§ 158.2     Student Loans
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 158.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

Prior to the 1990 bankruptcy amendments, student loans that were nondischargeable in a Chapter 7 case under § 523(a)(8) were dischargeable in a Chapter 13 case after completion of payments under the plan.1 One pre-1990 decision even refused to allow a Chapter 13 debtor to except a student loan from discharge by agreement.2

[2]

Prior to 1990, it was quite common for Chapter 13 plans to pay less than 100 percent of a student loan and to discharge the balance at completion of payments under § 1328(a).3 At that time, the good-faith test for confirmation in § 1325(a)(3) was the principal limit on the discharge of student loans in Chapter 13 cases.4

[3]

In 1990, in a flurry of legislation limiting the discharge in Chapter 13 cases, Congress amended the full-payment discharge in § 1328(a)(2) by inserting a cross-reference to § 523(a)(8).5 This amendment rendered educational loans described in § 523(a)(8) nondischargeable upon completion of payments in a Chapter 13 case. This amendment was enacted on November 5, 1990, but “shall not apply to any case under the provisions of title 11 . . . commenced before the date of enactment of this act.”6 Thus, with respect to bankruptcy cases commenced before November 5, 1990, educational loans described in § 523(a)(8) continued to be dischargeable upon completion of payments.7 Because the typical Chapter 13 case lasts from three to five years,8 until the end of 1995, there were many pending Chapter 13 cases in which student loans were dischargeable upon completion of payments. With respect to these pre-November 5, 1990, cases, the confirmed plan fully defined the rights of the holder of the student loan claim.

[4]

The legislation that added the exception to discharge for educational loans in Chapter 13 cases also contained a sunset provision with respect to the subtitle that included the student loan amendment. This sunset provision stated, “The amendments made by this subtitle shall cease to be effective on October 1, 1996.”9 Although this sunset provision may have been intended to limit other provisions of subtitle (a) of title 3 of the Omnibus Budget Reconciliation Act of 1990,10 but for further legislation in 1992, it would have disabled the exception to discharge in Chapter 13 cases for educational loans on October 1, 1996. On July 23, 1992, Congress quietly11 repealed the sunset provision of the 1990 legislation.12 The repealer was effective on October 1, 1992.13

[5]

Many Chapter 13 cases filed after November 5, 1990, and before October 1, 1992, became eligible for discharge after October 1, 1996. Was the sunset provision part of the exception to discharge for educational loans enacted by Congress in 1990? Was a debtor filing a Chapter 13 case between November 5, 1990, and October 1, 1992, entitled to rely on that sunset provision? The answer to this question turns in part on what law controls the dischargeability of educational loans—the law in effect at the time of filing of the Chapter 13 case or the law in effect at the time the debtor becomes eligible for discharge? The answer to this question turns out to be anything but clear.14

[6]

A substantial number of courts have held that discharge in a bankruptcy case is determined by the law in effect at the filing of the petition.15 Other courts have held that discharge is controlled by the law in effect at the time the court determines whether to grant or deny a discharge.16

[7]

One reported decision addresses the sunset provision and concludes that the law in effect at the time the debtor became eligible for discharge controls the dischargeability of student loans. In In re Loving,17 the Chapter 13 case was filed on July 1, 1992, after the effective date of the 1990 enactment that made student loans nondischargeable, subject to the sunset. The confirmed plan provided $12,500 for student loan creditors but did not pay postpetition interest or collection costs. The debtor completed payments, and discharge was entered on August 7, 1997—after what would have been the October 1, 1996, effective date for the sunset provision that was repealed on July 23, 1992 (effective October 1, 1992). Four years later, a student loan creditor informed the debtor that she still owed $10,000 of interest and collection costs. The debtor defended that filing the Chapter 13 case before October 1, 1992, entitled her to the discharge provision that included the sunset of the exception to discharge for student loans. The bankruptcy court disagreed:

Loving maintains that she should enjoy the benefits of the sunset provision, i.e., the discharge of her debt to ECMC, because the provision had not yet been repealed as of the Petition Date. The Court disagrees with Loving’s assumption that the sunset provision substantively defined the effect of a Chapter 13 discharge simply by being included in the 1990 amendment. When Congress amended § 1328(a)(2) to eliminate the dischargeability of those student loans described in § 523(a)(8), it explicitly stated that the amendment was to apply only to cases filed after November 5, 1990. Per the sunset provision, Congress further provided that the amendment was to expire, i.e., that the superdischarge be reinstated, on October 1, 1996 . . . . According to Loving’s argument, only those cases both filed and discharged before October 1, 1996 would be adversely affected by the amendment to § 1328(a). However, if Congress had intended such a result, it would have explicitly stated so. The more logical interpretation is that Congress intended the amendment to § 1328(a)(2) to apply to any case filed between November 5, 1990 and October 1, 1996 regardless of when the debtor became eligible for discharge. Any other interpretation simply leads to confusing and inconsistent results.18
[8]

Applying different logic but reaching the same conclusion, the bankruptcy court in In re Amos19 held that student loans were nondischargeable in a Chapter 13 case filed on March 25, 1992, when the discharge was entered in January 1995. The court reasoned that “the law in effect at the time debtor’s petition was filed did not provide for the discharge of debtor’s student loans,” thus the student loan debt was not discharged at the completion of payments in 1995.20 Because the debtor in Amos became entitled to discharge before October 1, 1996—the effective date for the sunset provision—the bankruptcy court did not address whether the sunset provision was part of the law in effect at the petition, nor did the court consider the effect of the subsequent repealer.

[9]

The stuttering history of the nondischargeability of student loans in Chapter 13 cases has confused the bankruptcy courts with respect to the proper form of the discharge order at the completion of payments. Despite the 1990 amendment that rendered educational loans nondischargeable in Chapter 13 cases, and the repeal of the sunset provision in 1992, some bankruptcy courts continued to use the pre-1990 “form discharge order” well into the decade of the 90s. Chapter 13 debtors occasionally seized on the overly broad wording of the wrong form as an argument for the discharge of student loans. On various procedural and constitutional theories, the bankruptcy courts have refused to discharge student loans notwithstanding use of a discharge order that contained no exception for student loans.21

[10]

The question of what law applies to determine the dischargeability of student loans in Chapter 13 cases filed after November 5, 1990, is further complicated because Congress has several times amended § 523(a)(8) to change the characteristics of student loans that are nondischargeable. Prior to amendment in 1990, § 523(a)(8) excepted from discharge educational loans

made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a non-profit institution, . . . .22

The Federal Debt Collections Procedures Act of 199023 amended § 523(a)(8) to more broadly define educational loans excepted from discharge:

For an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or non-profit institution, or for an obligation to repay funds received as an educational benefit, scholarship, or stipend . . . .24
[11]

In 1990, Congress also changed from five years to seven years the “reach-back” for the exception to nondischargeability of educational loans contained in § 523(a)(8).25 These 1990 amendments to § 523(a)(8) had an effective date “180 days after the date of the enactment of this act.”26 The enactment date of the Federal Debt Collections Procedures Act of 1990 was November 29, 1990. The new (1990) definition of educational loans that were nondischargeable under § 523(a)(8), including the seven-year limitation, took effect on May 28, 1991.

[12]

In 1998, Congress acted again to redefine student loans that are nondischargeable in bankruptcy cases. The Higher Education Amendments Act of 199827 amended § 523(a)(8) to eliminate altogether the seven-year limitation on the nondischargeability of educational loans. This amendment applies only to bankruptcy cases commenced after October 7, 1998. In Chapter 13 cases filed after that date, student loans described in § 523(a)(8) are nondischargeable without regard to when the loan first became due.

[13]

An attempt to put together the 1990, 1992 and 1998 amendments with respect to the dischargeability of student loans in Chapter 13 cases produces at least the following categories of debts and possible outcomes:

 

  
In all Chapter 13 cases filed before November 5, 1990, educational loans are dischargeable debts upon completion of payments under § 1328(a).
 

 

 

 

  
In Chapter 13 cases filed after November 5, 1990, in which the debtor became eligible for discharge before October 1, 1996, educational loans described in § 523(a)(8) are nondischargeable; however, the version of § 523(a)(8) that applies will depend on when the debtor filed and on which discharge law the court chooses to apply. If the debtor filed after November 5, 1990, but before May 28, 1991, and if the court chooses to apply the law with respect to discharge in effect at the time of filing, then the pre-1990 version of § 523(a)(8) will control. If the Chapter 13 case was filed after May 28, 1991, educational loans that are nondischargeable will be determined by the 1990 version of § 523(a)(8). If the case was filed after November 5, 1990, and if the court applies the law in effect at the time the debtor becomes eligible for discharge, then the 1990 version of § 523(a)(8) will apply in all cases in which the debtor becomes eligible for discharge after May 28, 1991, and before October 1, 1996.
 

 

 

 

  
In Chapter 13 cases filed after November 5, 1990, but before October 1, 1992, in which the debtor becomes eligible for discharge after October 1, 1996, the dischargeability of educational loans is problematic. If the court applies the discharge law in effect at the time of filing of the case, and if the court interprets the 1990 legislation to include the sunset provision, educational loans would be dischargeable notwithstanding repeal of the sunset provision in 1992. If the court applies the discharge law in effect when the debtor becomes eligible for discharge or if the sunset provision is not considered to be part of the dischargeability law upon which a debtor could reasonably rely, then educational loans will be nondischargeable upon completion of payments under the plan.
 

 

 

 

  
In Chapter 13 cases filed after October 1, 1992, without regard to when the debtor becomes eligible for discharge, educational loans are nondischargeable upon completion of payments under § 1328(a)(2).
 

 

 

 

  
In Chapter 13 cases filed between May 28, 1991, and October 7, 1998,28 the seven-year reach-back version of § 523(a)(8) would apply. In cases filed after October 7, 1998, student loans are nondischargeable without time limitation under § 523(a)(8).
 

 

 

[14]

The argument that the sunset provision of the November 5, 1990, enactment is part of the dischargeability law upon which a Chapter 13 debtor had a right to rely in any filing between November 5, 1990, and October 1, 1992, is a long shot.29 The debtor would first have to convince the court that the sunset provision was part of the law defining the discharge in the Chapter 13 case. The difficult question would then remain: which law determines the extent of the discharge available to a Chapter 13 debtor—the law in effect at the petition or the law in effect when the debtor becomes eligible for discharge.

