A debtor can now spend three to five years in Chapter 13 obtaining the protections of the automatic stay, curing mortgage defaults, stopping garnishments, dealing with tax debt, managing unsecured claims, and simultaneously accumulating qualifying IDR or PSLF credit months. Once those repayment periods are completed, the borrower may emerge entitled to substantial federal student loan forgiveness.

The OBBBA memorandum demonstrates why the tax consequences of that forgiveness now matter enormously. If Congress allows IDR forgiveness taxation to return in full force, many borrowers will merely exchange one impossible debt for another: federal student loans replaced by IRS liabilities.

But bankruptcy practitioners should immediately notice something unusual in the IRS instructions for Form 982.

The IRS defines a “Title 11 case” as one in which “the discharge of indebtedness is granted by the court or is under a plan approved by the court.”

That language is fascinating.

The phrase “granted by the court” obviously covers ordinary bankruptcy discharges under Chapters 7, 11, 12, and 13. But the IRS did not stop there. Instead, it separately included debt forgiveness that occurs “under a plan approved by the court.”

Those clauses must mean different things.

Otherwise, the second clause becomes surplusage.

That opens a potentially powerful argument: where a confirmed Chapter 13 plan expressly provides for treatment of student loans while the debtor accrues qualifying “time served” IDR or PSLF credit pursuant to federal regulations, the eventual forgiveness may arguably occur “under a plan approved by the court” even if the actual discharge event occurs administratively years later.

That is not a frivolous argument.

Indeed, Chapter 13 confirmation orders routinely approve long-term debt treatment under § 1322(b)(5), mortgage modifications, conduit payments, cure provisions, direct-pay obligations, and increasingly complex student loan provisions. If the confirmed plan expressly contemplates and incorporates the federal regulatory framework under which Chapter 13 plan performance generates qualifying IDR credit, one can reasonably argue that the eventual forgiveness is inextricably tied to and accomplished under the authority of that court-approved plan.

At minimum, this creates a substantial interpretive issue under Internal Revenue Code § 108 and the IRS’s own published guidance.

And unlike many aggressive tax theories, this one arises directly from the government’s own language.

Bankruptcy May Become the Safest and Cheapest Path to Student Loan Forgiveness:

Ironically, the OBBBA may push more borrowers toward Chapter 13 precisely because Chapter 13 could become the best available shield against the tax bomb Congress just recreated.

That is especially true for borrowers who:

are already pursuing PSLF or IDR forgiveness;
have substantial accrued interest capitalization;
cannot realistically repay their balances;
face renewed collection efforts and wage garnishment;
need mortgage or vehicle relief; or
have low enough income that insolvency analyses would be difficult, expensive, or uncertain.

The memorandum correctly notes that the insolvency exception is cumbersome and inaccessible for many borrowers. Bankruptcy, however, already requires a judicially supervised accounting of debts, assets, disposable income, and repayment obligations. In many cases, Chapter 13 may provide a cleaner and more defensible framework for excluding future cancellation-of-debt income.

There is also a practical reality here.

The IRS instructions themselves acknowledge that debts discharged “under a plan approved by the court” qualify for exclusion treatment. At the same time, the IRS has suffered substantial staffing reductions and operational strain. Even if Treasury ultimately disputes this interpretation, one suspects the agency may have limited appetite for litigating highly technical cancellation-of-debt issues involving financially distressed borrowers who completed multi-year Chapter 13 plans in reliance on federal student loan regulations.

And politically, suing debtors who spent five years in Chapter 13 while attempting to comply with federal repayment programs is probably not the cleanest test case.

Final Thoughts:

For decades, the nightmare scenario for student loan borrowers was that balances would survive bankruptcy. Increasingly, however, the greater danger may be what happens after forgiveness.

Congress appears poised to recreate the very “tax bomb” that earlier legislation temporarily neutralized. Yet in doing so, it may inadvertently increase the importance of Chapter 13 bankruptcy as both a student loan management tool and a tax planning mechanism.

That possibility should not be ignored.

Consumer bankruptcy attorneys should begin thinking now about plan language specifically addressing IDR and PSLF “time served” credit under 34 C.F.R. § 685.209(k)(4)(iv)(K), the relationship between confirmed plans and future administrative forgiveness, and whether that forgiveness may ultimately qualify as debt discharged “under a plan approved by the court” for purposes of Form 982 and Internal Revenue Code § 108.

Because if that argument succeeds, Chapter 13 may become not merely a bridge to student loan forgiveness, but the mechanism that preserves the value of that forgiveness itself.

To read a copy of the transcript, please see:

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Category

Law Reviews & Studies

Law Review (Policy Paper): Zhang, Jennifer, Deep Dive: The Hidden Costs of Delinquency: Subprime Credit, Predatory Loans, and Debt Traps (June 26, 2025). Protect Borrowers Research Paper,

Ed Boltz — Mon, 08 Jun 2026 16:29:42 +0000

Law Review (Policy Paper): Zhang, Jennifer, Deep Dive: The Hidden Costs of Delinquency: Subprime Credit, Predatory Loans, and Debt Traps (June 26, 2025). Protect Borrowers Research Paper, Ed Boltz Mon, 06/08/2026 - 18:29

Available at: https://ssrn.com/abstract=6361458

Abstract:

The following Deep Dive presents an analysis indicating that one student loan in delinquency can make borrowers of every credit tier subprime, according to recent data from the Federal Reserve Bank of New York. Once a borrower becomes subprime, their interest rates for lines of credit could more than double, making it substantially more difficult—if not impossible—to buy a house or a car, open a credit card, get a personal loan, or access other loans to make ends meet. Borrowers could then be targeted with predatory loan products, some with interest rates as high as 662 percent, that can trap them in further lifelong debt.

Summary:

The Student Borrower Protection Center’s “Deep Dive: The Hidden Costs of Delinquency” provides a grim but unsurprising picture of what happens when federal student loan borrowers fall behind. Drawing heavily on recent Federal Reserve Bank of New York data, the article explains that a single delinquent student loan can crater a borrower’s credit score by 87 to 171 points, often instantly transforming even “superprime” borrowers into subprime consumers.

The paper details how borrowers with previously solid credit scores can suddenly find themselves unable to qualify for conventional mortgages, facing doubled automobile interest rates, or paying absurdly high rates for personal loans. One chart estimates that a borrower with an average credit score of 684 could see that score collapse to approximately 519 after a delinquency, with auto loan rates jumping from 6.7% to 13.22% and personal loan costs skyrocketing.

The article further explains that this damage radiates beyond borrowing. Delinquent borrowers may face difficulty renting apartments, obtaining utilities, securing insurance, getting cell phone plans, or even obtaining employment where credit checks are permitted. As the paper correctly recognizes, once borrowers are locked out of conventional credit markets, many become targets for payday loans, title lending, contracts-for-deed, and other predatory financial products carrying triple-digit interest rates.

