Law Review: Herrine, Luke, The Destabilizing Politics of Student Debt (February 09, 2026). Forthcoming in Illinois Law Review Ed Boltz Tue, 04/14/2026 - 20:08 Available at SSRN: https://ssrn.com/abstract=6378922 Abstract: This Article examines why student loans became central to higher education finance in the United States and how they have undermined their own centrality over time. As the liberal constituency for funding redistributive social programs weakened in the 1970s, student loans enabled stable coalitions in favor of federal support for college affordability by bringing together lawmakers with divergent ideological commitments. Three features made student loans effective coalition stabilizers: their structure as demand-side subsidies that avoided federalism concerns and conflicts over university governance; their "political lightness" as credit programs that satisfied fiscal hawks and could be characterized as either government largesse or individual responsibility; and their creation of a sophisticated lobbying industry-including servicers, guaranty agencies, and for-profit colleges-that advocated for their perpetuation. However, stabilizing higher education finance through debt came with significant costs. The insider-driven politics of student loans involved corruption and fraud. The ideology of individual investment obscured structural labor market inequalities. The focus on demand-side subsidy contributed to a market dynamic that made higher education more unequal and more vocationalized. By the 2010s, these costs began to destabilize the very coalitions student loans had assembled: hidden costs became increasingly evident, scandals delegitimized insider politics, and growing borrower distress fueled an outsider politics against student debt. The COVID pandemic accelerated these dynamics, leaving the politics of higher education finance profoundly unstable. Drawing on scholarship from history, political science, sociology, economics, and legal studies, this Article provides a new framework for understanding the political economy of student loans-one that explains their endurance without treating them as inevitable. Along the way, the Article offers insights into the conditions under which higher education finance might be restabilized, whether through a reformed loan program or through a transition to more direct institutional funding and grants. Student Loans: From Political Glue to Political Solvent In Student Debt and the (De)Stabilization of Higher Education, Luke Herrine offers a sharp and—frankly—overdue reframing of how we got here. Student loans were not an accident, nor simply the product of cultural aversion to taxation. Instead, they were a political technology: a way to hold together a fragile coalition that otherwise could not agree on how (or whether) to fund higher education. The brilliance of student loans, at least from a legislative perspective, was their ability to be all things to all people. First, as demand-side subsidies, loans allowed Congress to fund students without deciding which institutions—or states—deserved support. That neatly sidestepped federalism fights, segregation battles, and public/private rivalries. Second, loans carried what Herrine (borrowing from Sarah Quinn) calls “political lightness.” They looked cheap because they were expected to be repaid, and they could be sold simultaneously as government assistance and personal responsibility. In other words, fiscal hawks saw discipline, while progressives saw access. Third, the system created its own lobby—servicers, lenders, guaranty agencies, and for-profit colleges—all of whom had a vested interest in keeping the spigot open. For decades, this worked. Student loans stabilized higher education finance in an era when direct public funding was politically untenable. But—as is so often the case in bankruptcy—what begins as a solution eventually becomes the problem. The Costs Come Due Herrine’s central insight is that the very features that made student loans politically durable also made them economically and socially corrosive. Insider politics bred corruption and fraud. “Human capital” rhetoric masked structural inequality. Debt-fueled tuition increases widened institutional and social disparities. And most importantly, the system shifted risk onto borrowers—without providing meaningful exit ramps. By the 2010s, the consequences were no longer hidden. Rising defaults, borrower distress, and repeated scandals eroded the legitimacy of the entire system. What had once stabilized higher education finance began to destabilize it, producing today’s volatile and litigation-heavy landscape. COVID merely accelerated a process already underway. Commentary: The Bankruptcy Angle—“Fiscally Light” Through Legal Fiction From a bankruptcy perspective, there is an additional layer that the article hints at but does not fully develop—and it is a critical one. Making student loans non-dischargeable (and eliminating any meaningful statute of limitations for federal loans) has been perhaps the most effective—if least transparent—piece of legislative engineering in this entire system. That move accomplished two things: It reinforced the illusion of collectability. If a debt can never be discharged and never expires, it can always be booked as an asset. It made student loans appear “fiscally light” for budget scoring purposes. The Congressional Budget Office can treat these loans as largely collectible—even when real-world repayment rates tell a very different story. The result is a kind of legislative sleight-of-hand: Relief measures (whether forgiveness, IDR reforms, or bankruptcy discharge) are scored as massive “costs,” while the underlying loan portfolio is treated as if it were fully realizable. Anyone who has practiced consumer bankruptcy—or reviewed student loan adversaries—knows that assumption borders on fiction. A System Coming Unmoored Herrine closes by noting that the old coalition has fractured. The insider politics have lost legitimacy, borrower activism has grown, and even basic repayment terms are in flux. That leaves us in a transitional moment: Student loans are no longer politically stable; Direct funding models (grants, free college) remain contested; And the legal system—particularly bankruptcy courts—continues to struggle with doctrines built for a very different era. From this vantage point, the current push—whether through DOJ guidance, evolving “undue hardship” standards, or legislative proposals—may be less a reform of student loans than an attempt to unwind a decades-long political compromise. Bottom Line Student loans were never just about financing education. They were a political workaround—one that allowed Congress to fund higher education without appearing to do so. But like many forms of disguised debt, the true costs were merely deferred. And now, as bankruptcy practitioners are seeing with increasing frequency, those costs are coming due. To read a copy of the transcript, please see: Blog comments Attachment Document student_debt_and_the_destabilization_of_higher_education.pdf (742.67 KB) Category Law Reviews & Studies