[15]

The 1990 amendments did not (re)define the limits of confirmation of plans that manage educational loans.30 Put another way, Congress amended § 1328(a) to restrict the discharge of educational loans, but Congress did not amend § 1322 or § 1325 to change the rules with respect to confirmation of plans that pay all or part of a nondischargeable student loan.31 Difficult questions remain, for example, whether a Chapter 13 debtor can separately classify a nondischargeable student loan for more or less favorable treatment through the plan,32 and whether debtors can use § 1322(b)(5) to cure defaults and maintain payments on “long-term” student loans.33 The good-faith test in § 1325(a)(3) has been cited as a limit on the use of a Chapter 13 plan to manage nondischargeable student loans.34

[16]

These confirmation questions are very important to Chapter 13 debtors with nondischargeable educational loans because of postpetition interest and collection costs. Most student loan contracts call for interest on the unpaid balance. If the educational loan is nondischargeable, then the contract provision for interest is enforceable as a personal liability of the debtor after the discharge of other debts under the plan. Although the student loan claim holder cannot have an allowable claim during the Chapter 13 case for postpetition (unmatured) interest,35 nothing in the Bankruptcy Code interferes with the accrual of postpetition interest and collection costs36 that survive discharge. The bankruptcy court in In re Shelbayah37 explained these difficult characteristics of nondischargeable educational loans in Chapter 13 cases:

[S]ection 1328(a) discharges a debt under section 502(b)(2) for unmatured interest, except a debt for unmatured interest that is nondischargeable under section 523(a)(8). . . . [T]he allowance or disallowance of claims is unrelated to the dischargeability of those claims under section 523. By disallowing a claim for unmatured interest, section 502(b)(2) implements a policy of fairness among unsecured creditors; it is unnecessary to the implementation of that policy that a claim for unmatured interest be dischargeable. The policy of collecting nondischargeable educational loans cannot be served to its fullest extent without declaring unmatured interest on such loans nondischargeable. . . . In [Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964)], . . . [t]he Supreme Court observed that the policy underlying the disallowance of unmatured interest did not conflict with the rule that such interest was nondischargeable. . . . The portion of GHEAC’s claim for postpetition interest is not allowable, notwithstanding the fact that it is also nondischargeable, because section 502(b)(2) plainly states that a claim for unmatured interest is not allowable. The effect of disallowance is to insure that creditors other than GHEAC receive their fair share of the estate. Interest will continue to accrue on the unpaid principal balance of the debt, but the Debtor may not pay the accruing postpetition interest under the plan and need not voluntarily pay it outside the plan during the pendency of the Chapter 13 case. Even if the Debtor pays the full amount of GHEAC’s claim as of the filing of the petition pursuant to the plan, the Debtor will remain liable at the conclusion of the plan for postpetition interest that accrues on the decreasing balance of the principal portion of the debt paid under the plan. The automatic stay imposed by section 362 bars GHEAC from attempting to collect the postpetition interest from property of the estate until the Debtor receives a discharge or the case is dismissed, whichever occurs first.38
[17]

If the debtor is not able to pay the student loan in full with interest through the plan, then the balance of the debt, along with all of the accrued pre- and postpetition interest and collection costs,39 remains a personal liability of the debtor after completion of payments under the plan. This is a substantial incentive for favorable classification of educational loans in Chapter 13 cases.40 Other unsecured claim holders that are not being paid postpetition interest have corresponding incentives to oppose confirmation of plans that favorably classify student loans.

[18]

After the 1990 amendments, the dischargeability of student loans is controlled in Chapter 13 cases by the special tests in § 523(a)(8). In cases filed before October 7, 1998, applying § 523(a)(8)(A) (now repealed), if the student loan became due more than seven years before the petition, exclusive of an applicable suspension of the repayment period, the debt is dischargeable.41 In all Chapter 13 cases filed after November 5, 1990, if excepting the student loan from discharge would “impose an undue hardship on the debtor and the debtor’s dependents,”42 the student loan is dischargeable. The bankruptcy courts have looked to Chapter 7 cases interpreting undue hardship in § 523(a)(8) to determine the dischargeability of student loans in Chapter 13 cases after the 1990 amendments, and the range of outcomes has been similar.43

[19]

Discussed in detail elsewhere,44 clever (aggressive?) debtors’ counsel have attacked the undue hardship problem in Chapter 13 cases with plan provisions. The strategy is: in the absence of an objection to confirmation, a plan provision that it would be an undue hardship for the debtor to pay more of a student loan than the amount provided for through the plan is binding on the student loan creditor under § 1327(a). At the completion of payments under a confirmed plan containing such a provision, the finding of undue hardship would preclude any challenge by the student loan creditor to the discharge of the balance of the debt. There is support for this logic in reported decisions from the courts of appeals.

[20]

In Great Lakes Higher Education Corp. v. Pardee (In re Pardee),45 the plan proposed to pay the principal amount of nondischargeable student loans in full but without postpetition interest. The plan stated, “Any remaining unpaid amounts, if any, including any claims for interest, shall be discharged by the plan.” The student loan creditor failed to object to confirmation. The U.S. Court of Appeals for the Ninth Circuit concluded that the plan was binding and the balance of the student loans was dischargeable at the completion of payments under the plan:

If a creditor fails to protect its interests by timely objecting to a plan or appealing the confirmation order, “it cannot later complain about a certain provision contained in a confirmed plan, even if such a provision is inconsistent with the Code.” . . . This court has recognized the finality of confirmation orders even if the confirmed bankruptcy plan contains illegal provisions. . . . We find no reason to depart from the well-settled policy that confirmation orders are final orders that are given preclusive effect. Regardless of whether the plan should have been confirmed with the discharge provision, the BAP was correct in holding that “the Plan is res judicata as to all issues that could have or should have been litigated at the confirmation hearing.”46
[21]

Similarly, in Andersen v. Higher Education Assistance Foundation (In re Andersen),47 the plan provided that educational loans would be paid 10 percent “and the balance of each claim shall be discharged . . . . [P]ursuant to 11 U.S.C. § 523(a)(8), excepting the aforementioned educational loans from discharge will impose an undue hardship on the debtor and the debtor’s dependents. Confirmation of a plan shall constitute a finding to that effect and that said debt is dischargeable.” The student loan creditor had notice and failed to timely object to confirmation. The U.S. Court of Appeals for the Tenth Circuit concluded that the creditor was bound by confirmation notwithstanding that an undue hardship discharge would ordinarily require substantial proof from the debtor:

While Andersen surely had the burden of proving undue hardship, and while a discharge granted without such proof is inconsistent with the Code, it is critical that HEAF, as the party affected by this determination, failed to properly challenge the language at issue, the interim rulings of the bankruptcy court, or the confirmed plan. . . . [I]t is absolutely incumbent upon a creditor to take an active role in protecting its interests, and a creditor which fails to do so is in a poor position to later complain about an adverse result. . . . [W]e agree with the Third Circuit that, “after the plan is confirmed the policy favoring the finality of confirmation is stronger than the bankruptcy court’s and the trustee’s obligations to verify a plan’s compliance with the Code.” In re Szostek, 886 F.2d at 1406.48
[22]

Pardee and Andersen support the proposition that an undue hardship discharge of an otherwise nondischargeable student loan can be realized through the binding effect of confirmation of a Chapter 13 plan. But whatever joy Pardee and Andersen kindle in the hearts of debtors’ counsel must be balanced with the reality that findings of undue hardship sneak into confirmed plans only when student loan creditors are asleep. Upon timely objection to confirmation, every reported decision addressing the subject concludes that a provision in the plan for hardship discharge of a student loan is inconsistent with §§ 1328(a)(2) and 523(a)(8).49

[23]

On various theories, a significant number of courts—including the U.S. Court of Appeals for the Fourth Circuit and the Bankruptcy Appellate Panel for the Sixth Circuit—reject the outcome in Pardee and Andersen. It is not unfair to say that some of these courts have reacted strongly to the precocious Chapter 13 debtors and counsel who have dared to provide in the plan for the abatement of student loan interest or for the discharge of student loan debt consistent with Pardee and Andersen.

[24]

At the mild end of this reaction, a few courts have construed the language of the confirmed plan to fail to have the intended effect of discharging a student loan or abating postpetition interest.50 Somewhat more invasively, other courts have purged or stricken the offending student loan discharge language from the confirmed plan, typically without a motion or other action by the student loan creditor.51

[25]

The U.S. Court of Appeals for the Fourth Circuit and the Bankruptcy Appellate Panel for the Sixth Circuit found notice and due process reasons to refuse to follow Pardee and Andersen. In Banks v. Sallie Mae Servicing Corp. (In re Banks),52 the confirmed plan provided: “[D]uring the pendency of this case, no interest, penalties, late charges or costs of collection, including attorneys’ fees, shall accrue. Payments made by the trustee shall be applied directly to principal and, upon his discharge, debtor. . . shall be liable for only the unpaid balance of his prepetition [student loan] debt.”53 The plan was served on the student loan creditor, and there were no objections to confirmation. The debtor completed payments and received a discharge.

[26]

After discharge, the student loan creditor wrote the debtor that it had applied payments under the plan to interest rather than principal and expected the debtor to pay the remaining interest and principal. The debtor reopened the Chapter 13 case and filed an adversary proceeding seeking a declaration that postpetition interest was discharged.