The article also notes that over 5.6 million borrowers were already reported delinquent in the first quarter of 2025, with projections that 9.2 million borrowers could become delinquent by the end of June 2025. The paper attributes much of this crisis to the collapse of affordable repayment options, the suspension of SAVE Plan implementation, massive servicing backlogs, and administrative failures within the Department of Education.

Finally, the article warns that the resumption of federal collection efforts—including administrative wage garnishment and tax refund seizures—will likely intensify the broader economic fallout.

Commentary:

The most important insight from this article may not actually be about student loans. It is about credit reporting.

For many borrowers, the real economic catastrophe is not the debt itself, but the destruction of access to ordinary financial life. A borrower who suddenly cannot refinance a vehicle, qualify for housing, obtain affordable insurance, or even secure utilities is quickly pushed into the exact cycle of desperation and predatory lending that this paper describes.

And that problem is likely about to become substantially worse.

With the dismissal of the SAVE Plan litigation in Missouri v. Trump, the earlier injunction against implementation of portions of the Biden-era regulations has effectively dissolved except to the extent modified by settlement terms. As a result, 34 C.F.R. § 685.209(k)(4)(iv) remains effective from July 1, 2024 through June 30, 2028. That regulation provides borrowers with credit toward Income Driven Repayment and PSLF forgiveness for periods during which the borrower is making required payments under a Chapter 13 bankruptcy plan.

That is a massive development that has still not been fully appreciated by either the bankruptcy bar or student loan servicers.

Chapter 13 may now frequently be the single best IDR option available.

Unlike conventional repayment programs that are driven primarily by gross income formulas, Chapter 13 calculates payment obligations through the Disposable Monthly Income framework under the Bankruptcy Code. The Means Test accounts for real-world expenses including housing, taxes, transportation, healthcare, childcare, and secured debt obligations. For many borrowers, especially those already struggling with rising living costs, Chapter 13 may produce dramatically lower effective repayment obligations than any available non-bankruptcy repayment option.

Hence the name: “Disposable Monthly Income.”

More importantly, under the current regulations, debtors receive month-for-month progress toward forgiveness merely by remaining in a confirmed Chapter 13 plan and making required plan payments—regardless of the amount actually distributed toward student loans and without needing separate “Buchanan” plan language. A debtor in a low-dividend Chapter 13 case could therefore continue accumulating IDR or PSLF credit even while paying little directly toward student loan principal.

That fundamentally changes the strategic role of Chapter 13 in student loan practice.

Of course, there is an obvious problem: student loan servicers are notoriously incompetent at payment accounting.

Consumer bankruptcy attorneys already know this story from mortgage servicing litigation. Mortgage servicers routinely misapply payments, assess unauthorized fees, fail to properly account for escrow obligations, or file inaccurate notices. Those systemic servicing failures became so severe that Congress enacted 11 U.S.C. § 524(i) and Bankruptcy Rule 3002.1(f)-(h) specifically to address postpetition mortgage accounting problems in Chapter 13 cases.

Student loan servicers are, if anything, worse.

The SBPC paper itself references erroneous delinquency reporting, duplicate tradelines, and inaccurate credit reporting by servicers. If servicers already struggle to correctly track ordinary IDR credits outside bankruptcy, there is little reason to expect they will accurately account for Chapter 13 periods where payments may be indirect, partial, or distributed through trustees.

That creates a substantial opportunity for what may become an increasingly important category of litigation: a Student Loan Adversary Proceeding seeking Declaratory Judgment—a “SLAP-DJ.”

Rather than seeking discharge under § 523(a)(8), debtors may increasingly seek declaratory judgments fixing the precise number of months for which they are entitled to IDR and PSLF credit under 34 C.F.R. § 685.209(k)(4)(iv). Such litigation could also seek orders requiring servicers to accurately report those credited Chapter 13 periods to consumer reporting agencies such as Experian, Equifax, and TransUnion.

And that credit reporting component may ultimately matter just as much as the eventual forgiveness itself.

If a debtor receives theoretical forgiveness credit while simultaneously being reported as delinquent, impaired, or in repayment limbo, then the borrower remains trapped in the exact financial collapse this article describes. The borrower may technically progress toward forgiveness while still being rendered effectively unable to obtain housing, transportation, affordable credit, or even employment.

Bankruptcy courts are uniquely equipped to address these problems because they already supervise long-term payment administration systems involving mortgages, taxes, secured claims, and domestic support obligations. The same concerns that led to Rule 3002.1 mortgage accounting protections increasingly exist in the student loan context.

The deeper irony is that Chapter 13—often criticized as overly complex—may now provide struggling borrowers with the most sophisticated and consumer-protective repayment framework available anywhere in federal law.

To read a copy of the transcript, please see:

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Law Reviews & Studies

4th Cir.: Sessoms v. USHealth Advisors- Lead Generators and Marketing Partners Can Enforce Arbitration Clauses in TCPA Litigation

Ed Boltz — Fri, 05 Jun 2026 13:36:59 +0000

4th Cir.: Sessoms v. USHealth Advisors- Lead Generators and Marketing Partners Can Enforce Arbitration Clauses in TCPA Litigation Ed Boltz Fri, 06/05/2026 - 15:36

In Sessoms v. USHealth Advisors, LLC, the Fourth Circuit reversed the Eastern District of North Carolina and held that USHealth Advisors, LLC could enforce an arbitration clause contained in a lead-generation website’s Terms of Use against a consumer bringing TCPA claims.

Summary:

Plaintiff Cynthia Sessoms alleged that USHealth violated the TCPA through prerecorded telemarketing calls. USHealth argued that Sessoms had previously agreed to arbitration when she sought insurance quotes through a NextGen/FirstQuoteHealth lead-generation website.

The district court refused to compel arbitration, finding that USHealth was not a third-party beneficiary of the agreement between Sessoms and the lead generator.

The Fourth Circuit reversed. While reaffirming Rogers v. Tug Hill Operating, LLC that courts — not arbitrators — decide whether non-signatories can enforce arbitration agreements, the Court held that USHealth qualified as a third-party beneficiary under Delaware law because the purpose of the agreement was to connect consumers with marketing partners providing insurance quotes.

Commentary:

This case demonstrates how modern lead-generation systems increasingly use arbitration clauses as part of the infrastructure for monetizing consumer data and consent.

From a doctrinal standpoint, the Fourth Circuit carefully grounded its analysis in ordinary contract law rather than any special “pro-arbitration” preference. But from a consumer perspective, the ruling expands the ability of downstream marketing entities to enforce arbitration agreements consumers likely never understood would apply to them.

For consumer bankruptcy and consumer protection attorneys, the most important aspect of the decision may actually be the Court’s reaffirmation of Tug Hill. The Fourth Circuit continues to insist that courts must determine whether a non-signatory can compel arbitration before a case is sent to arbitration. That remains a significant protection in FDCPA, FCRA, TCPA, mortgage servicing, and other consumer litigation where entities frequently attempt to invoke arbitration clauses contained in contracts they never signed.