4th Cir.: Rouse v. Fader- Fourth Circuit Sidesteps SCRA Accountability—And Kicks It to Annapolis? Click to teach Law Offices of John T. Orcutt Mail this conversation is important Ed Boltz Mon, 04/27/2026 - 15:17 Summary: In , the United States Court of Appeals for the Fourth Circuit considered whether servicemembers could sue the Maryland governor or Supreme Court Justices for alleged violations of the Servicemembers Civil Relief Act (SCRA). The plaintiffs—active-duty servicemembers and their spouses—had default-type judgments domesticated and enforced against them in Maryland without the SCRA’s required protections (such as affidavits regarding military status and appointment of counsel). As a result, their bank accounts were garnished and frozen before the judgments were later vacated. Rather than suing only the creditor, the plaintiffs brought claims against: the Governor of Maryland, and the Justices of the Supreme Court of Maryland, arguing those officials failed to ensure Maryland’s procedures complied with federal law. The Fourth Circuit vacated the lower court’s ruling and dismissed the case for lack of standing, holding that: although the plaintiffs suffered a real injury, their injuries were not “fairly traceable” to the named defendants, because the harm was caused by independent actions of state court clerks who issued the writs. The court emphasized that federal courts cannot hear claims unless the plaintiff sues the proper party responsible for the injury, and here, the connection between high-level officials and the alleged violations was too attenuated.   The Fourth Circuit’s Move: Not Wrong—Just No One to Blame (Legally Speaking) The Fourth Circuit didn’t say the SCRA wasn’t violated. In fact, it essentially assumed violations occurred. Instead, the court held: you sued the wrong people. The Governor? Not involved in judicial enforcement. The Justices of the Maryland Supreme Court? They didn’t cause the violations. Administrative judges and clerks? Still not enough causal connection and potential protected by judicial or quasi-judicial immunity The problem, according to the court, is Article III standing—specifically traceability. The harm (frozen accounts) was caused by third parties (clerks issuing writs), and the plaintiffs couldn’t show that the named defendants caused those clerks to violate federal law. Put bluntly: Federal courts cannot be used to “remind” state actors to follow federal law—at least not by suing high-level officials who didn’t directly commit the violation. Result: vacated and remanded with instructions to dismiss for lack of jurisdiction. The Dissent: Congress Meant What It Said Judge Roger Gregory dissented, and—true to form—he went straight to first principles: Congress enacted the SCRA under its war powers, which carry unusual constitutional weight. That authority can override state sovereign immunity (see Torres v. Texas DPS). The statute imposes mandatory duties on courts—not optional guidelines. His key point: If state courts systematically fail to implement those duties, someone must be accountable, and the state judiciary—through its rulemaking authority—is the logical place to look. A Bigger Constitutional Undercurrent: War Powers vs. State Sovereignty Here’s where things get more interesting. The SCRA isn’t just another federal statute passed under the Commerce Clause. It is rooted in Congress’s Article I war powers, which historically allow broader incursions into state sovereignty. That matters. As even the dissent notes, the states effectively pre-consented at the Founding to a deeper level of federal intrusion in military-related matters. In that sense, the SCRA represents a more aggressive federal override of state autonomy than your garden-variety regulatory statute. And yet—despite that expanded federal authority—the Fourth Circuit declined to push Maryland’s judiciary into compliance via this lawsuit. That tension is hard to ignore. Judicial Restraint—or Judicial Deference? There may also be a quieter dynamic at play. The Fourth Circuit’s opinion reads less like a rebuke of Maryland and more like a careful sidestep. Rather than dictate how the Supreme Court of Maryland should structure its rules or supervise its clerks, the panel emphasized standing doctrine and exited stage left. That suggests a degree of institutional comity—a reluctance of federal appellate judges to tell a state’s highest court how to run its house. In other words: This may be less about constitutional incapacity and more about judicial etiquette. The Practical Reality: This Is Now a Legislative Problem The decision effectively punts the issue to the political branches. And Maryland has options—easy ones, in fact: Virginia Code § 8.01-15.2 explicitly requires SCRA compliance procedures. N.C.G.S. §127B-28 went further with the North Carolina Servicemembers Civil Relief Act, adding enforcement teeth and state-level remedies. Maryland could do the same: mandate affidavits before judgment or enforcement, require clerk-level screening, impose penalties for noncompliance. Instead, it currently relies on federal law alone—and this case shows how that can fail in practice. The Odd Silence from Annapolis (and Annapolis Courts) Perhaps the most surprising aspect of this case is what didn’t happen. The Supreme Court of Maryland has broad authority over procedural rules. It could have: adopted a rule incorporating SCRA requirements, issued administrative guidance, or required compliance protocols for clerks. Other states have done exactly that. Yet here, the system apparently allowed repeated, identical failures—multiple clerks, multiple cases, same statutory violation. That’s not a one-off mistake. That starts to look systemic. Practice Pointer (Because This Will Show Up Again) For consumer practitioners—especially in border states or federal practice: Don’t assume SCRA compliance is baked into state procedures. Scrutinize foreign judgment domestications and post-judgment remedies (garnishments, executions). Raise SCRA violations early—and often. And if necessary, go after the actual actor (creditor or clerk), not just supervisory officials. Because after Rouse, the Fourth Circuit has made one thing clear: You may have a great SCRA claim—but if you can’t trace it to the right defendant, you don’t have a federal case.   Bottom Line The Fourth Circuit didn’t weaken the SCRA. It just made it much harder to enforce—at least against systemic failures. And by declining to step in, it has effectively told Maryland: Fix this yourself. Whether Annapolis—or its courts—take that invitation remains to be seen.  Pressure from consumer groups,  including NACA,  NACBA,  and NCLC,  along with veteran's and servicember organizations,  is vital. https://ncbankruptcyexpert.com/sites/default/files/2026-04/the_future_of_bankruptcy_exemptions_in_north_carolina_expanding_debtors_ability_to_exempt_the_eitc.pdf Blog comments Attachment Document rouse_v._fader_1.pdf (287.35 KB) Category 4th Circuit Court of Appeals