[27]

The bankruptcy court agreed with the student loan creditor that the confirmed plan “should not have contained language tolling postpetition interest on his student loan.”54 But the bankruptcy court held that “the finality of confirmation makes the postpetition interest tolling provision res judicata. . . . [S]ince the court is dealing with a confirmed plan, the judicial policy of favoring finality of confirmation must prevail in this case. This is especially important considering that Mr. Banks has completed his plan and completed his discharge.”55

[28]

On appeal, the district court and the Fourth Circuit found that the confirmation and discharge orders were not entitled to preclusive effect because the student loan creditor was not given proper notice. Declining to follow Andersen and Pardee, the Fourth Circuit explained:

Student loans are nondischargeable . . . . Post-petition interest on a nondischargeable debt also is nondischargeable. . . . The Bankruptcy Code and Rules require Debtors to bring an adversary proceeding to determine the dischargeability of their student loans. . . . Debtors also must bring an adversary proceeding to discharge post-petition interest on student loan debt. . . . Mailing the proposed plans, the hearing notice, and the confirmation order satisfies the “notice” requirement under Rule 2002, but not the service and summons requirements of Rule 7004. . . . [D]ue process entitles a student loan creditor to specific notice of the Debtor’s intent to discharge any portion of the debt. . . . For lack of adequate notice, the confirmation and discharge orders discharging the interest are not entitled to preclusive effect.56
[29]

At the extreme of judicial reaction to Pardee and Andersen, a few courts have sanctioned debtors’ attorneys for doing exactly what the Ninth and Tenth Circuits allowed in Pardee and Andersen.57 Consider the unenviable position of debtor’s counsel in In re Lemons.58 The plan in Lemons provided that the principal amount of student loans was nondischargeable but interest would abate during the term of the plan. The student loan creditor objected to confirmation. Acknowledging Andersen and Pardee, the bankruptcy court noted the “disturbing trend known as ‘discharge by declaration.’”59 Siding with Banks, the bankruptcy court found that including student loan discharge language in the plan violated Bankruptcy Rule 9011:

[T]his Court is of the opinion that Mr. Johnson’s conduct violated Rule 9011(b) and therefore the imposition of sanctions is warranted. . . . The Court hereby admonishes Mr. Johnson for his conduct in this case. If such violation occurs again, the Court will consider monetary sanctions. Mr. Johnson is further ordered to purge the offending language from proposed plans in pending cases and to take appropriate action in confirmed cases in which the plans include the offensive language. . . . In addition, all bankruptcy counsel are hereby placed on notice of this Court’s dim view of other efforts of gamesmanship mentioned above, especially those delineated within “discharge by declaration”. . . . This court “may impose sanctions on its own initiative,”. . . and will not hesitate to take appropriate action to deter such conduct.60
[30]

Following the court’s instructions, debtor’s counsel in Lemons moved to purge student loan interest abatement language from the confirmation order in an unrelated case for a debtor named Haddox. The Haddox case was confirmed two years earlier. Haddox hired a new attorney and objected. The bankruptcy court ordered the student loan interest provision stricken from the confirmation order. Haddox appealed. In an unpublished opinion, the Bankruptcy Appellate Panel for the Tenth Circuit had nothing good to say about what the bankruptcy court did.61

[31]

Treating counsel’s motion as a modification of the confirmed plan, the BAP found “it does not appear that a bankruptcy court may sua sponte modify a confirmed plan.”62 The BAP pointedly observed that the debtor opposed the modification and the bankruptcy judge was without authority to order debtor’s counsel to modify a confirmed plan over the objection of counsel’s (former) client. The BAP rejected the bankruptcy court’s collateral attack on the binding effect of the confirmed plan, especially given that the Oklahoma bankruptcy court was bound by the Tenth Circuit’s decision in Andersen.63

[32]

So, what should counsel do when the debtor has student loans? In light of Pardee and Andersen—and at least outside the Fourth and Sixth Circuits—does debtor’s counsel have a professional responsibility to propose a plan that abates postpetition interest or finds undue hardship for § 523(a)(8) purposes on the chance that the student loan creditor will be asleep? Or is it sanctionable and unethical to include a “discharge by declaration” in the plan? The appellate courts that have considered the issue seem less inclined to impose sanctions on debtor’s counsel than do the bankruptcy courts.

[33]

The notice and due process concerns underlying the rejection of Pardee and Andersen by the Fourth Circuit and by the Bankruptcy Appellate Panel for the Sixth Circuit are a subset of the complex question whether confirmation is binding on a creditor when resolution of the interest at issue would ordinarily require an adversary proceeding.64 Until the dust settles a bit more, debtors’ counsel should be aware that including hardship discharge or interest abatement language in the plan is risky. The binding and preclusive effects of a confirmed plan containing a student loan discharge provision are not certain outside the Ninth and Tenth Circuits. Counsel may incur the wrath of a bankruptcy court that is not receptive to discharge by declaration.

[34]

In the long run, the Ninth and Tenth Circuits are on the right track in Andersen and Pardee. Creditors sleep at their own risk in bankruptcy cases. Pardee and Andersen appropriately assign the risk of inattention to the student loan creditors when notice of the plan is adequate for confirmation purposes. Bankruptcy courts typically do not sanction debtors’ attorneys for good-faith assaults on the rights of creditors through Chapter 13 plans. Pardee and Andersen coupled with facts supporting an argument for undue hardship should be a sufficient good-faith platform for use of the Chapter 13 plan to manage the dischargeability of a student loan. There is no question that many bankruptcy courts do not agree.

[35]

There is at least indirect support for the outcome in Pardee and Andersen, and some reason to doubt the contrary conclusions of the Fourth Circuit and of the Sixth Circuit Bankruptcy Appellate Panel, in the Supreme Court’s decision in Tennessee Student Assistance Corp. v. Hood.65 In Hood the Supreme Court held that the bankruptcy court has in rem jurisdiction to determine the dischargeability of a student loan without affront to the sovereign immunity of a state as creditor. In the course of explaining that bankruptcy courts need not acquire personal jurisdiction over the state—by summons, for example—to adjudicate the debtor’s right to discharge of a student loan, Chief Justice Rehnquist pointed out that neither the Bankruptcy Code nor constitutional considerations mandate the use of an adversary proceeding to determine the dischargeability of a student loan:

[T]he Bankruptcy Court’s in rem jurisdiction allows it to adjudicate the debtor’s discharge claim without in personam jurisdiction over the State. . . . The text of § 523(a)(8) does not require a summons, and absent Rule 7001(6) a debtor could proceed by motion . . . which would raise no constitutional concern. . . . We see no reason why the service of a summons, which in this case is indistinguishable in practical effect from a motion, should be given dispositive weight. . . . To conclude that the issuance of a summons, which is required only by the Rules, precludes Hood from exercising her statutory right to an undue hardship determination would give the Rules an impermissible effect.66
[36]

Admittedly, sovereign immunity, not the preclusive effect of confirmation, was the issue in Hood; but the point remains that the Supreme Court recognized in Hood that an adversary proceeding initiated by complaint and summons is not a statutory or constitutional prerequisite to adjudication of the discharge of a student loan. Many of the cases taking issue with Pardee and Andersen declare the contrary view that the discharge of a student loan by any procedure other than adversary proceeding violates due process. This premise is not consistent with Hood.

[37]

It is generally held that the claims allowance process is not a substitute for an adversary proceeding to determine the dischargeability of a student loan in a Chapter 13 case. In other words, that the student loan claim was disallowed in whole or in part or even that the student loan creditor failed altogether to file a proof of claim is not determinative whether the student loan debt is dischargeable in the Chapter 13 case. For example, in Bell v. Educational Credit Management Corp. (In re Bell),67 the student loan creditor filed a proof of claim for $3,448.35. The debtor objected, and the bankruptcy court reduced the claim to $2,000. The debtor made all payments under the plan and received a discharge under § 1328(a). A year later, the IRS grabbed the debtor’s tax refund and applied it to the balance of the student loan, including accrued postpetition interest. The debtor sought sanctions for violation of the discharge injunction.68 The district court held there was no violation of the discharge injunction because the balance of the student loan was not discharged in the Chapter 13 case:

There has never been a court determination that repayment of the debt would place an undue hardship on Ms. Bell. Nor has the debt been in repayment for more than seven years. It therefore follows that there is no discharge pursuant to 11 U.S.C. § 523. . . . Ms. Bell did not file an adversary proceeding requesting the court to determine the dischargeability of the educational loan debt. . . . Dischargeability was not litigated in the prior action. . . . To allow a debtor to override the provisions of the Bankruptcy Code and discharge student loans through a claim objection would abrogate the clear intent of the bankruptcy code to make student loans nondischargeable. . . . Claim allowance and debt liability are different concepts.69
[38]

The reported decisions are split with regard to the proper time during the Chapter 13 case to determine whether excepting a student loan from discharge is an undue hardship.70 It has been held that undue hardship cannot be determined until the debtor is entitled to a discharge—at the completion of payments under the plan—thus, a complaint to determine the dischargeability of a student loan is premature until the end of the Chapter 13 case.71 The Bankruptcy Appellate Panel for the Ninth Circuit has held that a debtor’s complaint to determine the dischargeability of a student loan is ripe at any time during the Chapter 13 case.72 The Ninth Circuit BAP’s approach allows the debtor or the student loan creditor to pick the time it considers most favorable to file the § 523(a)(8) complaint. The U.S. Court of Appeals for the Fourth Circuit agrees that a Chapter 13 debtor can file a § 523(a)(8) complaint at any time, but the Fourth Circuit warns that undue hardship will be difficult to prove early in the case because the effects of the Chapter 13 case itself cannot easily be assessed until completion of the plan.73

[39]

The financial stability brought about by a well conceived Chapter 13 case spins in several directions as evidence in an undue hardship trial. It is impossible to know at the beginning of a Chapter 13 case whether the debtor’s “hardship” will look more or less “undue” after several years of payments into a Chapter 13 plan. Discharge at the completion of payments may relieve the debtor’s hardship or be evidence that the debtor has suffered enough. Several reported decisions apply § 523(a)(8) in adversary proceedings filed after the completion of payments; the range of outcomes in these cases is similar to student loan litigation in other chapters.74

[40]

Even before the 1990 amendments, one narrow class of student loans was nondischargeable after completion of payments in a Chapter 13 case notwithstanding the absence of a reference to § 523(a)(8) in § 1328(a): Health Education Assistance Loans, so-called HEAL loans, nondischargeable by virtue of 42 U.S.C. § 294f(g).75 Although the seven-year waiting period to test the dischargeability of ordinary student loans was reduced and then eliminated in § 523(a)(8),76 the analogous seven-year period protecting the dischargeability of HEAL loans remains. It has been held that this seven-year period for HEAL loans is tolled during the time the debtor is in a Chapter 13 case.77 At least one court has confirmed a Chapter 13 plan that paid HEAL loans in part, with the balance surviving discharge after completion of payments under the plan.78 One court observed that a HEAL loan can be treated like any other unsecured debt to receive pro rata distributions until completion of plan payments; then the bankruptcy court can make a determination whether discharge of the HEAL loan would be “unconscionable” for purposes of 42 U.S.C. § 294f(g).79 The net effect of these decisions was to permit Chapter 13 debtors to deal with HEAL loans in the same way that some debtors deal with ongoing alimony or support claims—the debtor can make payments toward the HEAL loan during the life of the plan and then deal with the balance under nonbankruptcy law after discharge of other debts under § 1328(a).