To read a copy of the transcript, please see:

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Category

4th Circuit Court of Appeals

M.D.N.C.: Peoples v. Experian- Iqbal/Twombly Inapplicable to Affirmative Defenses but "Fair Notice" Standard does Apply

Ed Boltz — Thu, 04 Jun 2026 16:10:16 +0000

M.D.N.C.: Peoples v. Experian- Iqbal/Twombly Inapplicable to Affirmative Defenses but "Fair Notice" Standard does Apply Ed Boltz Thu, 06/04/2026 - 18:10

n Peoples v. Experian , Judge Thomas D. Schroeder of the United States District Court for the Middle District of North Carolina takes up one of those procedural questions that federal litigators have been fighting over for nearly two decades after Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal: whether defendants asserting affirmative defenses must satisfy the same “plausibility” standard imposed on plaintiffs, or whether merely providing “fair notice” remains enough.

The result in Peoples v. Experian Information Solutions, Inc. is less a sweeping revolution than a careful reaffirmation that, at least in much of the Fourth Circuit, notice pleading for affirmative defenses is still alive — albeit with limits. And for consumer bankruptcy and FCRA practitioners, the opinion provides a useful reminder that boilerplate defenses are not untouchable simply because courts decline to impose full Twombly/Iqbal pleading requirements on defendants.

Summary

Donovan Peoples brought a claim under the Fair Credit Reporting Act alleging that Experian violated 15 U.S.C. § 1681g(a)(1) by failing to completely and accurately disclose all information in his credit file. Specifically, Peoples alleged that Experian disclosed certain accounts without full account numbers, details, or account histories, causing emotional distress, embarrassment, frustration, and credit denials.

After Experian answered the amended complaint and asserted multiple affirmative defenses, Peoples moved to strike them under Rule 12(f). The central dispute became whether affirmative defenses must satisfy the Twombly/Iqbal plausibility standard or merely provide “fair notice.”

Judge Schroeder rejected Peoples’s argument that Twombly and Iqbal apply wholesale to affirmative defenses. Instead, relying heavily on prior Middle District of North Carolina authority and the Fourth Circuit’s unpublished decision in Clem v. Corbeau, the court held that affirmative defenses need only provide “fair notice of the nature of the defense.”

Importantly, however, the court did not treat “fair notice” as meaningless.

The opinion struck Experian’s Second Affirmative Defense, which alleged that all information communicated to third parties was true, because that defense had nothing to do with the actual FCRA claim asserted — namely, incomplete disclosures to Peoples himself under § 1681g. Judge Schroeder concluded that the defense “simply does not constitute a valid defense to this action under the facts alleged.”

By contrast, the court allowed defenses involving mitigation of damages, contributory negligence/comparative fault, and intervening causation to survive because those defenses at least plausibly related to damages and causation under the FCRA.

So while the court rejected heightened pleading requirements for affirmative defenses, it still required enough substance and connection to the claims asserted to provide meaningful notice and avoid irrelevant clutter.

Commentary

This decision matters because it pushes back against two extremes that have emerged since Twombly and Iqbal.

The first extreme is the argument advanced by some plaintiffs that defendants should have to plead affirmative defenses with the same factual specificity demanded of complaints. The second is the opposite assumption — often reflected in modern federal practice — that defendants can dump pages of boilerplate affirmative defenses into an answer with virtually no scrutiny whatsoever.

Judge Schroeder rejects the first position, but importantly does not fully embrace the second.

That distinction matters.

The opinion recognizes the practical asymmetry built into federal litigation. Plaintiffs can investigate claims for months or years before filing suit, while defendants typically have only 21 days to answer. That timing problem has always been one of the strongest textual and practical arguments against importing Twombly and Iqbal into Rule 8(c).

The court also correctly notes that Rule 8(a)(2) — the provision interpreted in Twombly and Iqbal — requires a “showing” that the pleader is entitled to relief, while Rule 8(c) merely requires affirmative defenses to be “affirmatively state[d].” That textual distinction has driven much of the post-Iqbal case law refusing to extend plausibility pleading to defenses.

But perhaps the most important part of the decision is what comes next: “fair notice” is not treated as a free pass.

Too often in federal litigation, answers become sprawling collections of generic defenses copied from old templates with little thought given to whether they actually apply. The result is unnecessary discovery disputes, confusion, and motion practice over defenses that were never viable in the first place.

Judge Schroeder’s striking of Experian’s “truth/accuracy” defense demonstrates that even under a notice standard, courts can and should eliminate defenses that bear no meaningful relationship to the claims asserted.

That may ultimately be the more workable middle ground.

The “Heightened Pleading Standards for Defendants” Law Review Article

The opinion expressly cites the law review article Heightened Pleading Standards for Defendants: A Case Study of Court-Counting Precedent by Brian Soucek and Remington Lamons.

As the article explains:

“In over a thousand cases, federal courts have considered whether the heightened pleading standards imposed on plaintiffs in Twombly and Iqbal also apply to the affirmative defenses raised in defendant’s answers. Courts are split, and alongside the usual textual and policy arguments they offer, a less expected consideration is often raised: the fact that a majority of other courts have decided the same way. Court-counting precedent, as we call this kind of reasoning, requires justification, not least because—as we find here—judges get their count wrong a full third of the time.”

The article further found that courts refused to apply heightened pleading standards to affirmative defenses approximately 62% of the time during the first decade after Twombly.

That discussion is particularly interesting because Peoples itself engages in a form of this “court-counting precedent.” Judge Schroeder surveys Middle District of North Carolina cases and concludes that “most courts in this district” have rejected Twombly/Iqbal for affirmative defenses.

The Soucek/Lamons article warns that this kind of tallying exercise can become self-reinforcing. Courts begin citing each other not necessarily because the reasoning is persuasive, but because a perceived majority exists. And, as the article demonstrates, judges are often mistaken about what the majority rule actually is.

That observation has real significance in federal procedural law, where district courts frequently look sideways to peer courts because appellate guidance is sparse or nonexistent.

Application to Peoples’s FCRA Claims

For FCRA practitioners, the more immediate lesson is how the “fair notice” standard interacts with consumer claims under § 1681g.

The court effectively required Experian’s defenses to bear some logical relationship to the statutory elements of the claim. Since Peoples alleged incomplete disclosures to himself, a defense focused on the accuracy of information provided to third parties simply did not fit the case.

That reasoning provides a potentially useful tool for consumer attorneys confronting the increasingly common “kitchen sink” answer strategy in FCRA litigation.

Even where courts reject Twombly/Iqbal for affirmative defenses, Peoples suggests that Rule 12(f) still has teeth when:

the defense has no nexus to the actual statutory claim;
the defense merely recites abstract legal doctrines untethered to the allegations;
or the defense risks confusing the issues rather than clarifying them.