N.C. Ct. of App.: Figueroa v. Monsivais: When Dirt Meets Equity: Unrecorded Deals, “Desperate” Sellers, and the Limits of North Carolina’s Race Recording Statute Ed Boltz Thu, 04/16/2026 - 15:27 Summary: The Figueroa v. Monsivais decision reads like a law school exam question—but with very real consequences for families who paid cash, moved in, and still ended up without title. The Setup: Cash Paid, Possession Taken—But Nothing Recorded Three plaintiffs entered into separate agreements with a seller (Monsivais) to purchase portions of a parcel and associated mobile homes. They paid substantial sums—$15,000 down plus installments in one case, and $30,000 outright in another—and took possession, making improvements and living on the property. But critically, none of those contracts were recorded. Enter Byrd Farms, who later acquired a deed to the same property—and recorded it. The Court’s Holding (In Plain Terms) The Court of Appeals split the baby: ✅ Affirmed: No abuse of discretion in denying a constructive trust against the original seller (Monsivais); money damages were sufficient. 🔁 Reversed & Remanded: Summary judgment for Byrd Farms was improper because there is a genuine issue of fact about whether it paid “fair consideration”—a prerequisite to protection under North Carolina’s recording statute. Commentary: 1. The Ruthless Simplicity of North Carolina’s Recording Act North Carolina remains a pure race jurisdiction—a doctrine that continues to produce harsh outcomes: “No notice, however full or formal, will supply the want of registration.” That means: Even if Byrd Farms knew about the plaintiffs’ prior deals, Even if those deals were fully performed, 👉 Failure to record is fatal—unless the later purchaser is not truly “for value.” This is not a bug. It’s the system. And it reflects a policy choice: certainty of title over equitable fairness. 2. “For Value” Is Doing a Lot of Work Here The most important move in this opinion is subtle but significant: The court refused to assume Byrd Farms qualified as a bona fide purchaser for value. Why? Because the evidence was… messy: The purchase price changed repeatedly The buyer didn’t know what he actually bought The reported excise tax didn’t match what was paid The seller was, in the buyer’s own words, “desperate” and hadn’t eaten That last fact matters more than it might seem. North Carolina law doesn’t require full market value—but it does require “a price which would not cause surprise.” And here, the court is signaling: 👉 If this deal smells like opportunism—or worse—equity may re-enter the picture. 3. Constructive Trust: Still a Remedy of Last Resort The plaintiffs pushed hard for a constructive trust. The court declined—at least as to the original seller. That’s an important reminder: A constructive trust is not a cause of action It is a discretionary equitable remedy And trial courts get wide latitude in choosing money damages instead Even where fraud is essentially admitted (via default), appellate courts are reluctant to second-guess the remedy. 👉 Translation: You don’t get a constructive trust just because the facts feel unfair. 4. The Quiet Bankruptcy Parallel: “Unrecorded Interests Get Crushed” For bankruptcy practitioners, this case should feel very familiar. This is essentially the state-law version of § 544(a)—the strong-arm clause: A trustee (or hypothetical BFP) can avoid unrecorded interests Possession and payment often don’t save you Equity gives way to formal perfection rules The lesson carries over cleanly: 👉 If it’s not recorded, it’s not real—at least not against the world. 5. Mobile Homes: The Sleeper Issue The opinion repeatedly hints at confusion over whether the mobile homes were: Included in the real estate transfer, or Separate titled personal property That ambiguity likely contributed to the “fair consideration” problem. For practitioners, this is a recurring trap: Mobile homes can be real property, personal property, or both (depending on titling) And failing to align those systems creates exactly this kind of litigation Practice Pointers (Because This Will Happen Again) For Bankruptcy Attorneys: This is a clean fact pattern for: § 544 avoidance analysis Equitable vs. legal interest disputes Also a reminder to scrutinize: “Cash deals” Family transactions Unrecorded land contracts For Litigators: Don’t concede “BFP for value” too quickly Attack: Consideration Certainty of terms Knowledge of defects This case shows that door is still open Bottom Line Figueroa v. Monsivais is a cautionary tale dressed as a property dispute: The recording statute remains unyielding Equity is not dead—but it is conditional And “value” is the lever that can pry open an otherwise closed system On remand, everything will turn on a deceptively simple question: 👉 Did Byrd Farms actually pay enough—and for what exactly? If not, the plaintiffs may yet get what they thought they bought. To read a copy of the transcript, please see: Blog comments Attachment Document figueroa_v._monsivais.pdf (173.28 KB) Category NC Court of Appeals

Law Review Note (Note): Rodriguez, Lilyanne- The Future of Bankruptcy Exemptions in North Carolina: Expanding Debtors' Ability to Exempt the EITC Ed Boltz Fri, 04/24/2026 - 15:32 Available at:  https://wfujournaloflawandpolicy.org/volume-16-issue-2/ Introduction: The North Carolina legislature has the opportunity to improve the lives of debtors in this state. To reflect the changing opinions towards bankruptcy, North Carolina is equipped to create a new state exemptions statute for the first time in over twenty years. In fact, the United States Bankruptcy Court for the Middle District of North Carolina suggests that “such concerns must be addressed by the North Carolina General Assembly.”1 In bankruptcy proceedings, a debtor’s right to exempt certain assets from the estate is deemed necessary for the debtor to support their family and ensure financial rehabilitation.2 Debtors may exempt the value of their homes, vehicles, and even personal property such as clothes or jewelry.3 Some states have taken a broader approach to what a debtor may exempt by allowing a debtorto exempt public assistance, like the Earned Income Tax Credit (“EITC”).4 States’ ability to create exemptions in bankruptcy is based on the presumption that states are best suited to define property rights.5 However, some commentators suggest that the expansion of state exemptions disadvantages creditors, resulting in higher interest rates for consumers, thus creating more harm than good.6 However, the expansion of state exemptions works to keep states in touch with changing attitudes towards bankruptcy, and ensures debtors truly have a “fresh start.” Part I of this Note will discuss the guiding bankruptcy policies at work in the background of all bankruptcy proceedings. Part II of this Note will describe the history and purpose of the EITC, and how it can be exempt in bankruptcy. Part III of this Note will discuss In re Quevedo, a recent Middle District of North Carolina opinion, and what influence