[41]

Lurking just below the surface in every adversary proceeding filed by a Chapter 13 debtor against a state agency or institution to determine the dischargeability of a student loan is the defense of Eleventh Amendment immunity.80 This problem, of course, is not peculiar to Chapter 13 practice. In May 2004, in Hood, the Supreme Court held that the bankruptcy court has in rem jurisdiction to adjudicate the dischargeability of a student loan without affront to the sovereign immunity of a state as creditor.


 

1  Education Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. 1987); United States v. Estus (In re Estus), 695 F.2d 311 (8th Cir. 1982); Phoenix Inst. of Tech. v. Klein, 57 B.R. 818 (B.A.P. 9th Cir. 1985); In re Reese, 38 B.R. 681 (Bankr. N.D. Ga. 1984); Powell v. Illinois, 29 B.R. 346 (Bankr. D. Colo. 1983) (Illinois statute rendering educational loans nondischargeable conflicts with § 1328(a) and is invalid under the supremacy clause.); In re Martini, 28 B.R. 932 (Bankr. S.D.N.Y. 1983).

 

2  See In re Hayes, 83 B.R. 2 (Bankr. S.D. Ohio 1987) (Debtor and Ohio Student Loan Commission cannot by agreement declare a student loan to be a long-term debt excepted from the debtor’s discharge.).

 

3  Many such cases are discussed in § 153.1 [ Student Loans ] § 88.6  Student Loans.

 

4  See § 186.1 [ Student Loans ] § 106.4  Student Loans.

 

5  Section 3007(b) of the Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, 104 Stat. 1388 (Nov. 5, 1990).

 

6  Section 3007(b)(2) of Pub. L. No. 101-508, 104 Stat. 1388 (Nov. 5, 1990).

 

7  Cases filed before November 5, 1990, and converted to Chapter 13 before or after November 5, 1990, would be governed by the pre-November 5, 1990, rules. See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

8  See discussion beginning at § 112.1  General Rule: Three Years, More or Less.

 

9  Section 3008 of Pub. L. No. 101-508, 104 Stat. 1388 (Nov. 5, 1990).

 

10  The subtitle that contains the amendment adding § 523(a)(8) to the exceptions to discharge in § 1328(a)(2) is titled “Student Loan Default Prevention Initiative Act of 1990.” This subtitle contains many sections dealing with the administration of the Higher Education Act of 1965. It is plausible that the sunset provision was targeted at these other sections.

 

11  Thanks to Jim Wannamaker, then at the Administrative Office of the United States Courts, for discovering this repealer.

 

12  Higher Education Amendments of 1992, Pub. L. No. 102-325, § 1558, 106 Stat. 448, 841 (July 23, 1992) (“Section 3008 of the Omnibus [Budget] Reconciliation Act of 1990 is repealed.”).

 

13  See Section 2 of Pub. L. No. 102-325, 106 Stat. 458 (July 23, 1992).

 

14  See the discussion of this same issue with respect to what law controls discharge upon conversion of a Chapter 7 case to Chapter 13 in § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

15  See Franklin v. New Mexico, 730 F.2d 86 (10th Cir. 1984) (The law disfavors retrospective application of a new statute absent clear legislative intent. Because the extent of the discharge in bankruptcy is a central consideration of the debtor in the decision whether to file a bankruptcy petition, unless Congress clearly provides for retroactive application, the law with respect to discharge at the petition date will govern issues of discharge and dischargeability.); Ahrendt v. Waukesha County Social Servs. Dep’t (In re Ahrendt), 28 B.R. 329 (Bankr. E.D. Wis. 1983) (The “pivotal importance” of the discharge law in effect at the petition in a debtor’s decision whether to file bankruptcy makes it inappropriate to apply subsequent changes in the law with respect to discharge absent clear legislative intent. The potential “open endedness” of any other rule should be avoided.); Iowa Dep’t of Social Servs. v. Morris (In re Morris), 21 B.R. 816 (Bankr. N.D. Iowa 1982) (The law in effect at the petition controls the dischargeability of debts in a bankruptcy case because a rule of decision based on the date of the court’s decision on a dischargeability complaint would frustrate the debtor’s fresh start and would undermine the reasonable expectations of creditors that dealt with the debtor after the petition under the premise that the debtor had been relieved of debt based on the law in effect at the petition.); In re Flamini, 19 B.R. 303 (Bankr. E.D. Mich. 1982) (Legislation is addressed to the future, not the past, unless the legislature indicates otherwise; retrospective application of a discharge statute would interfere with the antecedent rights of the debtor.); Board of Trustees v. Bruce (In re Bruce), 3 B.R. 77 (Bankr. N.D. Ill. 1980) (Date of filing is the critical date that Congress has chosen with respect to determining the debts that are dischargeable in a bankruptcy case.); Martin v. Great Lakes Higher Educ. Corp. (In re Martin), 137 B.R. 770 (Bankr. W.D. Mo. 1992). See also In re Marxen, 307 U.S. 200, 207, 59 S. Ct. 811, 83 L. Ed. 2d 1222 (1939) (“[T]he rights of creditors are fixed by the Bankruptcy Act as of the filing of the petition in bankruptcy. This is true both as to the bankrupt and among themselves.”).

 

16  See Department of Health & Welfare v. Reynolds (In re Reynolds), 726 F.2d 1420, 1422 (9th Cir. 1984) (Quoting Bradley v. School Board of City of Richmond, 416 U.S. 696, 711 (1974), “‘a court is to apply the law in effect at the time it renders its decision unless . . . there is statutory direction or legislative history to the contrary.’” Because no “manifest injustice” would result from applying a statutory change in the dischargeability of spousal and child support, it is appropriate to apply a change in the law to determine the dischargeability of such claims in a bankruptcy case.); Commissioner of Admin. Servs. v. Spell (In re Spell), 650 F.2d 375, 377 (2d Cir. 1981) (Citing “traditional rules” and preChandler Act cases, “‘the grounds which would bar a discharge [must be] determined by the law in force at the time the judge passes on the question of discharge.’”); In re Carter, 32 F.2d 186 (2d Cir. 1929) (Law with respect to discharge in effect at the time debtor makes application for discharge is the applicable law.); Royal Indem. Co. v. Cooper, 26 F.2d 585 (4th Cir. 1928); Hudson County Welfare Dep’t v. Roedel (In re Roedel), 34 B.R. 689 (D.N.J. 1983), aff’d without opinion, 734 F.2d 5 (3d Cir. 1984) (Because a debtor in bankruptcy has no constitutional right to a discharge, Congress can grant or deny a discharge on whatever conditions it chooses to impose. If Congress can refuse a discharge altogether, then surely a debtor who has not yet received a discharge has no vested right to the discharge, as it was at the time of filing of the petition.); Kuehndorf v. Wisconsin (In re Kuehndorf), 24 B.R. 555 (W.D. Wis. 1982) (Applying “traditional rule” and finding no manifest injustice, court applies amendment with respect to dischargeability of delinquent child support obligations in a case filed before the effective date of the amendment.); In re Leach, 15 B.R. 1005 (Bankr. D. Conn. 1981); In re Johnson, 5 Bankr. Ct. Dec. (CRR) 532 (Bankr. E.D. Pa. 1979); Connecticut Student Loan Found. v. Piccione (In re Piccione), 1 B.R. 364 (Bankr. D. Conn. 1979); In re Sloss, 192 F. Supp. 136 (S.D.N.Y. 1961).

 

17  269 B.R. 655 (Bankr. S.D. Ind. 2001).

 

18  269 B.R. at 660.

 

19  283 B.R. 864 (Bankr. W.D. Ky. 2002).

 

20  283 B.R. at 868.

 

21  See, e.g., Educational Credit Mgmt. Corp. v. Doane (In re Harig), 302 B.R. 177, 180–83 (W.D. Va. 2003) (Discharge of student loans without filing an adversary proceeding violated procedural due process and was void notwithstanding use of form discharge order that purported to discharge student loans. In a bankruptcy case filed in 1996, bankruptcy court erroneously entered a discharge order that purported to discharge student loans without the findings required by § 523(a)(8). “This court holds the bankruptcy court’s judgment void because the bankruptcy court entered it in a manner inconsistent with the requirements of due process of law. . . . In the context of student loan debt, discharge requires a showing of undue hardship. . . . [T]he debtor must satisfy the heightened notice requirements of an adversary proceeding by filing a complaint and by serving process upon the appropriate creditor-defendant. . . . [A]bsent specific notice of a debtor’s intent to discharge a student loan debt, including the requisite service of process in an adversary proceeding, a court may not discharge student loan debt without violating due process. . . . [N]otice provided under Bankruptcy Rule 2002 is inadequate when the debtor intends to discharge a nondischargeable student loan debt. . . . [T]he debtor must comply with the notice provisions of Bankruptcy Rule 7004. . . . ECMC did not have the notice required by due process.”); In re Amos, 283 B.R. 864, 866–68 (Bankr. W.D. Ky. 2002) (In a Chapter 13 case discharged in January 1995, student loans were nondischargeable absent a successful adversary proceeding under § 523(a)(8) notwithstanding that discharge order omitted exception for student loans. “At the time Debtor filed his Voluntary Petition (consistent with current law), discharge of student loans in Chapter 13 cases required the Debtor to file and prevail against the student loan lender in an adversary proceeding pursuant to 11 U.S.C. § 523(a)(8). . . . Notwithstanding the foregoing, the Discharge Order, reflecting discharge afforded by prior law, was silent regarding the limitation of the discharge of student loan obligations pursuant to 11 U.S.C. § 1328(a)(2) . . . . The law in effect at the time Debtor’s Petition was filed did not provide for the discharge of Debtor’s student loans . . . . ASLC was entitled to collect the student loan debt as it was not discharged in Debtor’s Chapter 13 case.”); Pearson v. United States Dep’t of Educ. (In re Pearson), 279 B.R. 612, 614–17 (Bankr. M.D. Ga. 2002) (On remand, form discharge order that mistakenly discharged student loans was void because the debtor did not bring an adversary proceeding and the student loan creditor did not have due process. “The Court’s discharge order did not reflect a change in the Bankruptcy Code that was applicable to Plaintiff’s Chapter 13 case. . . . Congress amended section 1328(a)(2) of the Bankruptcy Code, effective November 5, 1990, to provide that most student loans would be nondischargeable in Chapter 13 cases in which the discharges were granted prior to October 1, 1996. Under the ‘sunset’ provision of the amendment, student loans would be dischargeable in Chapter 13 cases in which the discharge order was entered on or after October 1, 1996. Congress repealed the ‘sunset’ provision on July 23, 1992. . . . The Court used a ‘form discharge order’ to grant Plaintiff’s discharge on January 15, 1997. The discharge order was provided to the Court by the Administrative Office of the United States Courts. The Administrative Office did not timely change the discharge order to reflect the repeal of the sunset provision. Thus, the discharge order provided that Plaintiff’s student loan obligation was discharged. . . . Plaintiff did not file an adversary proceeding to determine if repayment of her student loan would be an undue hardship. Thus, Defendant had no notice prior to entry of the discharge order that Plaintiff’s student loan would be discharged. . . . [T]he Court’s discharge order is void as to Defendant because Defendant did not have notice and a meaningful opportunity to be heard prior to the discharge of Plaintiff’s student loan.”).

