NC Bankruptcy Expert

05/29/2026

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

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who qualifies as a “servicer” under contractual provisions;

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whether particular entities have standing to invoke servicing-related rights;

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distinctions between servicing conduct and debt collection conduct under the FDCPA;

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responsibilities for Rule 3002.1 notices and escrow administration; and

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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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Attachment

Document
jackons_v._protas_spivok_collins.pdf
(188.63 KB)

Category

4th Circuit Court of Appeals

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.

05/29/2026

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.

05/28/2026

4th Cir.: LaRosa v. IRS — Innocent Spouse Relief May Extend to Erroneous Refund Interest Claims: 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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larosa_v._irs.pdf
(150.46 KB)

Category

4th Circuit Court of Appeals

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).

05/28/2026

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).

05/27/2026

4th Cir.: ​American Acceptance Corporation of SC v. Gietz - Murder Investigation Trumps Secured Creditor’s Right to Recover Collateral: 4th Cir.: ​American Acceptance Corporation of SC v. Gietz - Murder Investigation Trumps Secured Creditor’s Right to Recover Collateral

Ed Boltz

Wed, 05/27/2026 - 17:49

Summary:

In American Acceptance Corporation of SC v. Gietz , the Fourth Circuit held that a secured creditor’s rights in collateral can temporarily give way when the property becomes critical evidence in a criminal prosecution.

This case involved two Harley-Davidson motorcycles financed through retail installment contracts. After one rider was killed in a motorcycle gang shootout and another was charged with murder, the Lexington County Sheriff’s Department seized both motorcycles as evidence. Although the seizures triggered defaults allowing repossession, law enforcement refused to release the collateral during the ongoing criminal case.

The lender argued that retaining the motorcycles without notice or a hearing violated procedural due process. The Fourth Circuit disagreed, holding that when property is lawfully seized for criminal investigatory purposes, compliance with the Fourth Amendment generally satisfies due process requirements.

Commentary:

What makes this decision notable is how unusual it is to see secured creditor rights subordinated so completely. Secured lenders ordinarily enjoy extraordinary protections under both Article 9 and bankruptcy law. Yet criminal investigations remain one of the rare situations where even perfected security interests can be effectively frozen for years in favor of the government’s police powers and evidentiary needs.

For bankruptcy attorneys, the case is another reminder that a secured creditor’s remedies are not absolute. Occasionally, external governmental interests—particularly criminal prosecutions—override even the normally dominant rights of lienholders.

To read a copy of the transcript, please see:

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Document
american_acceptance_corporation_of_sc_v._john_gietz_1.pdf
(187.4 KB)

Category

4th Circuit Court of Appeals

Summary: In American Acceptance Corporation of SC v. Gietz , the Fourth Circuit held that a secured creditor’s rights in collateral can temporarily give way when the property becomes critical evidence in a criminal prosecution.

05/27/2026

Bankr. E.D.N.C.: In re Clark II—Private School Tuition, “Litter Box” Credibility Problems, and the Difficult Reality of “Belt-Tightening” in Chapter 13: Bankr. E.D.N.C.: In re Clark II—Private School Tuition, “Litter Box” Credibility Problems, and the Difficult Reality of “Belt-Tightening” in Chapter 13

Ed Boltz

Wed, 05/27/2026 - 17:43

Summary:

In , Judge Pamela McAfee denied confirmation of the Clarks’ Chapter 13 plan after concluding that continuing to spend $1,715 per month on private Christian school tuition while proposing to discharge roughly 90% of more than $300,000 in unsecured debt was inconsistent with the good faith requirement of 11 U.S.C. § 1325(a)(3).

The court emphasized that Chapter 13 good faith requires examination of the “totality of the circumstances,” including the debtors’ financial situation, percentage repayment to creditors, accuracy and honesty in schedules and testimony, and whether the debtors made meaningful efforts to reduce expenses.

Judge McAfee carefully reviewed both the Clarks’ prior Chapter 7 abuse litigation and the subsequent Chapter 13 plan. The opinion repeatedly focused on the debtors’ continued effort to maintain what the court viewed as expensive lifestyle choices—including costly vehicles, gym memberships, pet expenses, and especially private school tuition—while seeking to discharge substantial unsecured debt with minimal repayment.

The opinion gave particular attention to the evolving explanations for why the debtors chose private school. During the earlier Chapter 7 proceedings, Mr. Clark emphasized dissatisfaction with pandemic-era virtual public schooling and generalized criticism of public schools. Later, during the Chapter 13 confirmation hearing, he reframed the decision primarily as rooted in faith and Christian education.