it may have on the North Carolina legislature. Finally, Part IV of this Note will analyze the benefits and downfalls of state exemptions for the debtor, society, and the bankruptcy system. This Note argues that the North Carolina legislature should amend N.C. Gen. Stat. § 1C-1601 to create a provision that exempts “[t]he debtor’s right to receive an earned income tax credit under the federal tax laws and any moneys that are traceable to a payment of an earned income tax credit under the federal tax laws.”7 This would thereby create an explicit exemption for federal earned income tax credits. By doing so, the North Carolina legislature is creating change that is reflective of a general shift in attitudes towards bankruptcy and feelings towards “dishonest” debtors. Introduction: The North Carolina legislature has the opportunity to improve the lives of debtors in this state. To reflect the changing opinions towards bankruptcy, North Carolina is equipped to create a new state exemptions statute for the first time in over twenty years. In fact, the United States Bankruptcy Court for the Middle District of North Carolina suggests that “such concerns must be addressed by the North Carolina General Assembly.” In bankruptcy proceedings, a debtor’s right to exempt certain assets from the estate is deemed necessary for the debtor to support their family and ensure financial rehabilitation. Debtors may exempt the value of their homes, vehicles, and even personal property such as clothes or jewelry. Some states have taken a broader approach to what a debtor may exempt by allowing a debtor to exempt public assistance, like the Earned Income Tax Credit (“EITC”). States’ ability to create exemptions in bankruptcy is based on the presumption that states are best suited to define property rights. However, some commentators suggest that the expansion of state exemptions disadvantages creditors, resulting in higher interest rates for consumers, thus creating more harm than good. However, the expansion of state exemptions works to keep states in touch with changing attitudes towards bankruptcy, and ensures debtors truly have a “fresh start.” Part I of this Note will discuss the guiding bankruptcy policies at work in the background of all bankruptcy proceedings. Part II of this Note will describe the history and purpose of the EITC, and how it can be exempt in bankruptcy. Part III of this Note will discuss In re Quevedo, a recent Middle District of North Carolina opinion, and what influence it may have on the North Carolina legislature. Finally, Part IV of this Note will analyze the benefits and downfalls of state exemptions for the debtor, society, and the bankruptcy system. This Note argues that the North Carolina legislature should amend N.C. Gen. Stat. § 1C-1601 to create a provision that exempts “[t]he debtor’s right to receive an earned income tax credit under the federal tax laws and any moneys that are traceable to a payment of an earned income tax credit under the federal tax laws.” This would thereby create an explicit exemption for federal earned income tax credits. By doing so, the North Carolina legislature is creating change that is reflective of a general shift in attitudes towards bankruptcy and feelings towards “dishonest” debtors. Summary: The Note takes aim squarely at a gap in North Carolina exemption law that practitioners have been flagging for years—but which the bankruptcy courts have now made impossible to ignore after In re Quevedo. In In re Quevedo, the court held that the Earned Income Tax Credit (EITC) does not fall within North Carolina’s existing exemptions—particularly rejecting arguments that it constitutes a “public assistance benefit” or other protected category under N.C. Gen. Stat. § 1C-1601. The result? For working families, the single largest anti-poverty tax credit in the United States can be swept into the bankruptcy estate and distributed to creditors. This Note argues that outcome is not just harsh—it is out of step with both federal bankruptcy policy and modern state exemption trends. Many states have already enacted explicit EITC protections, recognizing that these funds are designed to support low-income households, not to boost creditor recoveries. The proposal is straightforward: amend N.C. Gen. Stat. § 1C-1601 to expressly exempt the EITC and any traceable proceeds. That would bring North Carolina in line with a growing national consensus and reinforce the Bankruptcy Code’s core promise of a meaningful fresh start. Commentary (because Quevedo wasn’t the last word—just the wake-up call) Let’s be blunt: Quevedo didn’t necessarily create a policy problem— but it did expose one. North Carolina’s exemption statute hasn’t kept pace with economic reality, and certainly not with the modern bankruptcy system. When a working debtor loses their EITC in bankruptcy, that’s not some abstract doctrinal issue—it’s rent, groceries, car repairs, or childcare walking out the door. And the court in Quevedo essentially said: “Don’t look at us—talk to the General Assembly.” That’s not a dodge; it’s a roadmap. 1. The EITC is low-hanging fruit (and overdue) Protecting the EITC is one of the easiest—and most defensible—fixes available: It is already recognized as an anti-poverty tool under federal law Many states explicitly exempt it It aligns cleanly with the “fresh start” principle Failing to exempt it effectively converts a wage subsidy for working families into a creditor dividend. That’s not policy—it’s leakage. 2. But focusing only on EITC misses the bigger problem Here’s where this Note should go further—and where practitioners need to push harder. North Carolina doesn’t just have an EITC problem. It has an exemption problem. The homestead exemption ($35,000) hasn’t been updated since 2009 It bears little relationship to current housing prices It routinely forces Chapter 13 filings (or worse outcomes) for homeowners with modest equity The National Consumer Law Center has repeatedly highlighted how outdated exemption schemes undermine both debtor rehabilitation and system efficiency. North Carolina consistently lags behind. 3. The real reform agenda (hint: it’s not just one line item) If the General Assembly is going to act—and Quevedo gives it the political cover to do so—it should think bigger: Index the homestead exemption to inflation or median home prices Expand protections for tax credits and public benefits, including EITC and Child Tax Credit Clarify wildcard and personal property exemptions to reflect modern household assets Incorporate recent reforms (like 529 and ABLE account protections) into a coherent framework In other words, don’t just patch the roof—renovate the house. 4. The creditor-cost argument? Overstated and outdated The Note fairly acknowledges the perennial objection: broader exemptions increase credit costs. Maybe. Marginally. But that argument ignores the countervailing realities: Bankruptcy already prices in risk Efficient fresh starts reduce repeat defaults Stripping basic supports (like EITC) increases long-term financial instability If anything, failing to modernize exemptions may increase systemic costs—just not in ways that show up neatly in an APR. Practice Pointer Until the legislature acts, practitioners should: Carefully time bankruptcy filings around tax refunds Consider spending strategies prepetition (within ethical bounds) Evaluate Chapter 13 vs. Chapter 7 implications for refund retention Track any legislative movement—because once this changes, it will change fast Bottom Line Quevedo was not the end of the story—it was the invitation. Protecting the EITC is the right first step. But if North Carolina is serious about aligning its exemption scheme with modern realities (and basic fairness), it needs to go further. A fresh start shouldn’t depend on outdated statutes. To read a copy of the transcript, please see: Blog comments Attachment Document the_future_of_bankruptcy_exemptions_in_north_carolina_expanding_debtors_ability_to_exempt_the_eitc.pdf (337.65 KB) Category Law Reviews & Studies