 

22  11 U.S.C. § 523(a)(8) (before 1990 amendments).

 

23  Crime Control Act of 1990 (Title XXXVI), Pub. L. No. 101-647, 104 Stat. 4789, 4933 (Nov. 29, 1990).

 

24  11 U.S.C. § 523(a)(8). See 104 Stat. 4789, 4964–65. See, e.g., Burks v. Louisiana State Bd. of Regents (In re Burks), 244 F.3d 1245, 1245 (11th Cir. 2001) (“‘Graduate Fellowship Program’ through which eligible persons received educational stipends to obtain graduate-level degrees and, in exchange, the recipients agreed to teach at ‘other-race’ institutions of higher learning in Louisiana” was an “educational benefit” that was nondischargeable under § 523(a)(8).); In re Reis, 274 B.R. 46, 50 (Bankr. D. Mass. 2002) (Loan to debtor from grandparents is not a nondischargeable student loan under § 523(a)(8). “[T]he intent of Congress was to except from discharge loans that are made, guaranteed, or funded by a governmental unit or nonprofit institution. . . . [T]he monies advanced to the Debtor were a loan made to her by her grandparents to enable her to attend hair styling school so that she could become a licensed beautician. The Debtor’s obligation arose out of a loan extended by a private party; the loan was not made pursuant to a student loan program of a governmental unit or a nonprofit entity. . . . [T]he debt . . . does not come within the exception to discharge under § 523(a)(8).”); Jones v. H & W Recruiting Enters. (In re Jones), 242 B.R. 441, 442 (Bankr. W.D. Tenn. 1999) (Debt to for-profit truck driving school was not “made, insured or guaranteed by a governmental unit or non-profit institution” and thus was not protected from discharge by § 523(a)(8).); Missouri Baptist College v. Johnson (In re Johnson), 215 B.R. 750 (Bankr. E.D. Mo. 1997) (Extension of credit by college to Chapter 13 debtor for tuition, books and other expenses is a nondischargeable student loan notwithstanding that the college did not actually transfer funds to the debtor.).

 

25  Section 3621 of Pub. L. No. 101-647, 104 Stat. 4789, 4964–65 (Nov. 29, 1990).

 

26  Section 3631(a) of Pub. L. No. 101-647, 104 Stat. 4789, 4966 (Nov. 29, 1990).

 

27  Pub. L. No. 105-244, 112 Stat. 1581 (Oct. 7, 1998).

 

28  With a possible exception for cases filed between May 28, 1991, and October 1, 1992. See above in this section.

 

29  See, discussed above, In re Loving, 269 B.R. 655 (Bankr. S.D. Ind. 2001). Related arguments can be made with respect to the conversion of Chapter 13 cases that contain educational loans. See § 148.3  Effects of Conversion from Chapter 7 to Chapter 13 and § 148.4  Conversion to Chapter 13 after BAPCPA.

 

30  The legislative history of the 1990 amendments does not reveal whether Congress intended to signal changes in the permissible treatment of educational loans in Chapter 13 plans. See H.R. Rep. No. 101-964 (1990) to accompany H.R. 5835; H.R. Rep. No. 101-881 (1990) to accompany H.R. 5835. In contrast, the 1990 amendments with respect to the dischargeability of restitution and drunken driving claims are accompanied by legislative history suggesting that Congress contemplated that Chapter 13 debtors would pay such claims in part, along with other (dischargeable) claims during the plan, with the balance remaining the debtor’s personal liability after completion of payments under the plan. See § 158.3  Driving while Intoxicated§ 158.4  Criminal Restitution and Criminal Fines and § 159.8  Boating or Flying while Intoxicated: § 523(a)(9).

 

31  Contrast the Senate version of the 1990 legislation with respect to the discharge of restitution in Chapter 13 cases, discussed in §§ 154.1 [ Restitution, Fines and Other Criminal Problems ] § 88.7  Restitution, Fines and Other Criminal Problems and 348.1 [ Criminal Restitution and Criminal Fines ] § 158.4  Criminal Restitution and Criminal Fines.

 

32  See § 153.1 [ Student Loans ] § 88.6  Student Loans.

 

33  See §§ 153.1 [ Student Loans ] § 88.6  Student Loans and 155.2 [ Long-Term Debts ] § 88.9  Long-Term Debts. It is not a good idea to provide for a student loan as a long-term debt under § 1322(b)(5) because the balance of the student loan will be nondischargeable at the completion of payments under § 1328(a)(1), and the debtor probably forfeits the right to argue that payment of the loan is an undue hardship under § 523(a)(8)(B). See § 351.1 [ Long-Term Debts ] § 158.7  Long-Term Debts.

 

34  See § 186.1 [ Student Loans ] § 106.4  Student Loans.

 

35  See 11 U.S.C. § 502(b)(2).

 

36  See McAlpin v. Educational Credit Mgmt. Corp. (In re McAlpin), 278 F.3d 866 (8th Cir. 2002) (Because bankruptcy court lacked jurisdiction to consider debtor’s objection to collection costs and fees after discharge, bankruptcy court also lacked jurisdiction to enter an order permanently enjoining the student loan creditor from recovering collection costs and fees.); In re Delgado, No. 99-13234, 2000 WL 34220148 (Bankr. D. Kan. July 14, 2000) (unpublished) (Chapter 13 plan cannot be confirmed that discharges postpetition collection charges on a nondischargeable student loan.); In re Featherston, 238 B.R. 377, 380 (Bankr. S.D. Ohio 1999) (“Several courts have concluded that collection costs and attorney fees are part of the student loan obligation excepted from discharge under 11 U.S.C. § 523(a)(8).”).

 

37  165 B.R. 332 (Bankr. N.D. Ga. 1994).

 