At the same time, the opinion shows how broadly courts may permit causation-related defenses in FCRA cases. Judge Schroeder allowed mitigation, comparative fault, and intervening cause defenses to survive because FCRA damages provisions require some causal connection between the statutory violation and the consumer’s injuries.

That could become particularly significant in consumer reporting cases involving emotional distress damages, mixed causation, or disputes over whether inaccurate reporting actually caused a denial of credit.

In that sense, Peoples is less about imposing heightened pleading standards on defendants and more about requiring at least some disciplined relationship between the affirmative defenses asserted and the claims actually being litigated. That may not be Twombly and Iqbal for defendants — but it is also not a license for meaningless boilerplate.

To read a copy of the transcript, please see:

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Middle District

Law Review (Note): Abby Ponder, Comment, The Bankruptcy Code's Missing Link: How the Undefined "Executory Contract" Quandary is Leaving Land Sales and Bankruptcy Courts in Limbo, 46 N. Ill. Univ. L. Rev. 277 (2026).

Ed Boltz — Wed, 03 Jun 2026 14:34:46 +0000

Law Review (Note): Abby Ponder, Comment, The Bankruptcy Code's Missing Link: How the Undefined "Executory Contract" Quandary is Leaving Land Sales and Bankruptcy Courts in Limbo, 46 N. Ill. Univ. L. Rev. 277 (2026). Ed Boltz Wed, 06/03/2026 - 16:34

Available at: https://huskiecommons.lib.niu.edu/niulr/vol46/iss2/6/

Abstract:

Arguably the most convoluted concept lurking within bankruptcy law is that of the "executory contract" which may be found within section 365 of the bankruptcy code. Since its inception in 1978, this section has been dubbed one of the most "psychedelic" areas of American jurisprudence. The phantasmagoric nature of this section largely derives from Congress declining to provide a definition within the Code for executory contracts. Already rife with confusion and contradiction, the missing definition of executory contract, which comes under section 365, represents a significant "missing link" of understanding for bankruptcy courts in ruling on land sale contracts. Bankruptcy judges nationwide have struggled to make sense of this area of law with scant jurisprudential support. Sale of land contracts within bankruptcy courts thus creates a particularly unique issue wherein circuits and bankruptcy courts alternate between concluding that such sales represent executory contracts, or that they constitute land security devices immune from the reach of section 365. While benefits exist to adopting either interpretation, on balance, treating land sale contracts as security devices presents the more equitable solution. The two camps of logic that courts rely upon, however, pose a more interesting issue. Bankruptcy is under federal jurisdiction and within our Constitution, is a power granted to Congress to create, "uniform Laws on the subject of Bankruptcies throughout the United States." Treating sale of land contracts differently depending on the state in which the bankruptcy court sits is an unsatisfactory and unsustainable strategy. It also flies in the face of what our Framers of the United States Constitution intended for bankruptcies. At the same time, though preferable to the alternative, treating land sale contracts as security devices would not wholly fix the problem but would at least take the issue out of the hands of section 365. Anything less than Congress taking back the reins on section 365 and carving out a niche within the bankruptcy code for sale of land contracts would be akin to placing a Band-Aid over a bullet hole.

Summary:

Abby Ponder’s law review note argues that one of the deepest unresolved problems in bankruptcy law remains Congress’s failure to define “executory contract” in 11 U.S.C. § 365. The article focuses on installment land sale contracts—often called contracts for deed—and how courts across the country sharply disagree on whether those agreements are executory contracts subject to assumption or rejection in bankruptcy, or instead are merely security devices analogous to mortgages.

The article explains that the split matters enormously for financially distressed homeowners. If a land installment contract is treated as executory, the debtor generally must either assume the contract and cure defaults or reject it and lose the property. If the agreement is instead treated as a secured financing device, the debtor may be able to modify the obligation through bankruptcy much like a mortgage loan.

Ponder traces the confusion back to Congress’s decision in 1978 to enact § 365 without defining “executory contract.” Courts therefore turned to Professor Vern Countryman’s famous definition, under which a contract is executory if obligations remain sufficiently unperformed on both sides such that failure by either party would constitute a material breach. Under that analysis, many courts conclude that installment land contracts are executory because the buyer still owes payments while the seller still owes delivery of title.

Other courts, however, focus less on formal contract doctrine and more on economic reality. Those courts view installment land contracts as “poor man’s mortgages” that function primarily as secured financing arrangements. Treating them as security devices better preserves debtor rehabilitation and prevents forfeiture of accumulated equity.

The article ultimately argues that the lack of national uniformity undermines the constitutional purpose of federal bankruptcy law itself. A debtor’s outcome should not depend merely on geography.

Commentary:

This article highlights a recurring bankruptcy problem: courts often attempt to force economically sophisticated financing arrangements into doctrinal categories that were never designed for them. Installment land contracts are a classic example.

Consumer bankruptcy attorneys have long recognized that many contracts for deed operate as high-risk seller financing arrangements targeted toward borrowers who cannot qualify for conventional mortgages. Those agreements often shift taxes, insurance, repairs, and maintenance obligations onto the purchaser while allowing the seller to retain title until the final payment. In practical effect, many of these arrangements function almost identically to mortgages while providing substantially fewer protections to the purchaser.

That concern is particularly important in North Carolina. In North Carolina, land sales contracts—specifically installment land contracts or “contracts for deed” involving five or more payments—are governed by Chapter 47H of the North Carolina General Statutes. Those statutes require the contract to be in writing, recorded within five business days, and to contain extensive disclosures regarding the principal balance, interest rate, taxes, insurance obligations, late fees, and the condition of title. The enactment of Chapter 47H reflects legislative recognition that these agreements are not merely casual executory agreements for future conveyance, but instead function as long-term consumer financing devices with substantial risks to purchasers.

That statutory framework strongly supports the reasoning of courts that treat installment land contracts as secured transactions rather than executory contracts. North Carolina itself has effectively acknowledged that these arrangements are economically analogous to mortgage lending. The detailed disclosure requirements under Chapter 47H resemble consumer mortgage regulation far more than ordinary bilateral contract law.

The article also demonstrates the continuing problems created by the Countryman definition itself. Professor Countryman attempted to clarify executory contract doctrine, but his formulation often proves so broad that nearly any ongoing contractual relationship could qualify as executory. Modern consumer finance contracts almost always impose continuing obligations on both sides. Mortgage servicers must provide statements and accountings. Borrowers must maintain insurance and make payments. Credit card issuers must continue honoring transactions. Auto lenders may have continuing title obligations. If ongoing reciprocal obligations alone define executory contracts, the concept risks becoming nearly limitless.

That is why many bankruptcy courts have increasingly focused on economic substance rather than formalistic contract doctrine. The better question is not whether both sides still owe something, but whether the agreement primarily functions as a financing arrangement or as an ongoing exchange relationship requiring continuing material performance.