W.D.N.C.: Montgomery v. GoodLeap- Arbitration Denied: You Can’t Arbitrate a Contract That May Never Have Existed Ed Boltz Thu, 04/23/2026 - 15:30 Summary: In Montgomery v. GoodLeap, the U.S. District Court for the Western District of North Carolina refused to compel arbitration where the plaintiff plausibly claimed he never agreed to the underlying loan in the first place. The case arose from alleged violations of the Fair Credit Reporting Act and the North Carolina Debt Collection Act tied to a 2020 loan purportedly taken out in the debtor’s name. The lender, GoodLeap, LLC, pointed to a broad arbitration clause covering essentially any dispute—including disputes about arbitrability itself—and moved to force the case out of court. The problem? The plaintiff swore he never signed, authorized, or even knew about the loan until years later, alleging illiteracy and coercion by his mother. Relying on recent Fourth Circuit authority—particularly Johnson v. Continental Finance Co., LLC—the court emphasized a now-settled rule: contract formation comes first, and that question belongs to the court, not the arbitrator. Because the plaintiff raised genuine disputes of material fact about whether any agreement existed at all, the court held that the defendant failed to meet its burden under the Federal Arbitration Act. Result: motion to compel arbitration denied. Commentary: This is one of those decisions that should not be controversial—but in the modern arbitration-industrial complex, it absolutely is. Lenders (and their lawyers) have gotten very comfortable waving around arbitration clauses like a magic wand: “Dispute? Arbitration. Fraud? Arbitration. Identity theft? Arbitration. Existential crisis? Probably arbitration.” But this case is a reminder of a basic, almost quaint legal principle: You need a contract before you can enforce a contract. The Fourth Circuit, via Johnson, has put some steel back into that rule, and this court followed through. Delegation clauses—the ones that say “the arbitrator decides arbitrability”—don’t get you out of the threshold question: did the consumer ever agree to anything at all? And here, the facts matter. This isn’t a sophisticated borrower arguing about fine print. This is an allegation of outright non-consent—possibly identity theft dressed up as a consumer loan. If proven, there is no agreement, no arbitration clause, and no shortcut out of court. Practice Pointers (Because This Matters in Bankruptcy Land Too) Arbitration ≠ automatic. When your debtor says “that’s not my loan,” don’t let the creditor skip straight to arbitration. Force the formation fight first. Sworn declarations still matter. The court rejected the idea that a recorded call trumps a sworn affidavit. That’s important when servicers try to weaponize call center transcripts. This dovetails with claims litigation. In bankruptcy, this logic supports objections to proofs of claim where the debtor disputes the underlying obligation—especially in identity theft or unauthorized account cases. Expect more of this. As fintech lending (hello, point-of-sale solar loans…) expands, so will disputes about who actually agreed to what. Bigger Picture This decision quietly reins in a trend that has been eroding consumer rights: the idea that arbitration clauses can bootstrap themselves into existence. They can’t. And when courts insist on that, they preserve something fundamental—the right to have a real dispute heard in a real court when the very existence of an agreement is in question. Not flashy. Not revolutionary. Just… basic contract law doing its job. N Ice work by Shane Perry. To read a copy of the transcript, please see: Blog comments Attachment Document montgomery_v._goodleap.pdf (197.62 KB) Category Western District

Bankr. M.D.N.C.: ​In re Muhammad (Bankr. M.D.N.C. Mar. 19, 2026)- When the automatic stay meets the DMV, Public safety wins. Ed Boltz Wed, 04/22/2026 - 15:22 Summary: The court denied the debtor’s motion for sanctions against the North Carolina DMV after her vehicle registration was revoked post-petition due to an insurance lapse. Why? Because the DMV wasn’t acting as a bill collector—it was acting as a regulator. Two key takeaways drove the result: No collection activity: The revocation wasn’t tied to collecting a prepetition debt. In fact, as of the petition date, there wasn’t even a matured “debt” to collect. Police/regulatory power exception: Even if the revocation touched estate property (license/registration), it fell squarely within § 362(b)(4)—the governmental “health, safety, and welfare” exception. The DMV was enforcing North Carolina’s Financial Responsibility Act—i.e., making sure drivers have insurance—not trying to squeeze payment out of a bankruptcy debtor. Commentary: This is one of those cases where the automatic stay meets the real world—and loses. There’s a persistent (and understandable) instinct among debtors: “I filed bankruptcy, so everything stops.” But Muhammad is a clean illustration that the stay is not a force field against regulatory consequences. If you’re driving uninsured, bankruptcy doesn’t magically make that acceptable. The court does a nice job drawing the line that matters in § 362(b)(4) cases: If the government is protecting the public, the stay likely doesn’t apply. If the government is protecting its pocketbook, the stay probably does. Here, the DMV wasn’t trying to collect a penalty—it was trying to keep uninsured drivers off the road. That’s classic police power. Practice Pointers Don’t rely on bankruptcy to fix compliance problems. Filing a petition won’t cure things like lapsed insurance, expired licenses, or regulatory violations. Separate the “penalty” from the “consequence.” Even if a fine might be dischargeable or stayed, the regulatory consequence (like suspension or revocation) often survives. Burden of proof still matters. The debtor here simply couldn’t show a willful stay violation—because there wasn’t one. The Bigger Picture This fits neatly with the broader trend: courts are increasingly unwilling to let the automatic stay be used as a backdoor shield against public safety enforcement. Bankruptcy protects against creditors—not against the rules of the road. And in North Carolina, if you don’t have insurance, the DMV isn’t negotiating with § 362. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_muhammad.pdf (511.39 KB) Category Middle District