38  165 B.R. at 334–37. Accord Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d 296, 300 (4th Cir. 2002) (“Student loans are nondischargeable . . . . Post-petition interest on a nondischargeable debt also is nondischargeable. . . . Debtors also must bring an adversary proceeding to discharge post-petition interest on student loan debt.”); Kielisch v. Educational Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 324 (4th Cir. 2001) (Section 502 disallows claim for postpetition interest, but the nondischargeable nature of a student loan permits the student loan creditor to apply Chapter 13 payments first to interest and collection costs during the Chapter 13 case. “Because § 523(a)(8) explicitly precludes the discharge of the Debtors’ student loan debts absent a showing of undue hardship, because § 502 does not address ECMC’s ability to apply estate payments to post-petition interest debts, and because ECMC’s application of payments is consistent with the standard accounting practices set forth in 34 C.F.R. § 684.404(f), we cannot agree that ECMC was barred from applying the Debtor’s estate payments to postpetition interest on their student loans.”); Leeper v. Pennsylvania Higher Educ. Assistance Agency (In re Leeper), 49 F.3d 98, 100–01, 101–05 (3d Cir. 1995) (In an adversary proceeding for declaratory relief after confirmation, unmatured postpetition interest on a nondischargeable student loan is not allowable in the Chapter 13 case under § 502(b)(2); however, such interest continues to accrue and is a nondischargeable personal liability of the debtor after the completion of payments under the plan. Under 11 U.S.C. § 502(b)(2), “creditors are not entitled to include unmatured (or ‘post-petition’) interest as part of their claims in the bankruptcy proceedings.” In Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1994), the Supreme Court held that postpetition interest on a nondischargeable tax debt survived discharge and could be collected from the taxpayer after bankruptcy notwithstanding that such interest was not allowable during the bankruptcy case. “While Bruning was decided prior to the enactment of the Bankruptcy Code, it has been applied by other courts of appeals to cases arising under the Code. . . . The Bruning decision therefore stands for the general proposition that creditors may accrue as to the debtor personally post-petition interest on nondischargeable debts while a bankruptcy is pending. . . . In all situations where the Bruning rule is applicable, the bankruptcy plan cannot make allowances for post-petition interest; the interest merely accrues and is collectable against the debtor after the bankruptcy is completed. . . . [T]his court has already held that the Bruning reasoning applies even in instances where the debt is paid in full. . . . [E]ven if the nondischargeable debt has been paid in full by the bankruptcy estate, accrual of post-petition interest is not precluded. . . . [W]hether Bruning should be applied to permit post-petition interest to accrue on nondischargeable student loans is a political decision. . . . [W]e see no basis for the courts to change the longstanding rule as to nondischargeability of post-petition interest. . . . PHEAA is entitled to accrue interest on the nondischargeable student loans during the pendency of the debtors’ Chapter 13 bankruptcies.”); Educational Credit Mgmt. Corp. v. Buchanan, 276 B.R. 744, 750–51 (N.D. W. Va. 2002) (District court reverses bankruptcy court judgment that no interest would accrue on student loan during Chapter 13 case when bankruptcy court made no finding that excepting postpetition interest from discharge would constitute an undue hardship for § 523(a)(8) purposes. Citing Kielisch v. Educational Credit Management Corp., 258 F.3d 315 (4th Cir. 2001), “absent a showing of undue hardship, student loans are to ‘pass unaffected through the bankruptcy estate for purposes of the debtor’s liability.’ . . . [I]nterest on Mrs. Buchanan’s student loan debt may be discharged only if failing to discharge the debt would subject her to undue hardship. . . . The financial records of the Buchanans establish that Mrs. Buchanan could pay the post-petition interest on her student loan and maintain an above-minimum standard of living.”); Gable v. Educational Credit Mgmt. Corp. (In re Gable), Nos. 97-11130, 02-5294, 2003 WL 21750872, at *3–*4 (Bankr. D. Kan. July 21, 2003) (Postpetition interest, penalties and costs are not discharged by a completed plan that paid only the principal amount of student loan debt. “[P]ost-petition interest on nondischargeable student loans is not dischargeable. . . . [T]hat the principal amount of ECMC’s claim has been paid does not serve to discharge the debt or the interest that accrued on it after the commencement of the case. . . . Because unmatured interest cannot be part of an allowed claim under § 502(b)(2), Gable’s payment of the allowed claim could not have satisfied ECMC’s debt that is excepted from discharge. . . . [T]he debt remaining at the close of the case, consisting of post-petition interest and penalties, was expressly excepted from discharge under § 523(a)(8) and the language of the discharge order.”); In re Lemons, 285 B.R. 327, 330 (Bankr. W.D. Okla. 2002) (“[S]tudent loan obligations, as well as interest thereon, cannot be discharged in bankruptcy unless the debtor can establish undue hardship under 11 U.S.C. § 523(a)(8). . . . [I]nterest on such non-dischargeable obligations continues to accrue during the pendency of the bankruptcy.”); In re Blumenschein, 283 B.R. 908 (Bankr. S.D. Ohio 2002) (Plan that provided payment in full of student loan did not discharge accrued but unpaid postpetition interest because plan did not unambiguously discharge postpetition interest.); In re Carlson, 276 B.R. 653, 659 (Bankr. D. Mont. 2002) (Bankruptcy court refuses provision of plan that would prohibit accrual of interest on nondischargeable student loans during the Chapter 13 case. “The Court agrees with ECMC that post-petition interest continues to accrue on personal liabilities of a debtor which go unpaid and which are nondischargeable.”); Murphy v. Educational Credit Mgmt. Corp. (In re Murphy), 257 B.R. 72 (Bankr. N.D. Ala. 2000) (Postpetition interest on student loan is not discharged notwithstanding that confirmed plan paid principal and prepetition interest in full.); Boone v. I.S.S.C. (In re Boone), 215 B.R. 386 (Bankr. S.D. Ill. 1997) (Completion of payments under plan that paid 100% of student loan claim did not discharge the unmatured interest that accrued during the Chapter 13 case, and discharge injunction does not prohibit student assistance commission from collecting the unmatured interest after completion of the Chapter 13 case.); In re Delgado, No. 99-13234, 2000 WL 34220148 (Bankr. D. Kan. July 14, 2000) (unpublished) (Citing Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), plan cannot be confirmed that discharges postpetition interest and collection charges on a nondischargeable student loan notwithstanding that postpetition interest cannot be paid through the plan.); Wagner v. Ohio Student Loan Comm’n (In re Wagner), 200 B.R. 160, 163–66 (Bankr. N.D. Ohio 1996) (Citing Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1994), and United States v. River Coal Co., 748 F.2d 1103 (6th Cir. 1984), interest that accrued on a nondischargeable student loan during a Chapter 13 case is nondischargeable after the completion of payments under the plan notwithstanding that the debtor paid 100% of the filed claims and last checks issued by the trustee were noted “paid in full.” “[T]he Bankruptcy Code treats tax debts differently than student loan debts in certain instances. However, . . . [t]here is no indication in either the statutory language or legislative history of § 523(a)(8), which makes certain student loan obligations nondischargeable, that Congress intended to make only pre-petition interest nondischargeable. . . . Bruning applies with equal force to student loan debts. . . . Section 1305(a) provides that a claim relating to a post-petition obligation may be filed by the creditor holding such claim. OSAC is not barred from seeking the payment of post-petition interest simply because it did not take action which § 1305 expressly makes optional. . . . The words “Paid in Full” which were noted on the face of the final disbursement checks relating to the student loan claims at issue can only refer to the obligation under the terms of the plan. . . . [T]he tendering and acceptance of the final disbursement checks resulted in the satisfaction, not accord and satisfaction, of any amounts due OSAC under the terms of the plan. . . . [A] material dispute of fact exists as to the amount of post-petition interest owed to the Debtors by OSAC.”); Ridder v. Great Lakes Higher Educ. Corp. (In re Ridder), 171 B.R. 345, 346–47 (Bankr. W.D. Wis. 1994) (“Although claims for postpetition interest are disallowed during bankruptcy, after bankruptcy the holder of a nondischargeable debt may collect from the debtor personally. Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L .Ed. 2d 772 (1994). Student loans are nondischargeable in a Chapter 13 bankruptcy. . . . Because the debt was not discharged, Great Lakes may collect the postpetition interest from [the debtor] personally. . . . The fact that Great Lakes’ claim for postpetition interest would have been disallowed has nothing to do with whether postpetition interest is dischargeable.”). See also Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916 (B.A.P. 9th Cir. 1998) (Citing Bruning v. United States, 376 U.S. 358, 84 S. Ct. 906, 11 L. Ed. 2d 772 (1964), and Leeper v. Pennsylvania Higher Education Assistance Agency, 49 F.3d 98 (3d Cir. 1995), postpetition interest on a nondischargeable student loan is nondischargeable notwithstanding that plan proposed to pay the principal amount in full without postpetition interest; however, plan provision that “any remaining unpaid amounts, if any, including any claims for interest, shall be discharged by the plan” was binding under § 1327(a), and failure to object to confirmation results in discharge of postpetition interest upon completion of payments.), aff’d, 193 F.3d 1083 (9th Cir. 1999); In re Hamilton, 179 B.R. 749, 755–56 (Bankr. S.D. Ga. 1995) (Balance of student loan will be nondischargeable at the completion of payments under Chapter 13 plan notwithstanding that Department of Education failed to timely file a proof of claim and the debtor filed a proof of claim on behalf of the Department in an amount disputed by the Department. Deadline for filing proofs of claim was August 1, 1994. Department of Education did not file a timely proof of claim. On August 23, the debtor filed a claim on behalf of the Department of Education in an amount later disputed by the Department. On September 8, the Department moved for permission to late file a proof of claim. The motion was denied. “In a Chapter 13 case, 11 U.S.C. § 1328 specifies which types of debt may be discharged. It appears from a strict interpretation of section 1328(c) that debts of the kind specified in section 523(a) would not be discharged, regardless of the provision for payment of the debts in the plan or the actual payment of claims to such creditors. The payment of these claims under Chapter 13 plans, whether filed by the creditor or debtor, is nothing more than an accommodation to the debtor which makes it possible for the debtor to be financially rehabilitated at the conclusion of the plan by either receiving a discharge as to dischargeable debts regardless of whether they are paid in full or, as might be the case here, by fully paying the debt of a creditor whose claim was otherwise nondischargeable. . . . If payment of the debtor-filed claim does not fully pay the debt, Debtor may find her financial rehabilitation to be incomplete. Without regard to Debtor’s financial rehabilitation, 11 U.S.C. § 523(c)(1) provides that debt of the kind specified in 11 U.S.C. § 523(a)(8) need not be proved in bankruptcy in order for a creditor to pursue the nondischargeable debt after Debtor receives her discharge. While Movant is bound to the payment schedule contained in Debtor’s plan, Movant may pursue any deficiency should the debt later be proved to be nondischargeable under section 523(a)(8) of the Code.”).

 

39  See McAlpin v. Educational Credit Mgmt. Corp. (In re McAlpin), 278 F.3d 866 (8th Cir. 2002) (Bankruptcy court lacked jurisdiction to enter an order enjoining a student loan creditor from recovering collection costs and fees.); In re Delgado, No. 99-13234, 2000 WL 34220148 (Bankr. D. Kan. July 14, 2000) (unpublished) (Plan cannot be confirmed that purports to discharge nondischargeable student loan collection charges.); In re Fears, 247 B.R. 219, 223 (Bankr. W.D. Ky. 2000) (Although “[a]ny balance remaining on [the student loan] at the conclusion of the plan survives the chapter 13 discharge,” student loan creditors cannot add contractual attorneys’ fees and collection costs to unsecured student loan claims. “[S]tudent loans are not secured claims; they are unsecured claims and therefore, not entitled to additional fees and costs. Section 506(b) is clear in its directive that only in cases of secured claims, where the value of the collateral exceeds the amount of the lien, may a creditor add reasonable fees and charges to its claim. Conversely, the Code does not provide such treatment to unsecured claims. . . . We therefore hold that unsecured student loan claims are not subject to the imposition of attorney fees and other charges designated as collection costs. . . . [T]o saddle the good faith chapter 13 debtor with an additional collection cost would in many cases create an undue hardship that may otherwise not exist.”), rev’d, 258 B.R. 371, 373–74 (W.D. Ky. 2001) (“[T]he bankruptcy court misconstrued the impact of § 506(b) on unsecured creditors’ claims for fees, costs, and charges. . . . [Section 506(b)] does not address the extent to which an unsecured creditor has a claim for interest, fees, costs, and charges. . . . We conclude that § 506(b) does not preclude an unsecured creditor’s claim for reasonable fees, costs, and charges. . . . The bankruptcy court has the authority, under 11 U.S.C. § 502(b), to determine the amount of each of these claims and to address their reasonableness.”).