The article correctly concludes that Congress created this confusion by failing to define “executory contract” in § 365. Bankruptcy courts are left improvising with competing theories, producing wildly different outcomes depending on jurisdiction. That lack of uniformity is particularly problematic in consumer bankruptcy cases, where losing a home under a technical characterization dispute can be catastrophic.

Tangential Commentary:

The article’s analysis again raises an intriguing question about mandatory arbitration provisions in consumer contracts.

Most arbitration clauses impose continuing obligations on both parties. Consumers agree to submit disputes to arbitration rather than litigation. Creditors similarly agree to arbitrate claims, follow arbitration procedures, pay certain arbitration costs, and waive judicial forums. Under a strict Countryman-style analysis, one could argue that arbitration provisions themselves are executory agreements because material obligations remain unperformed on both sides unless and until a dispute arises.

If arbitration agreements are executory contracts, an even more provocative issue emerges in Chapter 13 cases: what happens if the debtor’s Chapter 13 plan does not assume the arbitration provision?

Under § 365, failure to assume an executory contract generally results in rejection. That could potentially support an argument that an arbitration provision was rejected through confirmation of a Chapter 13 plan and therefore no longer governs post-confirmation disputes going forward.

That argument would likely face enormous resistance from federal courts because of the Federal Arbitration Act and the Supreme Court’s extraordinarily pro-arbitration jurisprudence. Courts have repeatedly treated arbitration provisions as uniquely favored contractual terms. Nonetheless, the conceptual tension remains difficult to ignore.

If bankruptcy courts insist that installment land contracts remain executory because both parties retain future obligations, then many arbitration provisions appear to fit the same logic. Arbitration agreements are not fully performed upon signing. Their central obligations arise only later if disputes occur. Under a pure Countryman framework, they arguably remain executory throughout the contractual relationship.

Consumer bankruptcy practitioners may therefore eventually explore whether arbitration clauses can be rejected in Chapter 13 plans in the same manner as other executory agreements. Even if courts ultimately reject that argument, the question exposes how unstable and indeterminate executory contract doctrine has become. The problem may not simply be installment land contracts. The deeper issue may be that bankruptcy law still lacks a coherent limiting principle for what § 365 actually covers.

To read a copy of the transcript, please see:

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Law Reviews & Studies

Law Review: Palermo, Anthony and Bruce, Kara J. and Coordes, Laura, An Open Letter to Law School Deans About the Importance of Commercial Law Education (April 20, 2026)

Ed Boltz — Tue, 02 Jun 2026 13:26:01 +0000

Law Review: Palermo, Anthony and Bruce, Kara J. and Coordes, Laura, An Open Letter to Law School Deans About the Importance of Commercial Law Education (April 20, 2026) Ed Boltz Tue, 06/02/2026 - 15:26

Available at SSRN: https://ssrn.com/abstract=6615598

Abstract:

The American Bar Association's Commercial Law Education Task Force was formed to bring renewed attention to the importance of commercial law in legal education. There has been a significant decline in commercial law course offerings at U.S. law schools, and we write to law schools to ask them to prioritize and encourage commercial law offerings.

Commercial law cuts across disciplines and includes selling, leasing, lending, investing, and payments. Commercial law concepts appear regularly and substantially in a variety of practices, including not only transactional and business litigation fields but also practices focused on consumer law, family law, bankruptcy, and criminal law. Commercial law forms the basis for understanding our existing systems of finance and trade and informs developing systems such as cryptocurrency.

Despite its significance, commercial law is disappearing from law school curricula. In addition, Secured Transactions will no longer be directly tested on the NextGen Uniform Bar Exam.

We are a robust community of more than 100 law professors and practitioners who are dedicated to ensuring that commercial law classes remain in law school curricula. We urge law schools to make it a priority to offer these courses, including those covering secured transactions, sales and leases of goods, payment systems, bankruptcy, or some combination of these, plus additional courses in transactional skills, cryptocurrencies and other digital assets, international trade, consumer finance, and the like. Of these classes, retaining and promoting Secured Transactions is our priority.

Summary:

An open letter signed by more than 100 professors, practitioners, and commercial law scholars warns that commercial law education is quietly disappearing from American law schools, even though commercial law issues permeate nearly every area of practice. The letter, organized through the American Bar Association’s Commercial Law Education Task Force, specifically highlights the decline in courses involving secured transactions, payment systems, bankruptcy, sales, leasing, consumer finance, and digital assets.

The authors stress that commercial law is not merely “business law” for future Wall Street attorneys. Instead, they emphasize that commercial law concepts arise constantly in consumer law, family law, criminal law, and bankruptcy practice. They point to examples ranging from trust-account overdrafts to foreclosure failures during the Great Recession, all rooted in lawyers not understanding negotiable instruments, perfection of security interests, or payment systems.

The letter also warns that the removal of Secured Transactions from direct testing on the NextGen Bar Exam may accelerate the decline in course offerings, despite secured credit systems forming the backbone of modern lending and bankruptcy practice. The signatories argue that law schools should continue offering robust commercial law curricula regardless of bar exam incentives.

Notably, the list of signatories includes many of the leading scholars in bankruptcy and consumer finance.

Commentary:

This open letter identifies a problem that consumer bankruptcy attorneys have seen developing for years: law schools increasingly treat bankruptcy and commercial law as niche electives rather than foundational components of legal education.

Having had the opportunity to speak with law students at several law schools about consumer bankruptcy practice, there is plainly a real hunger for these courses. Students consistently express surprise that bankruptcy intersects with family law, consumer protection, housing, student loans, tax disputes, foreclosure defense, business reorganizations, and even criminal matters. Many also discover—often far too late—that bankruptcy courts are among the busiest federal courts in the country.

Yet bankruptcy education has long been undercut by one structural problem: the almost complete exclusion of meaningful bankruptcy questions from bar examinations. Once bar-tested status became the primary determinant of curricular priority, bankruptcy and secured transactions were placed at a disadvantage. The removal of Secured Transactions from direct testing on the NextGen Uniform Bar Exam only risks accelerating that decline.

That is unfortunate because secured transactions and bankruptcy are not obscure specialties. They are the operating system of the American credit economy. A lawyer who does not understand attachment, perfection, priority, negotiability, payment systems, or the automatic stay is missing core knowledge necessary for modern practice.

Just as importantly, the decline in commercial law and bankruptcy education also ignores the enormous body of consumer protection law that now overlays nearly every credit transaction. Modern consumer practice requires not merely understanding security interests and negotiable instruments, but also the interaction of those doctrines with statutes such as the Fair Debt Collection Practices Act (“FDCPA”), the Fair Credit Reporting Act (“FCRA”), the Real Estate Settlement Procedures Act (“RESPA”), the Telephone Consumer Protection Act (“TCPA”), and state unfair and deceptive trade practice statutes. When these subjects disappear from law school curricula, the result is not neutrality; it is the gradual devaluation of consumer protections in the eyes of new lawyers who never meaningfully study them. And because many of those lawyers will eventually become judges, the long-term effect is a judiciary increasingly unfamiliar with the statutory and remedial frameworks that govern modern consumer finance and debt collection.