4th Cir.: Palazzo v. Bayview Loan Servicing, LLC- Accurate Informational Mortgage ​Statements Are Not Debt Collection Ed Boltz Tue, 04/21/2026 - 15:38 Summary: In a published decision that will reverberate through both the consumer bankruptcy and mortgage servicing worlds, the Fourth Circuit in affirmed summary judgment for mortgage servicers, holding that accurate, properly disclaimed, and timely mortgage communications sent during a Chapter 13 case are not “debt collection” under the FDCPA—and therefore do not violate the automatic stay. The Facts (and the Fight) Ruben Palazzo, a Chapter 13 debtor, received the familiar trio of communications from his mortgage servicer: Monthly mortgage statements Payoff statements (requested by the debtor) IRS Form 1098 tax documents He argued these were impermissible collection efforts during bankruptcy and further alleged that inaccuracies in the statements violated federal and state consumer protection laws. The Fourth Circuit, affirming the district court, disagreed—across the board. The Holding: Context, Content, and Clarity Matter The Court applied its now-familiar “commonsense inquiry”: looking at the purpose, context, and content of the communication. 1. Monthly Statements: Safe Harbor When Done Right The monthly statements: Included clear and prominent bankruptcy disclaimers Explicitly stated they were for informational purposes only Directed the debtor to pay the trustee, not the servicer Reflected post-bankruptcy obligations, not current demands Under those facts, the Court held these were not attempts to collect a debt. Critically, the Court leaned heavily on Lovegrove and distinguished Koontz, emphasizing: If the communication disclaims collection entirely, it is not debt collection. If it still seeks payment (even indirectly), it is. 2. Payoff Statements: Even Safer When Requested The payoff statements were even easier: Requested by the debtor Included similar disclaimers Provided purely responsive information The Court essentially treated these as ministerial responses, not collection activity.   3. Tax Forms: Not Even Close IRS Form 1098: No demand for payment No payment instructions Purely informational Result: Not debt collection. Full stop. Unmentioned, but still pertinent, is that Form 1098 statements are required under the Internal Revenue Code. The Automatic Stay: No Violation Without Collection Activity Having found no “debt collection,” the Court made the next step easy: Informational communications do not violate the automatic stay. This is an important doctrinal bridge—what fails under the FDCPA analysis will almost always fail under § 362 as well. Commentary: A Win for Servicers—But Not a Free Pass This is a significant and, frankly, welcome clarification—but it is not the blank check the mortgage servicing industry may want it to be. 1. Accuracy and Timeliness Are Doing the Heavy Lifting The Court’s reasoning implicitly depends on something critical: These were accurate, compliant, and properly framed statements. That leaves fully intact—and arguably reinforces—the holdings in: In re Peach (Bankr. W.D.N.C.) In re Rogers (Bankr. M.D.N.C.) Those cases recognize that: Inaccurate statements Misleading balances or arrearages Tardy or noncompliant notices can—and do—violate: The automatic stay The FDCPA (where applicable) State UDAP / debt collection statutes Rule 3002.1 and related bankruptcy obligations Palazzo does not disturb that line of cases. If anything, it sharpens it: ✔ Accurate + clear disclaimer + proper context → Safe ✘ Inaccurate or misleading → Potential liability 2. This Undercuts the Industry’s Reaction to In re Klemkowski Mortgage servicers have, at times, resisted transparency—particularly online account access—arguing that providing detailed account information could expose them to FDCPA or stay-violation claims. That argument is now on much weaker footing. The Fourth Circuit has effectively said: Providing accurate, clearly disclaimed information to a debtor in bankruptcy is not only permissible—it is not debt collection at all. Which leads to an obvious conclusion: If monthly statements with balances, payment coupons, and forward-looking payment info are permissible… Then providing real-time online account access should be even less problematic. In that sense, Palazzo undercuts the defensive posture taken by servicers after In re Klemkowski.   3. The Real Risk Zone: Sloppy Servicing Where servicers should still be losing sleep: Misapplied payments Phantom fees Escrow miscalculations Rule 3002.1 noncompliance Post-petition arrearage errors Because under Palazzo, once a communication crosses the line into inaccuracy, the “informational” shield may collapse. And at that point: FDCPA exposure returns Stay violation claims reappear State law claims (UDTPA/NCDCA) come roaring back Practice Pointer for Consumer Attorneys Do not read Palazzo as a retreat—it is a sorting mechanism: Good servicing behavior → protected Bad servicing behavior → still actionable This makes forensic review of mortgage statements even more important, not less. The litigation battlefield has not disappeared—it has simply been narrowed to where it always should have been: Accuracy, transparency, and compliance. Bottom Line The Fourth Circuit has drawn a clean and workable line: Mortgage servicers may communicate with debtors in bankruptcy—so long as they do so accurately, clearly, and without attempting to collect. But the corollary is just as important: When they get it wrong, the full weight of bankruptcy, federal, and state remedies remains firmly in place. To read a copy of the transcript, please see: Blog comments Attachment Document palazzo_v._bayview.pdf (263.45 KB) Category 4th Circuit Court of Appeals