 

40  See §§ 153.1 [ Student Loans ] § 88.6  Student Loans and 155.2 [ Long-Term Debts ] § 88.9  Long-Term Debts.

 

41  See Virginia State Educ. Assistance Auth. v. Gibson (In re Gibson), 184 B.R. 716, 719–20 (E.D. Va. 1995) (Seven-year counting period in § 523(a)(8)(A) was suspended during prior Chapter 7 case. “[T]he plain meaning of section 523(a)(8)(A) is that periods during which the borrower stops making payments should not be included in the seven-year nondischargeability period. . . . In other words, a borrower must make seven years’ worth of payments on the student loans before such loans may be discharged in bankruptcy. . . . This Court finds no indication that Congress intended to limit ‘applicable suspension’ periods to deferments or forbearances granted under the terms of the loan agreement. . . . [T]he automatic stay during the 1988 bankruptcy proceeding was an ‘applicable suspension of the repayment period’ that tolled the nondischargeability period. The debtor did not make the equivalent of seven years’ payments on her student loans, and, therefore, the loans are not dischargeable in her current bankruptcy proceeding.”); Bowen v. United States Dep’t of Educ. (In re Bowen), Nos. 94-82310, 02-8265, 2003 WL 22148997 (Bankr. C.D. Ill. Sept. 17, 2003) (unpublished) (Student loans disallowed in Chapter 13 case filed in 1994 are nondischargeable because they first became due less than seven years before the petition under § 523(a)(8)(A) and the debtor has not argued undue hardship under § 523(a)(8)(B).); Shaffer v. United Student Aid Funds, Inc. (In re Shaffer), 237 B.R. 617 (Bankr. N.D. Tex. 1999) (Applying pre-1998 version of § 523(a)(8), consolidation loan under 20 U.S.C. § 1078–3 within seven years of filing is nondischargeable in a Chapter 13 case.); Stricklen v. W.D. Ford Direct Consolidation (In re Stricklen), 224 B.R. 905 (Bankr. E.D. Ark. 1998) (On Chapter 13 debtors’ complaint to determine dischargeability of student loans, consolidation note signed on October 16, 1996, which first became due on March 14, 1997, is nondischargeable under § 523(a)(8)(A) notwithstanding that there may have been earlier notes that were discharged by the consolidation note.). See also El Khabbaz v. Sallie Mae Servicing Corp. (In re El Khabbaz), 264 B.R. 204, 207–08 (Bankr. N.D. Iowa 2001) (Plan provision that “‘Student loan held by Sallie Mae is over seven years old and will be discharged at the completion of plan payments’” is binding notwithstanding controversy at time of confirmation whether seven years was counted from original loans or from date of consolidated loan. “It is now well settled that a Chapter 13 plan may not include a provision discharging a student loan for undue hardship. . . . This court has noted, however, that a majority of courts enforce offending plan provisions even though acknowledging the provision may be contrary to the Code. . . . A majority of courts have concluded that student loan discharge provisions in confirmed plans cannot be subsequently attacked. . . . Debtor’s student loan debt to TGSLC is discharged pursuant to the confirmed plan. Although the plan provision is based on an erroneous computation of the length of the repayment period for the consolidated loan, it is binding on TGSLC as successor to Sallie Mae.”).

 

42  11 U.S.C. § 523(a)(8), as amended effective October 7, 1998. See 11 U.S.C. § 523(a)(8)(B) of prior law.

 

43  See, e.g., Education Resources Inst. v. Ekenasi (In re Ekenasi), 325 F.3d 541, 548–50 (4th Cir. 2003) (Applying Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), “bankruptcy court clearly erred in finding that Ekenasi had sufficiently proven that he would be unable, two years in the future, to maintain a minimal standard of living for himself and his dependents for a significant portion of the repayment period of the student loan. . . . We also conclude that Ekenasi failed to prove that he ‘has made good faith efforts to repay the loans.’” Evidence of Ekenasi’s projected income was “simply too speculative to substantiate the findings made by the bankruptcy court on this issue.” Plan confirmed three months before filing of adversary proceeding provided direct payments of $253 per month to the student loan creditors. “[H]e has not presented . . . evidence of a good faith attempt to make the student loan payments he included in the confirmed Chapter 13 Plan. Instead, Ekenasi filed the adversary proceeding to discharge the student loan debt in its entirety within a mere three months of obtaining that confirmation.”); Oyler v. Educational Credit Mgmt. Corp. (In re Oyler), 300 B.R. 255 (B.A.P. 6th Cir. 2003) (Applying Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), as modified by Cheesman v. Tennessee Student Assistance Corp. (In re Cheesman), 25 F.3d 356 (6th Cir. 1994), minister with $10,000 annual income and family of five proved undue hardship with respect to student loans totaling nearly $40,000.); United Student Aid Funds Inc. v. Taylor (In re Taylor), 223 B.R. 747, 753–54 (B.A.P. 9th Cir. 1998) (Bankruptcy court erred in both discharging student loans and refusing to admit evidence with respect to the debtor’s good faith in attempting prepetition repayment. “[T]he plain language of § 523(a)(8) supports Appellants’ position that the entire student loan debt is either nondischargeable or dischargeable on the basis of undue hardship. . . . [U]nder any undue hardship test, the bankruptcy court must at least consider whether a debtor has made a good faith effort to repay the student loans. . . . [T]he bankruptcy court erred in failing to consider whether Appellees made a good faith effort to repay the Student Loan in determining whether Appellees were entitled to a hardship discharge.”); Williams v. New York State Higher Educ. (In re Williams), 296 B.R. 298 (S.D.N.Y. 2003) (Bankruptcy court correctly determined that Chapter 13 debtor has sufficient income to make student loan payments and maintain a minimal standard of living for § 523(a)(8) purposes.); Innes v. Kansas (In re Innes), 284 B.R. 496 (D. Kan. 2002) (Applying factors from Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), and totality-of-circumstances test from other circuits, Chapter 13 debtor is entitled to hardship discharge of $62,000 in student loans.); In re Turner, 69 B.R. 62 (D. Minn. 1986); Cota v. United States Dep’t of Educ. (In re Cota), 298 B.R. 408 (Bankr. D. Ariz. 2003) (Applying Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), test in second year of five-year Chapter 13 plan, debtor with 11 children under the age of 16 who is living near poverty level, who has minimized expenses and realized no economic benefit from the electrician certificate he received from the construction school is entitled to a hardship discharge; partial discharge under Saxman v. Educational Credit Management Corp. (In re Saxman), 325 F.3d 1168 (9th Cir. 2003), is not an option because debtors will continue to struggle to feed their family even after discharge in the Chapter 13 case.); Hasbrook v. Citibank (In re Hasbrook), 289 B.R. 375 (Bankr. N.D. Ind. 2002) (Facts deemed admitted when debtor failed to respond to request for admissions were sufficient to except student loan debt from discharge under § 523(a)(8).); Balaski v. Educational Credit Mgmt. Corp. (In re Balaski), 280 B.R. 395, 399 (Bankr. N.D. Ohio 2002) (Forty-six-year-old debtor suffering from severe physical deformities living on Social Security Disability who cannot work and owns nothing “cannot maintain a minimal standard of living if forced to repay the [student] loans in whole or in part.”); Sequerira v. Sallie Mae Servicing Corp. (In re Sequerira), 278 B.R. 861 (Bankr. D. Or. 2001) (Repayment of student loans is an undue hardship to the extent the loans exceed the present value of the cash flow that will be available between trial and the debtor’s anticipated retirement.); Ritchie v. Northwest Educ. Loan Ass’n (In re Ritchie), 254 B.R. 913, 921–23 (Bankr. D. Idaho 2000) (On Chapter 13 debtors’ complaint under § 523(a)(8), “the Court construes Section 523(a)(8) to exclude religious and charitable donations as a [sic] proper expense items in determining whether a debtor would be unduly burdened by not discharging qualifying student loan debt. . . . Plaintiffs now have the means to repay their loans under the Income Contingent Repayment Plan. Also, if Plaintiffs committed their tithes to repayment of their student loans they would be able to repay under the Standard Repayment Plan. . . . Plaintiffs’ [sic] have not carried their burden of showing they have made a good faith effort to repay their student loans.”); Pryor v. H & W Recruiting Enters., L.L.C. (In re Pryor), 234 B.R. 716, 717 (Bankr. W.D. Tenn. 1999) (The bankruptcy court discharged student loan, citing Kirkish v. Meritor Savings Bank (In re Kirkish), 144 B.R. 367 (Bankr. W.D. Mich. 1992), for the conclusion that “§ 523(a)(8) did not apply to co-maker/co-signers on student loan debts.”); Young v. PHEAA (In re Young), 225 B.R. 312, 313 (Bankr. E.D. Pa. 1998) (Applying Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), Chapter 13 debtor has demonstrated an undue hardship justifying discharge of her student loans. “The Debtor is an intelligent, healthy, single graduate of the prestigious University of Pennsylvania, with no present dependents. However, she is also a 50-year old Black woman who was unemployed and out of unemployment compensation benefits at the time of the trial and has had no employment in her chosen legal field for a year and a half.” Debtor’s student loans total $46,095.16 and would require payments for 30 years at $322.98 per month.); In re Key, 128 B.R. 742 (Bankr. S.D. Ohio 1991); Coleman v. Higher Educ. Assistance Found. (In re Coleman), 98 B.R. 443 (Bankr. S.D. Ind. 1989); Cardwell v. Higher Educ. Assistance Found. (In re Cardwell), 95 B.R. 121 (Bankr. W.D. Mo. 1989); Conner v. Michigan Dep’t of Treasury (In re Conner), 83 B.R. 440 (Bankr. E.D. Mich. 1988); In re Bryant, 72 B.R. 913 (Bankr. E.D. Pa. 1987); Connecticut Student Loan Found. v. Keenan (In re Keenan), 53 B.R. 913 (Bankr. D. Conn. 1985); In re Feenstra, 51 B.R. 107 (Bankr. W.D.N.Y. 1985).

 

44  See § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors.

 

45  218 B.R. 916 (B.A.P. 9th Cir. 1998), aff’d, 1999 WL 462339 (9th Cir. July 7, 1999) (unpublished), as redesignated and published, 193 F.3d 1083 (9th Cir. 1999).

 

46  193 F.3d at 1085–86.

 

47  215 B.R. 792 (B.A.P. 10th Cir. 1998), aff’d, 179 F.3d 1253 (10th Cir. 1999).