The irony is that bankruptcy may well be the most common type of federal court proceeding many Americans will ever encounter. As discussed in the excellent book Debt’s Grip: Risk and Consumer Bankruptcy by Pamela Foohey, Robert M. Lawless, and Deborah Thorne, consumer debt and bankruptcy are deeply woven into ordinary American life. Bankruptcy is not peripheral to the legal system—it is central to it.

The examples discussed in the letter themselves demonstrate why bankruptcy education matters. The foreclosure crisis exposed widespread confusion over negotiable mortgage notes and custody requirements. Consumer bankruptcy attorneys spent years litigating standing, note ownership, lost-note affidavits, and securitization defects that many lawyers—and judges—were poorly prepared to understand. Likewise, understanding consignments under Article 9 or the status of stablecoin reserves are not merely academic curiosities; they are questions of ownership, priority, and creditor rights that increasingly appear in bankruptcy courts.

There is also a deeper irony here. Even bankruptcy courts themselves sometimes undervalue specialized bankruptcy expertise despite Congress expressly recognizing its importance in compensation decisions. Under 11\ U.S.C.\ §\ 330(a)(3)(E), courts are directed to consider “whether the person is board certified or otherwise has demonstrated skill and experience in the bankruptcy field” when evaluating compensation.

Yet many courts continue to set flat or “no look” Chapter 13 fees without materially accounting for attorney expertise, specialization, or board certification. That creates exactly the wrong incentive structure. If law schools reduce bankruptcy education, and courts simultaneously fail to recognize expertise economically, the pipeline of highly trained consumer bankruptcy attorneys inevitably shrinks.

There are, however, notable exceptions. The Middle District of Tennessee Bankruptcy Court, the United States Bankruptcy Court for the Western District of Michigan, and the United States Bankruptcy Court for the Middle District of North Carolina have all, in different ways, shown greater willingness to recognize the value of bankruptcy specialization and expertise in setting presumptive compensation structures.

Ultimately, this letter is less about preserving an academic niche than preserving competence in the American legal system itself. A legal profession that does not understand secured lending, consumer finance, payment systems, and bankruptcy will struggle to represent ordinary Americans in the places where financial distress most directly intersects with the law.

To read a copy of the transcript, please see:

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Law Reviews & Studies

Law Review: Coordes, Laura- Whose Problem is it, Anyway? Some Thoughts on § 541(b)(7)’s Hanging Paragraph

Ed Boltz — Mon, 01 Jun 2026 18:41:16 +0000

Law Review: Coordes, Laura- Whose Problem is it, Anyway? Some Thoughts on § 541(b)(7)’s Hanging Paragraph Ed Boltz Mon, 06/01/2026 - 20:41

Available: SSRN – “Whose Problem is it, Anyway? Some Thoughts on § 541(b)(7)’s Hanging Paragraph”

Abstract:

This edition of Bankruptcy Law Letter explains the “hanging paragraph” problem of § 541(b)(7). It argues that the Ninth Circuit’s 2024 decision in In re Saldana has the potential to direct attention away from Congress and toward the Supreme Court to resolve the problem with the hanging paragraph. It concludes that Congress should act to resolve the problem it created and clarify the meaning of the hanging paragraph through a Bankruptcy Code amendment.

Summary:

The article examines one of the more notorious drafting disasters left behind by BAPCPA: the so-called “Hanging Paragraph” in 11 U.S.C. § 541(b)(7). The dispute centers on whether voluntary retirement contributions—particularly 401(k) contributions—made after the filing of a Chapter 13 case are excluded from “disposable income” that must be committed to a Chapter 13 plan.

The author focuses on the Ninth Circuit’s decision in In re Saldana, where the court wrestled with whether postpetition retirement contributions may be shielded from creditors under the awkwardly drafted language Congress inserted into § 541(b)(7). Rather than cleanly amending Chapter 13’s disposable income provisions directly, Congress embedded language in a “hanging paragraph” attached to a subsection defining property of the estate. The result has been years of litigation and inconsistent interpretations among courts.

The article argues that the judiciary is increasingly being asked to solve what is fundamentally a legislative drafting failure. While courts—including the Supreme Court in other BAPCPA disputes—often attempt to impose coherence on the Bankruptcy Code, the article contends that Congress itself should fix the statute through amendment rather than leaving bankruptcy judges and appellate courts to reverse engineer congressional intent from syntactically tortured text.

Commentary:

BAPCPA may have been marketed in 2005 as a sophisticated reform package designed to crack down on supposed bankruptcy abuse, but twenty years later consumer bankruptcy attorneys are still cleaning up the legislative debris field. The “Hanging Paragraph” discussed in this article is only one of many dangling statutory monstrosities inserted into the Code during BAPCPA. Indeed, the term “Hanging Paragraph” itself feels like something bankruptcy lawyers had to invent simply to describe provisions so awkwardly drafted that normal statutory interpretation terminology became inadequate.

Of course, the most famous Hanging Paragraph remains the unnumbered paragraph following § 1325(a)(9)—the infamous “910-day vehicle anti-cramdown” provision that turned ordinary car loan litigation into a cottage industry for years after BAPCPA. Congress apparently decided that if numbered subsections worked reasonably well, then unnumbered floating text fragments scattered throughout the Bankruptcy Code would work even better.

The retirement contribution issue discussed in this article is particularly important because it demonstrates something that academics—and sometimes even courts—frequently misunderstand about Chapter 13 bankruptcy: Chapter 13 often requires debtors to pay less to unsecured creditors than they would effectively surrender in Chapter 7.

That sounds counterintuitive to non-bankruptcy lawyers, but it is absolutely true in many cases.

One reason is the exclusion of 401(k) contributions from disposable monthly income calculations. If voluntary retirement contributions are excluded from projected disposable income, debtors can continue saving for retirement rather than diverting those funds to unsecured creditors. That can substantially reduce plan payments.

And importantly, this exclusion may actually make the difference between receiving a discharge and being pushed out of bankruptcy entirely. Without the ability to deduct or exclude those retirement contributions, some debtors could suddenly appear to have sufficient “Disposable Monthly Income” to fail the Means Test or become trapped in unaffordable Chapter 13 plans.

Another major example is the “hypothetical liquidation test” under § 1325(a)(4). In determining what unsecured creditors must receive in Chapter 13, courts compare what creditors would hypothetically receive in a Chapter 7 liquidation. But that hypothetical Chapter 7 distribution must account for the commissions, administrative expenses, trustee compensation, liquidation costs, broker fees, tax consequences, and other expenses a Chapter 7 trustee would incur.