 SBA EIDL Loan Defaults: What Small Business Borrowers Need to Know  The New York Times recently published an informative article titled "Repaying COVID-Era Loans Is a Big Burden on Small Business" (March 30, 2026), highlighting the serious difficulties small business owners are facing in repaying SBA Economic Injury Disaster Loans (EIDL) received during the COVID-19 pandemic. The article reinforces what we have been observing firsthand at Shenwick & Associates.  Background The SBA issued approximately $378 billion in EIDL loans to small businesses during the pandemic. Based on our experience, approximately 70% of borrowers have defaulted or will default on their repayment obligations. At Shenwick & Associates, we have been contacted by or have represented over 250 borrowers who have defaulted on SBA EIDL loans. Those loans ranged from $20,000 to $2,000,000. Loans exceeding $200,000 required a personal guarantee from the principal borrower, and interest rates were approximately 3% to 3.2%. Previously, borrowers experiencing financial hardship could apply for a loan modification that reduced their required monthly payment to 10% of the scheduled amount for a six-month period. That hardship payment program has since ended. Borrowers who are more than 90 days delinquent are now being referred to the U.S. Department of the Treasury for collection. As a precursor to referral, the SBA issues a 60-day demand letter to borrowers who are more than 60 days past due, advising that failure to cure the delinquency will result in referral to Treasury for collection action.  Treasury Collection Remedies Once a loan is referred to Treasury, the following collection tools become available: 1.    Seizure of federal tax refunds owed to the defaulted borrower 2.    Offset of up to 15% of Social Security payments for individual borrowers or guarantors 3.    Garnishment of up to 15% of wages of individual borrowers or guarantors 4.    Seizure of federal payments owed to the borrower, including payments to defense contractors, Medicaid reimbursements, and payments to medical providers serving Medicaid patients In addition, a 30% penalty is assessed on the outstanding loan balance upon referral to Treasury. Treasury has also engaged five collection agencies to pursue collection action on referred loans.  Comments and Observations from Jim Shenwick 1.    Act before referral to Treasury. Borrowers who have defaulted or are struggling to meet their payment obligations should contact the SBA promptly to explore a workout arrangement. Resolving the default at the SBA level avoids both the 30% penalty and the more aggressive collection mechanisms available to Treasury. 2.    Recall from Treasury is extremely difficult. Once a loan has been referred from the SBA to Treasury, it is very difficult — as a practical matter — to have the loan recalled. Proactive engagement with the SBA is far preferable to attempting to unwind a Treasury referral. 3.    Personal guarantees add significant complexity. If the loan exceeded $200,000 and an individual provided a personal guarantee, the matter becomes considerably more complex. Any workout must address the obligations of both the borrower entity and the individual guarantor. 4.    Tax consequences for LLC members. If the loan was made to a pass-through entity such as a limited liability company and the loan balance is discharged or forgiven, the LLC members may recognize ordinary income under Section 108 of the Internal Revenue Code. Treasury will issue a Form 1099-C to the LLC members reflecting the cancellation of debt income. 5.    Exercise caution with three-year repayment plans. The collection agencies retained by Treasury are actively promoting three-year repayment workout arrangements. In our experience, these plans are often economically unworkable for most borrowers and should be carefully evaluated — ideally with legal counsel — before any agreement is signed. 6.    Ten-year repayment plans are available from Treasury. Treasury will offer eligible defaulted borrowers a 10-year repayment plan; however, both the borrower and any guarantor must provide extensive financial disclosure and documentation as a condition of approval. 7.    Offers in compromise remain elusive. The Times article references an SBA spokesman who indicated that the agency is accepting offers in compromise on defaulted loans. However, based on our experience representing over 250 borrowers, no client has yet been able to successfully negotiate or obtain an accepted offer in compromise on a defaulted SBA EIDL balance, although that hopefully will change. Borrowers and guarantors who have defaulted on SBA EIDL loans are encouraged to contact Jim Shenwick, Esq. to discuss their situation, available options, and strategy. 📞 917-363-3391 📧 jshenwick@gmail.com 📅 Schedule a 15-minute telephone consultation Please click the link to schedule a telephone call with me. https://calendly.com/james-shenwick/15min  

N.C. Ct. of App.: Israel v. Zachary- Landlord Interference With Tenant’s Property Leads to Conversion Liability (Damages Remanded) Ed Boltz Thu, 04/02/2026 - 15:13 Summary: In Israel v. Zachary, the North Carolina Court of Appeals affirmed that a landlord who interferes with a tenant’s efforts to retrieve property after eviction can be liable for conversion and unjust enrichment, though the court vacated the damages award for lack of sufficient valuation evidence. The Dispute Stephen Israel leased roughly 97 acres of farmland in Alamance County. After the lease expired, a dispute arose over whether it had been extended. While the landlord, Janet Zachary, pursued summary ejectment, Israel attempted to remove farm equipment and structures he had brought onto the property during the lease. The trial court found that Zachary interfered with those efforts—contacting the sheriff and confronting individuals helping Israel move equipment. After the writ of possession issued, Israel attempted to retrieve the remaining property within the statutory seven-day period but was slowed by health issues and weather. When he returned to finish removing the equipment, deputies ordered him off the property. The equipment remained there for years, exposed to the elements. The trial court concluded that Zachary had converted the equipment and been unjustly enriched, awarding $45,584 in damages. The Court of Appeals The Court of Appeals largely affirmed. First, it held there was competent evidence that Zachary interfered with Israel’s efforts to remove his property, supporting liability for conversion. Second, the court rejected the argument that the property was automatically abandoned after seven days under North Carolina’s eviction statutes. Those statutes allow disposal of tenant property only if the landlord follows specific procedures and does not block the tenant’s retrieval efforts. However, the court vacated the damages award. Although the record contained purchase prices and insurance valuations, it lacked evidence establishing the difference in fair market value before and after the alleged damage, which is required to calculate depreciation. The case was therefore remanded for a new damages determination. A Parallel Issue in Consumer Finance This decision also raises an interesting question for consumer creditors: when does insisting on procedural rights become “conversion”? In many consumer cases—particularly in bankruptcy—debtors do not voluntarily surrender collateral. Instead, they insist that creditors follow the proper legal procedures: In bankruptcy, a creditor must obtain a Motion for Relief from the Automatic Stay before repossessing collateral. Outside bankruptcy, the creditor must pursue replevin or claim-and-delivery remedies in state court. Creditors sometimes portray that insistence as wrongful “retention” of collateral. But the procedural protections exist for an important reason: due process ensures that the property is actually delivered to the correct party and not seized, stolen, or disposed of improperly. In other words, insisting on statutory