The court was especially critical of Mr. Clark’s testimony that he would not consider public schools because “They put litter boxes in the public schools in Apex.” Footnote 6 directly identified this as a “widely circulated (and debunked) rumor” involving children who “identified as cats.” The court clearly viewed this testimony as damaging to credibility.

Importantly, the court did not hold that private school tuition can never be maintained in Chapter 13. Instead, Judge McAfee discussed multiple cases where courts permitted such expenses because debtors demonstrated either:

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educational necessity or special circumstances; or

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meaningful financial sacrifice elsewhere in their budgets.

The opinion referenced cases involving children with ADHD, emotional crises, chronic illnesses, denied transfer requests, or other compelling educational needs. The court also noted cases where debtors significantly adjusted their lifestyles or where one spouse worked specifically to fund tuition expenses.

Ultimately, Judge McAfee concluded that the Clarks failed to demonstrate either sufficient educational necessity or meaningful “belt-tightening” efforts. Confirmation was therefore denied, although the court expressly stated it was not requiring the debtors to remove their children from private school in order to obtain Chapter 13 relief.

Commentary:

In re Clark II is not really a “private school tuition” case as much as it is a credibility and lifestyle-adjustment case.

Footnote 6 likely will receive the most snide attention (including from this blog) because it reflects unusually direct judicial scorn for Mr. Clark’s reliance on the debunked “litter box” conspiracy theory regarding public schools. But the deeper issue was not politics—it was credibility. While attorneys cannot control what their clients say, preparing them to avoid rambling into rants and conspiracy nonsense is vital. The court repeatedly contrasted the debtors’ earlier explanations for private school enrollment with later testimony that appeared more carefully tailored toward bankruptcy confirmation standards.

For consumer debtor attorneys, the opinion contains several important practical lessons.

First, debtors who intend to maintain private school expenses in Chapter 13 increasingly will need significant pre-bankruptcy preparation. Attorneys likely will need to help clients investigate and document:

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public-school alternatives,

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charter or magnet options,

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scholarship or tuition assistance programs,

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church support,

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transportation concerns,

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individualized educational needs,

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bullying or emotional concerns,

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special learning accommodations,

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extracurricular or continuity issues,

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and any other facts supporting genuine educational necessity.

Equally important, attorneys will need to prepare debtors to testify honestly, consistently, and without appearing defensive or ideological. A debtor who calmly explains: “We researched alternatives extensively, made difficult sacrifices elsewhere, and believe this educational environment remains critically important for our child” presents far differently than a debtor who appears dismissive of the process or relies on inflammatory rhetoric.

The opinion also exposes a recurring tension in consumer bankruptcy law: what exactly constitutes sufficient “belt-tightening”?

Courts routinely expect debtors to reduce expenses before and during bankruptcy. But substantial pre-petition sacrifices often become invisible by the time schedules are filed. Families may already have eliminated vacations, stopped retirement contributions, sold assets, exhausted savings, canceled discretionary spending, liquidated cryptocurrency, deferred healthcare, or downsized numerous aspects of life merely to survive until bankruptcy. Once those sacrifices are already embedded into the schedules, courts frequently see only the remaining expenses.

That said, the remaining numbers here were still difficult.

If the Clarks had:

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eliminated $250/month in gym memberships,

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reduced pet expenses by $75/month,

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curtailed private school expenses to the Means Test amount of approximately $189.58 per child per month,

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and somehow replaced or refinanced vehicles to reduce payments by another $800 monthly without creating large deficiency claims,

they potentially could have generated well over $2,300 additional monthly disposable income. Combined with the proposed $700 payment, that could have created approximately $3,000 per month for unsecured creditors—potentially yielding repayment approaching or exceeding $180,000 over a 60-month plan.

Yet the vehicle issue also highlights a recurring disconnect in consumer bankruptcy jurisprudence. In the wake of Goddard v. Burnett, this sort of vehicular “belt-tightening” increasingly can feel like a mirage envisioned by judges and trustees that rarely materializes in practice. Surrendering even admittedly expensive vehicles does not necessarily mean that financially distressed debtors can obtain reliable replacement transportation that is genuinely and substantially cheaper once all real-world costs are considered—including damaged post-bankruptcy credit, higher interest rates, required down payments, increased maintenance costs on older vehicles, repair uncertainty, insurance costs, and the practical necessity of dependable transportation for employment and family obligations. A debtor who replaces a newer financed vehicle with an older high-mileage car may reduce the monthly payment on paper while simultaneously increasing long-term financial instability through recurring repair expenses and transportation unreliability.