Once those hypothetical Chapter 7 administrative expenses are properly deducted, the amount unsecured creditors would actually receive in Chapter 7 may shrink dramatically. In many cases, Chapter 13 debtors can therefore confirm plans paying far less than outsiders assume, while retaining assets that would have been seized and sold in a Chapter 7 liquidation.

Consumer bankruptcy practitioners understand this reality because they see it every day. Yet scholarship and commentary about Chapter 13 often continues to describe it as a system where debtors necessarily “repay” creditors more than in Chapter 7. Frequently, that is simply incorrect.

What Chapter 13 often really provides is a structured mechanism for debtors to retain assets, protect retirement savings, cure mortgage defaults, save vehicles, preserve co-debtor relationships, and obtain broader relief—while still paying creditors at least what the Bankruptcy Code hypothetically requires after accounting for all the friction and expense inherent in liquidation.

And that, ironically enough, is precisely why the drafting of provisions like § 541(b)(7) matters so much. A few stray words in a BAPCPA hanging paragraph can determine whether a debtor keeps saving for retirement, qualifies for bankruptcy relief at all, or must instead devote years of future income to unsecured creditors.

For something Congress treated almost as an afterthought in statutory drafting, the consequences are enormous.

To read a copy of the transcript, please see:

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Law Reviews & Studies

Bankr. W.D.N.C.: Official Committee of Asbestos Personal Injury Claimants v. DBMP III: Clarification of Prior Orders and Rejection of “Preclusive Effect” Arguments, Retention of the Texas Two-Step Findings Intact

Ed Boltz — Mon, 01 Jun 2026 18:38:00 +0000

Bankr. W.D.N.C.: Official Committee of Asbestos Personal Injury Claimants v. DBMP III: Clarification of Prior Orders and Rejection of “Preclusive Effect” Arguments, Retention of the Texas Two-Step Findings Intact Ed Boltz Mon, 06/01/2026 - 20:38

Summary:

In the United States Bankruptcy Court for the Western District of North Carolina, through Judge Ashley Austin Edwards, partially granted and partially denied motions for reconsideration filed by DBMP LLC and related CertainTeed/Saint-Gobain entities regarding a prior privilege and discovery ruling in the sprawling asbestos bankruptcy litigation.

The Court’s ruling focused primarily on procedural and evidentiary issues surrounding whether prior findings from the preliminary injunction proceedings had “preclusive effect” in later adversary proceedings. The Defendants argued that the Court’s earlier privilege order improperly treated findings from the preliminary injunction stage as binding merits determinations. Judge Edwards agreed only in a limited sense—clarifying that the prior Injunction Order did not have formal preclusive effect—but otherwise left the substance of the earlier rulings largely intact.

The opinion provides an extended discussion of the standards under Rules 59(e), 52(b), and 60(a), emphasizing that reconsideration is an “extraordinary remedy” reserved for manifest injustice, clear legal error, or clerical clarification.

Most importantly, the Court refused to retreat from its broader conclusions concerning the planning and execution of the DBMP “Texas Two-Step” restructuring. The Defendants challenged the Court’s finding that the bankruptcy filing decision had effectively been made well before the formal filing date and was part of the restructuring itself. Judge Edwards rejected that challenge outright, explaining that the Court independently reached those conclusions “based on unavoidable realities for any significant and substantial corporation transaction such as the Defendants’ Texas Two Step.”

The Court also clarified that background discussion regarding asbestos litigation history and CertainTeed’s asbestos exposure did not prejudge issues for the future estimation trial.

Finally, the Court did grant limited substantive relief regarding certain privilege determinations, redesignating twenty-two documents after concluding that some communications were in fact privileged or partially privileged.

Commentary:

This opinion feels less like a retreat and more like judicial housekeeping.

The Defendants sought to transform what was essentially a clarification motion into a broader attempt to walk back some of the most damaging language from the earlier DBMP rulings. Judge Edwards declined that invitation.

The Court carefully acknowledged an important procedural point: preliminary injunction findings are generally not entitled to formal preclusive effect. That is black-letter law. But the Defendants appear to have hoped that once the Court conceded that point, the entire factual architecture surrounding the Texas Two-Step restructuring might begin to unravel.

That did not happen.

Instead, Judge Edwards essentially said: No, the prior injunction findings are not technically binding in the res judicata or collateral estoppel sense—but the Court still agrees with them.

That distinction matters enormously.

The Court repeatedly emphasized that it independently reached many of the same conclusions based on the evidentiary record, the in camera review, and what it called “common sense.” In other words, the problem for the Defendants is not merely what Judge Whitley previously found during the preliminary injunction proceedings. The problem is that the current Court, after years of litigation and extensive discovery battles, appears to remain deeply skeptical of the restructuring narrative.

That skepticism continues to haunt virtually every major “Texas Two-Step” bankruptcy.

This blog has previously discussed DBMP and the broader asbestos divisional merger strategy multiple times, particularly in the context of:

the use of divisional mergers to isolate mass tort liabilities,
the effort to obtain bankruptcy-wide injunction protections for non-debtor affiliates,
the role of funding agreements as purported substitutes for direct tort liability,
and the increasingly strained arguments that these restructurings somehow arise organically rather than through years of prepetition strategic planning.

This latest ruling reinforces another recurring theme from those prior posts: courts are becoming increasingly unwilling to pretend that massive corporate restructurings just “happen” spontaneously shortly before bankruptcy filings.

Judge Edwards’ discussion of the “DBMP Filing Decision Finding” is particularly notable because the Court essentially rejected the idea that sophisticated multinational corporations engage in billion-dollar restructuring exercises without simultaneously planning for bankruptcy from the outset.

That observation has implications well beyond asbestos cases.

Consumer bankruptcy attorneys see analogous behavior all the time in different contexts:

mortgage servicers engineering postpetition fee structures,
creditors creating shell ownership transfers shortly before foreclosure,
debt buyers restructuring portfolios to manipulate standing arguments,
and lenders attempting to use contractual complexity as insulation from accountability.

What DBMP demonstrates is that courts are increasingly willing to look through form to substance when the transactional choreography becomes too elaborate to ignore.

The opinion is also significant for its extended discussion of § 105(a). Judge Edwards strongly reaffirmed that bankruptcy courts cannot use § 105(a) as a “roving commission to do equity” or to override explicit procedural rules. That discussion echoes the Fourth Circuit’s continuing emphasis in cases like David v. King that bankruptcy courts remain constrained by statutory structure even in highly equitable proceedings.

Ironically, that same limitation on § 105(a) often cuts against consumer debtors in ordinary cases—particularly when debtors seek equitable relief from harsh procedural defaults. Yet in mass tort bankruptcies involving sophisticated corporate actors, courts appear increasingly cautious about allowing § 105(a) to become a mechanism for expanding protections beyond what the Bankruptcy Code expressly authorizes.

That tension continues to define modern mass-tort Chapter 11 practice.