procedures is not obstruction—it is the system working exactly as designed. A Practical Alternative: “Cash for Keys” Of course, the formal legal route—stay-relief motions, replevin actions, hearings, and orders—can be expensive and adversarial. If creditors truly want quick possession of collateral, there is often a simpler solution: pay the consumer to cooperate. In mortgage and foreclosure cases this practice is widely known as “Cash for Keys.” Rather than litigating possession, the creditor offers a modest payment to the occupant in exchange for an orderly turnover of the property. The same concept could work just as well in consumer repossession cases. Instead of spending thousands of dollars on attorneys’ fees and court costs, a creditor might simply offer a few hundred dollars for the debtor’s assistance in delivering the collateral promptly. That approach reduces litigation, preserves due process, and avoids disputes over who actually converted what. Takeaway: Israel v. Zachary is a reminder that interfering with someone’s ability to retrieve their property can easily create conversion liability. But it also highlights a broader point: when possession of property is disputed, the safest path is usually the procedural one—or better yet, a negotiated one. <strong>To read a copy of the transcript, please see:</strong> </strong><embed height="500" src="https://ncbankruptcyexpert.com/sites/default/files/2026-04/israel-v-zachary_0.pdf" width="100%"></embed> Blog comments Attachment Document israel-v-zachary.pdf (271.2 KB) Category NC Court of Appeals

N.C. Ct. of App.: Yurk v. Terra Center- Possession may be 9/10ths of the Law, but Holding It Hostage Gets Expensive Ed Boltz Fri, 04/17/2026 - 15:06 Summary: The Court of Appeals largely affirmed a substantial judgment against a storage operator that: Took and held a debtor’s property for over three years Moved it multiple times Refused return unless the owner signed a liability release Result: Conversion, trespass to chattels, and UDTPA → affirmed Compensatory, punitive, and treble damages → largely affirmed Attorney’s fees and allocation of enhanced damages → vacated and remanded for precision The legal takeaway is simple and blunt: 👉 You cannot hold property hostage to extract leverage. Commentary: Why This Matters in Bankruptcy (and Why “Just Surrender It” Is Dangerous) This case should be required reading for any consumer bankruptcy attorney—and frankly, for any creditor counsel who thinks informal repossession is a cost-saving shortcut. Because what happened here is exactly what can—and too often does—happen when debtors informally surrender collateral without process. 1. The Core Lesson: Possession Without Process Becomes Leverage The defendants in Yurk did not just take possession—they used possession as leverage: denying access moving property conditioning return on a release That is not merely aggressive—it is conversion + UDTPA liability. Now translate that into bankruptcy: A creditor who takes possession outside of formal process is one step away from the same exposure—plus automatic stay violations. 2. Why Debtors Should NOT “Just Surrender” Property Cases like this are precisely why consumer debtors should never casually surrender vehicles or personal property in bankruptcy. Instead, surrender should occur only: After an Order Granting Relief from Stay, or Through plan confirmation, or Post-discharge, and even then: 👉 Only with insistence on proper state-law process—typically a claim and delivery action. North Carolina’s claim and delivery procedure (see Affidavit and Request for Hearing) requires: sworn proof of entitlement to possession judicial oversight protections against wrongful detention or disposition That is not red tape—that is due process protecting against exactly what happened in Yurk. 3. The False Economy of Informal Repossession Creditors often think: “We’ll just grab the car and save the legal fees.” But Yurk demonstrates the opposite: avoiding process → increases litigation risk coercive behavior → triggers treble damages sloppy handling → invites punitive damages 👉 What looks like efficiency becomes exposure. 4. A Better Alternative: Structured Surrender Agreements If a creditor truly wants speed and cost savings, there is a better path—one that avoids both litigation and liability. The attached Surrender and Collateral Transfer Agreement (Motor Vehicle) provides a model: Key Features That Matter 1. Mutual Scheduling (Not Midnight Repossession) Delivery at a mutually agreed time and location No “self-help ambush” 2. Respectful Communication Requirement Contact limited to logistics Professional and courteous conduct required 3. Allocation of Risk and Costs Creditor bears all repossession and transport risk 4. UCC-Compliant Deficiency Protections Requires UCC 9-616 explanation Deadlines for filing claims Failure = full satisfaction 5. Bankruptcy Compliance Built In Explicit preservation of §§ 362 and 524 No reaffirmation or revival of liability 5. The “Cash for Keys” Reality (Even If It Feels Wrong) The most important—and most practical—term: Creditor pays the debtor $500 for cooperation. Yes, that may feel counterintuitive. But from a creditor’s perspective: Motion for Relief from Stay → legal fees Claim and Delivery → court costs + delay Risk of wrongful repossession → massive liability So the real calculation is:   Option Cost Risk Formal legal process Moderate Low Informal repossession Low upfront High liability Cash-for-keys agreement Minimal Very low 👉 A rational, cost-conscious creditor—particularly one focused on maximizing shareholder value—should “hold their nose” and choose the third option. 6. Bankruptcy Overlay: This Gets Worse Under § 362 Had Yurk occurred post-petition, the creditor would face: Automatic stay violations (likely willful) Void actions Actual and punitive damages Potential contempt sanctions And if property is not returned promptly: Turnover under § 542 Additional fee exposure 7. The Big Picture This case reinforces a fundamental principle that cuts across state law and bankruptcy: Possession is not ownership—and it is not leverage. And more pointedly: Using possession to coerce concessions is exactly the kind of conduct that courts punish—harshly. Final Take (Practical Advice) For debtors’ counsel: Never advise informal surrender without structure Insist on: court order plan confirmation or formal state process Use written surrender agreements when appropriate For creditors’ counsel: Avoid “self-help shortcuts” Use claim and delivery or structured agreements Consider cash-for-keys as a cost-control tool, not a concession Because as Yurk makes clear: The cheapest repossession is the one that doesn’t turn into a lawsuit—and the fastest one is the one done right. To read a copy of the transcript, please see: Blog comments Attachment Document surrender_agreement_motor_vehicle.docx (27.52 KB) Document cv200-en_affidavit_and_request_for_hearing_in_claim_and_delivery.pdf (132.5 KB) Document yurk_v._terra_center.pdf (198.33 KB) Category NC Court of Appeals