Whether the statutory private-school amount under § 707(b)(2)(A)(ii)(IV) is truly an “allowance” or still requires a separate showing of “reasonable and necessary” remains an interesting unresolved issue. The Clarks’ counsel argued that no further explanation should be required for expenses within that statutory amount. Judge McAfee firmly rejected that argument, emphasizing that the statute itself expressly requires “documentation” and a “detailed explanation” even for those amounts.

One additional irony stands out in the opinion. Although faith ultimately became central to the debtors’ justification for both private Christian schooling and participation in a “faith-based medical cost-sharing program,” the schedules reflected no charitable or religious contributions whatsoever.

That omission matters because Congress specifically protected charitable contributions in Chapter 13 through 11 U.S.C. § 1325(b)(2)(A)(ii), authorizing qualified charitable giving up to 15% of gross income. In some situations, debtors with strong church involvement may have opportunities for reciprocal tuition assistance, scholarships, or ministry support that reduce the direct financial burden of private education. Whether such options existed here is unknown, but the absence of any tithing or charitable giving likely weakened the persuasiveness of the debtors’ later faith-centered narrative.

Ultimately, Clark II reflects a broader judicial expectation that Chapter 13 debtors cannot simultaneously preserve nearly every major component of an upper-middle-class lifestyle while shifting the overwhelming burden of financial collapse onto unsecured creditors. The opinion is a reminder that successful Chapter 13 practice often depends not only on statutory calculations, but on credibility, demonstrated sacrifice, and a debtor’s ability to persuade the court that difficult compromises have genuinely been attempted.

To read a copy of the transcript, please see:

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Attachment

Document
in_re_clark_ii.pdf
(417.97 KB)

Category

Eastern District

Summary: In , Judge Pamela McAfee denied confirmation of the Clarks’ Chapter 13 plan after concluding that continuing to spend $1,715 per month on private Christian school tuition while proposing to discharge roughly 90% of more than $300,000 in unsecured debt was inconsistent with the good faith ...

05/27/2026

Summary: In American Acceptance Corporation of SC v. Gietz , the Fourth Circuit held that a secured creditor’s rights in collateral can temporarily give way when the property becomes critical evidence in a criminal prosecution.

05/27/2026

Summary: In , Judge Pamela McAfee denied confirmation of the Clarks’ Chapter 13 plan after concluding that continuing to spend $1,715 per month on private Christian school tuition while proposing to discharge roughly 90% of more than $300,000 in unsecured debt was inconsistent with the good faith ...

05/26/2026

Bankr. W.D.N.C.: Martinez v. Wolper Law Firm—Strict Compliance Matters for Charging Liens and Employment of Professionals in Bankruptcy: Bankr. W.D.N.C.: Martinez v. Wolper Law Firm—Strict Compliance Matters for Charging Liens and Employment of Professionals in Bankruptcy

Ed Boltz

Mon, 05/25/2026 - 22:35

In a decision that should send a chill through every contingent-fee lawyer handling claims for bankruptcy debtors, the Bankruptcy Court for the Western District of North Carolina in Martinez v. Wolper Law Firm held that a law firm that successfully obtained a FINRA arbitration settlement nevertheless lacked an enforceable secured charging lien against the settlement proceeds because it failed to satisfy the Bankruptcy Code’s requirements for employment of professionals and failed to perfect its charging lien before the case settled.

Jose and Nancy Martinez had retained the Wolper Law Firm to pursue FINRA arbitration claims arising from allegedly unsuitable investment advice that reportedly wiped out hundreds of thousands of dollars in retirement savings. The representation was on a standard contingency fee basis. But after the arbitration commenced, the debtors filed bankruptcy. According to the opinion, neither the Trustee nor the Bankruptcy Court approved the employment of Wolper as counsel for the estate under 11 U.S.C. § 327. The arbitration later settled for $225,000, with the law firm taking approximately $76,000 in fees and costs before the Chapter 7 Trustee sought turnover.

Judge Edwards ultimately concluded that because the arbitration claim became property of the bankruptcy estate upon filing, only the Trustee had authority to control and settle that litigation absent abandonment. Further, while Florida law recognized attorney charging liens, such liens are not self-executing and require strict compliance — including timely notice before the litigation concludes. The Wolper Law Firm had not filed or asserted a charging lien before the FINRA arbitration settled. That failure proved fatal.