At bottom, this opinion is probably best understood as a warning shot rather than a reversal. The Court clarified language, corrected some privilege rulings, and narrowed procedural ambiguity. But the fundamental judicial skepticism surrounding the DBMP restructuring strategy remains firmly in place.

To read a copy of the transcript, please see:

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Western District

4th Cir.: Jackson v. Protas, Spivok & Collins—“Servicing” Means Mortgage-Style Loan Administration, Not Debt Collection Litigation

Ed Boltz — Fri, 29 May 2026 15:43:24 +0000

4th Cir.: Jackson v. Protas, Spivok & Collins—“Servicing” Means Mortgage-Style Loan Administration, Not Debt Collection Litigation Ed Boltz Fri, 05/29/2026 - 17:43

Summary:

In , the Fourth Circuit in Jackson v. Protas, Spivok & Collins LLC held that a debt collection law firm could not enforce an arbitration clause contained in a consumer loan agreement because the firm was not “servicing” the loan within the meaning of the contract.

The promissory note defined “you” broadly to include “any person servicing this Note,” along with subsequent holders of the debt. Velocity Investments, which had purchased the loan, argued it qualified as a subsequent holder, while its collection counsel, Protas, Spivok & Collins (“PSC”), contended that it was “servicing” the note through its debt collection activities.

Judge Wilkinson, writing for a unanimous panel, rejected PSC’s argument and adopted the definition of “servicing” most familiar to consumer bankruptcy attorneys and mortgage litigators. Looking to dictionary definitions, industry usage, and the related borrower registration agreement, the Fourth Circuit concluded that “servicing” means the administration of a loan through activities such as collecting payments, maintaining payment schedules, handling communications, and managing escrow or records.

Importantly, the Court specifically cited the definition of “Mortgage Servicing” from Black’s Law Dictionary as “[t]he administration of a mortgage loan, including the collection of payments, release of liens, and payment of property insurance and taxes.”

Because PSC merely litigated collection actions and did not administer the loan in the manner of a servicer, it could not invoke the arbitration clause. The Fourth Circuit therefore affirmed denial of the motion to compel arbitration.

Commentary:

What makes Jackson particularly noteworthy for consumer bankruptcy attorneys is not merely the arbitration ruling, but the Fourth Circuit’s adoption of a practical and industry-standard definition of “servicing” that closely mirrors how mortgage servicing is understood in bankruptcy practice.

Bankruptcy courts routinely distinguish between a creditor, a mortgage servicer, and collection counsel. Under Bankruptcy Rule 3002.1, RESPA, TILA, NCGS § 45-91, and the FDCPA, “servicing” generally refers to the ongoing administrative management of a loan account: collecting periodic payments, maintaining records, managing escrow accounts, issuing statements, applying payments, and communicating with borrowers regarding account status.

That is exactly the framework the Fourth Circuit embraced here. Rather than accepting the expansive argument that any activity related to debt collection constitutes “servicing,” the Court limited the term to the sort of operational loan administration that mortgage servicers actually perform.

That distinction matters.

Mortgage servicers frequently attempt to blur the lines between servicing functions, default management, foreclosure operations, and debt collection litigation. Jackson reinforces that these are separate roles. A law firm filing collection suits is not transformed into a “servicer” simply because it seeks payment on behalf of a creditor.

For consumer bankruptcy practitioners, this opinion may become useful well beyond arbitration disputes. The Fourth Circuit’s analysis could support arguments regarding:

who qualifies as a “servicer” under contractual provisions;
whether particular entities have standing to invoke servicing-related rights;
distinctions between servicing conduct and debt collection conduct under the FDCPA;
responsibilities for Rule 3002.1 notices and escrow administration; and
whether certain litigation activities fall outside protections afforded to mortgage servicers.

The opinion also reflects a broader judicial recognition that “mortgage servicing” is a specialized and distinct function within consumer finance law—one that bankruptcy attorneys deal with daily. In that sense, Jackson imports into arbitration jurisprudence the same practical understanding of servicing already familiar from Chapter 13 mortgage litigation.

To read a copy of the transcript, please see:

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Category

4th Circuit Court of Appeals

4th Cir.: LaRosa v. IRS — Innocent Spouse Relief May Extend to Erroneous Refund Interest Claims

Ed Boltz — Thu, 28 May 2026 13:43:19 +0000

4th Cir.: LaRosa v. IRS — Innocent Spouse Relief May Extend to Erroneous Refund Interest Claims Ed Boltz Thu, 05/28/2026 - 15:43

Summary:

In LaRosa v. Commissioner of Internal Revenue, the Fourth Circuit held that interest obligations arising from an erroneous IRS refund can constitute “unpaid tax” eligible for equitable innocent spouse relief under 26 U.S.C. § 6015(f).

After decades of disputes with the IRS over underpayment and overpayment interest calculations, the LaRosas received a substantial refund from the IRS in 1994. The IRS later reversed itself, claimed the refund was erroneous, and successfully sued to recover the funds. When the government later attempted to foreclose on the family home, Catherine LaRosa sought innocent spouse relief under § 6015(f). The IRS refused even to process her request, arguing that liabilities arising from erroneous refunds could never qualify as “unpaid tax.”

The Fourth Circuit rejected that argument. Relying heavily on 26 U.S.C. § 6601(e)(1), the Court explained that underpayment interest is statutorily treated as a tax obligation and therefore may qualify for equitable relief under § 6015(f). The Court vacated the Tax Court’s decision and remanded for further proceedings.

Commentary:

LaRosa may prove surprisingly important for taxpayers in bankruptcy cases. Consumer bankruptcy practitioners routinely encounter IRS claims that have evolved through decades of amended assessments, offsets, interest recalculations, erroneous refunds, and aggressive collection activity. The Fourth Circuit’s opinion pushes back against the IRS attempting to characterize obligations in ways that avoid statutory taxpayer protections.

Particularly useful is the Court’s recognition that tax liabilities arise from the Internal Revenue Code itself—not merely from IRS “bookkeeping notation[s]” or administrative labels. That reasoning may help debtors challenge IRS attempts to reframe liabilities in bankruptcy objections, discharge litigation, or innocent spouse disputes.

For married debtors in bankruptcy, innocent spouse relief can be a critical tool, especially where one spouse had limited involvement in tax preparation or financial decision-making. LaRosa broadens the possibility that even complicated interest-based liabilities tied to erroneous refunds may still fall within the scope of equitable relief.

The decision also reflects the post-Loper Bright Enterprises v. Raimondo environment, where courts are increasingly less willing to defer automatically to agency interpretations lacking clear statutory support. The Fourth Circuit emphasized that “no amount of policy-talk can overcome plain statutory text.”

For bankruptcy debtors facing old IRS liabilities that appear inscrutable or untouchable, LaRosa is another reminder that tax claims are often far more legally vulnerable—and negotiable—than the government prefers to admit.

To read a copy of the transcript, please see:

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4th Circuit Court of Appeals