Commentary:

The result may be harsh. but "equitable sympathy for Defendant's position cannot substitute for compliance with the Code." The law firm appears to have done substantial work and obtained an actual recovery for the clients. Yet bankruptcy is a statutory system built on process, priority, and court supervision. Good intentions and substantial effort are not substitutes for statutory compliance.

That lesson is particularly important in North Carolina, where the distinction between Chapter 13 and Chapter 7 practice can create traps for unwary practitioners.

As discussed in the recent memorandum issued by the MDNC Bankruptcy Administrator regarding employment of professionals in Chapter 13 cases, Chapter 13 practice often operates differently from Chapter 7 because the debtor remains in possession of estate property and exercises many trustee-like functions. In many Chapter 13 cases, debtor’s counsel or special counsel may proceed without the same formal employment procedures routinely required in Chapter 7 trustee litigation. The practical realities of consumer practice frequently reflect that distinction.

But that distinction may disappear instantly upon conversion.

As previously discussed in 4th Cir.: David v. King- Former Trustee Has No Authority to Act Following Conversion, Including Settlement of Claims, the Fourth Circuit has emphasized that conversion fundamentally alters who possesses authority over estate property and litigation claims. Once a case converts to Chapter 7, the Chapter 7 Trustee becomes the real party in interest with authority over estate causes of action. Professionals who may have been operating comfortably in a Chapter 13 environment may suddenly discover that formal employment approval under § 327 is now essential.

That means consumer bankruptcy attorneys handling personal injury claims, FDCPA cases, FCRA litigation, employment claims, or securities arbitrations should be extremely cautious when a client converts from Chapter 13 to Chapter 7 — or even when conversion becomes possible. A contingent-fee lawyer who never obtains court approval may discover, after years of litigation, that they possess nothing more than a general unsecured claim.

Opportunities for Debtors from Strict Application

Yet while Martinez may appear harsh toward plaintiff’s attorneys, strict compliance cuts both ways — and consumer bankruptcy attorneys should recognize the opportunities this reasoning creates for debtors.

North Carolina’s medical lien statute, N.C.G.S. § 44-49, provides a perfect example. That statute allows hospitals and medical providers to assert liens against personal injury recoveries, but only if they strictly comply with statutory prerequisites, including furnishing itemized statements and written notice of the lien to counsel. The statute expressly conditions the lien upon the provider having:

“furnishe[d], without charge to the attorney as a condition precedent to the creation of the lien … an itemized statement, hospital record, or medical report … and a written notice to the attorney of the lien claimed.”

That language matters.

If a medical provider failed to provide the required itemized statement prior to bankruptcy — or failed to seek allowance of any claim through the bankruptcy process — Martinez provides support for the proposition that no enforceable lien may exist at all. In other words, if courts are going to demand strict perfection and strict compliance from plaintiff’s attorneys asserting charging liens, then medical providers asserting statutory liens should be held to exactly the same standard.

And that could materially benefit debtors.

North Carolina’s unlimited exemption for personal injury recoveries means that eliminating improperly perfected medical liens could allow Chapter 13 or Chapter 7 debtors to retain substantially more of their settlements. Given that medical liens can consume up to one-third of a personal injury recovery, that is not a theoretical issue.

Indeed, one suspects that in 1935 — when N.C.G.S. § 44-49 first became effective— producing paper hospital records may actually have been burdensome. In 2026, when virtually every provider maintains electronic records systems capable of generating itemized billing statements in seconds, courts should perhaps be less sympathetic to providers who fail to satisfy statutory prerequisites yet still seek to consume enormous portions of injury recoveries from bankrupt debtors.

Ultimately, Martinez v. Wolper Law Firm is a reminder that bankruptcy courts are courts of strict statutory compliance. Liens do not arise merely because services were valuable. Whether the lien is an attorney charging lien, a medical lien, or any other statutory encumbrance, perfection requirements matter.

And consumer bankruptcy attorneys should remember that strict compliance doctrines can protect debtors just as easily as they can punish professionals who overlook bankruptcy procedure.

To read a copy of the transcript, please see:

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Document
ba_guidance_re_ch_13_employment_of_professionals_2026-3-31.pdf
(127.94 KB)

Document
martinez_et_al_v._wolper_law_firm_p.a.pdf
(542.24 KB)

Category

Western District

In a decision that should send a chill through every contingent-fee lawyer handling claims for bankruptcy debtors, the Bankruptcy Court for the Western District of North Carolina in Martinez v. Wolper Law Firm held that a law firm that successfully obtained a FINRA arbitration settlement nevertheles...