 

48  179 F.3d at 1257–58. Accord Haddox v. Johnson (In re Haddox), Nos. WO-03-048, 00-20020-NLJ, 2003 WL 22681412 (B.A.P. 10th Cir. Nov. 12, 2003) (unpublished) (Bankruptcy judge was without authority to order debtor’s counsel to purge student loan interest discharge provision from all confirmed plans. The BAP found no authority in § 105 or elsewhere to collaterally attack the binding effect of the confirmed plan under § 1327(a) and Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999).); Poland v. Educational Credit Mgmt. Corp. v. Poland (In re Poland), 276 B.R. 660, 662–65 (D. Kan. 2001) (Citing Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999), student loan was discharged at the completion of payments when confirmed plan provided, “‘If no Proof of Claim is timely filed by the U.S. Department of Education, the claim shall be deemed discharged in its entirety upon completion of the Plan.’ . . . [N]otwithstanding the absence of any finding of undue hardship . . . [t]he plan and discharge order provided for the discharge of the student loans in question. Although the court is not particularly enthused about upholding a discharge that is clearly inconsistent with the Bankruptcy Code, a faithful reading of Andersen requires application of the same rule of finality.”); El Khabbaz v. Sallie Mae Servicing Corp. (In re El Khabbaz), 264 B.R. 204 (Bankr. N.D. Iowa 2001) (Although based on an erroneous computation of the length of the repayment period for a consolidated loan, plan provision that student loan would be discharged at the completion of payments because the loan was due more than seven years before the petition is binding on student lender, and student loan will be discharged at the completion of payments under the plan.); In re York, 250 B.R. 842, 844–47 (Bankr. D. Del. 2000) (Student loan creditor’s failure to object to confirmation of plan that provided for discharge of postpetition interest is fatal to student loan creditor’s objection to modified plan that does not change the treatment of the student loan. Citing In re Szostek, 886 F.2d 1405 (3d Cir. 1989), “the Third Circuit has stated that this ‘policy of finality’ overrides possible deficiencies within the confirmed plan . . . . [A]bsent any timely objections, a court can confirm a plan which includes a provision that determines the dischargeability of a debt, even though the request for the determination did not follow correct procedure. . . . The Third Circuit’s policy of finality and the binding power of § 1327 abrogates [sic] ECMC’s ability to object.”).

 

49  See § 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors. See, e.g., In re Wright, 279 B.R. 886 (D. Kan. 2002) (Bankruptcy court appropriately denied confirmation of a plan that contained a provision finding an undue hardship with respect to student loans.); In re Carlson, 276 B.R. 653, 659 (Bankr. D. Mont. 2002) (Bankruptcy court refuses provision of plan that would prohibit accrual of interest on nondischargeable student loans during the Chapter 13 case. “The Court agrees with ECMC that post-petition interest continues to accrue on personal liabilities of a debtor which go unpaid and which are nondischargeable.”); In re Delgado, No. 99-13234, 2000 WL 34220148 (Bankr. D. Kan. July 14, 2000) (unpublished) (Plan cannot be confirmed that discharges postpetition interest and collection charges on a nondischargeable student loan.); In re Webber, 251 B.R. 554, 556–58 (Bankr. D. Ariz. 2000) (On objection to confirmation, it is not appropriate for Chapter 13 plans to provide that “[u]pon successful completion of the chapter 13, the student loans will not be excepted from discharge.” Distinguishing Great Lakes Higher Education Corp. v. Pardee (In re Pardee), 193 F.3d 1083 (9th Cir. 1999), and Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999), “if the plan were confirmed as drafted, the discharge of the student loans could not be challenged in a collateral proceeding, because the confirmation order would have res judicata effect, even if the offending provision violated the Bankruptcy Code or Rules. . . . [T]his is not a collateral attack on a confirmation order, but rather a timely and proper direct objection. Therefore, the holdings of Pardee and Andersen have no bearing. . . . I concur that such student loan discharge provisions are not permissible in a chapter 13 plan or in an order confirming the plan. Bankruptcy Rule 7001(6) requires an adversary proceeding to establish the dischargeability of such debts, and nothing in chapter 13 permits the Bankruptcy Rules to be evaded by simple plan provisions. . . . . It is not appropriate for debtors’ counsel to submit such plans in the hope that the student lending agencies fail to object.”); In re Fox, 249 B.R. 140 (Bankr. D.S.C. 2000) (Distinguishing Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999), and Great Lakes Higher Education Corp. v. Pardee (In re Pardee), 193 F.3d 1083 (9th Cir. 1999), bankruptcy court denies confirmation of plan that would find undue hardship for purposes of § 523(a)(8). Proposed plan does not satisfy the proof requirements of §§ 1328(a)(2) and 523(a)(8) and, procedurally, the confirmation process does not satisfy the adversary requirement for determining dischargeability.); In re Mammel, 221 B.R. 238, 239, 240–43 (Bankr. N.D. Iowa 1998) (Distinguishing Great Lakes Higher Education Corp. v. Pardee (In re Pardee), 218 B.R. 916 (B.A.P. 9th Cir. 1998), and Andersen v. Higher Education Assistance Foundation (In re Andersen), 215 B.R. 792 (B.A.P. 10th Cir. 1998), refuses confirmation of plan that would discharge student loans upon confirmation. Debtor scheduled five student loans totaling $46,491.38, constituting three-fourths of total unsecured debt. Plan proposed to pay approximately 3.8% and contained a provision that would declare student loans dischargeable upon confirmation. Chapter 13 trustee objected and then withdrew her objection. Student loan creditors did not file objections or appear at the hearing on confirmation. Exercising its “independent right and duty to review proposed Chapter 13 plans for compliance with the Code,” court refused confirmation for several reasons: “The discharge provision proposed by Debtor is inconsistent with § 1328 which provides for a discharge only upon completion of all plan payments. . . . [A]llowing discharge of these debts through the confirmation process defeats the adversary requirement for determining dischargeability. . . . Debtor seeks to have the debts declared dischargeable without satisfying the evidentiary elements of § 523(a)(8). . . . Under ordinary circumstances, it is unnecessary for student loan creditors to file a claim as they are entitled to rely on the nondischargeability provisions of 11 U.S.C. § 523(a)(8). For these reasons, it is inappropriate to confirm this plan by default, particularly when confirmation irrevocably binds these creditors to this provision. . . . Debtor has the burden to raise the issue of dischargeability. Allowing this provision would shift the burden to the student loan creditors. It would require them to appear at the confirmation hearing and raise the issue or lose the rights preserved to them by the Code. It is inappropriate to bind these creditors to a determination which unilaterally changes the rules. This is particularly true when a default is sought in a proceeding in which the student loan creditors may well have no reasonable expectation that they were required to participate to preserve their rights.”). Accord In re Evans, 242 B.R. 407 (Bankr. S.D. Ohio 1999) (Not appropriate to include plan provision finding undue hardship for § 523(a)(8) purposes.); In re Featherston, 238 B.R. 377, 380–81 (Bankr. S.D. Ohio 1999) (Collection costs are part of the nondischargeable student loan claims. Plan provided that collection costs totaling $16,085.45 would be discharged by payment of the principal and interest of the student loans through the plan. “Several courts have concluded that collection costs and attorney fees are part of the student loan obligation excepted from discharge under 11 U.S.C. § 523(a)(8).” Citing In re Mammel, 221 B.R. 238 (Bankr. N.D. Iowa 1998), “[w]hen a debtor attempts to discharge a student loan debt solely through a provision in his or her Chapter 13 plan rather than the filing of an adversary complaint, courts have routinely denied confirmation of the plan.”); In re Hinton, 231 B.R. 384 (Bankr. S.D. Fla. 1999) (Denies confirmation of 1% plan that contained a finding that excepting student loans from discharge would be an undue hardship. Citing In re Mammel, 221 B.R. 238 (Bankr. N.D. Iowa 1998), the proposed plan was inconsistent with the adversary proceeding requirements and would discharge student loans without meeting the conditions in § 523(a)(8).); In re Galey, 230 B.R. 898, 899–900 (Bankr. S.D. Ga. 1999) (Denies confirmation of plan containing provision that excepting the balance of student loans from discharge would impose a hardship for purposes of § 523(a)(8). “[T]he plan is inconsistent with the spirit and the purpose of the Code. . . . [W]here the debtor seeks to discharge a debt, which is expressly excluded from the Chapter 13 discharge, mere insertion of a provision in the plan changing that result requires the safeguards of Part VII of the Federal Rules of Bankruptcy Procedure.”); In re Stevens, 236 B.R. 350 (Bankr. E.D. Va. 1999); In re Evans, 235 B.R. 133 (Bankr. S.D. Fla. 1999); In re Key, 128 B.R. 742 (Bankr. S.D. Ohio 1991).

 

50  See, e.g., Gable v. Educational Credit Mgmt. Corp. (In re Gable), Nos. 97-11130, 02-5294, 2003 WL 21750872, at *3–*4 (Bankr. D. Kan. July 21, 2003) (Distinguishing Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999), postpetition interest, penalties and costs are not discharged by completed plan that paid only the principal amount of student loan debt. The confirmed plan paid principal amount of student loan in full and provided that student loan claim “shall not bear interest.” After the completion of payment and discharge, a student loan creditor sought to collect postpetition interest, penalties and costs. “[P]ost-petition interest on nondischargeable student loans is not dischargeable. . . . [T]hat the principal amount of ECMC’s claim has been paid does not serve to discharge the debt or the interest that accrued on it after the commencement of the case. . . . Because unmatured interest cannot be part of an allowed claim under § 502(b)(2), Gable’s payment of the allowed claim could not have satisfied ECMC’s debt that is excepted from discharge. . . . [T]he debt remaining at the close of the case, consisting of post-petition interest and penalties, was expressly excepted from discharge under § 523(a)(8) and the language of the discharge order.”); In re Blumenschein, 283 B.R. 908, 909–10 (Bankr. S.D. Ohio 2002) (Student loan creditor did not violate discharge injunction by attempting to collect accrued interest after discharge because plan did not unambiguously discharge postpetition interest. Confirmed plan provided that student loan would be “paid in full through the chapter 13 plan.” “If the debtor wants the discharge to include all of those otherwise nondischargeable amounts, the plan directive to the claimant must be clear and detailed as to what is to be included in the creditor’s proofs of claim. This is particularly important for items which would otherwise not be allowable in a proof of claim.”).

 

51  See, e.g., In re Little, No. 03-17506-WHD, 2003 WL 21656215, at *1 (Bankr. N.D. Ga. June 16, 2003) (unpublished) (On court’s initiative, confirmation order is “modified and amended” to delete provision that would discharge postpetition student loan interest. Interest provision “contravenes § 523(a)(8) of the Bankruptcy Code and should not have been included in the Debtor’s Chapter 13 Plan.”). Accord In re Ransier, No. 03-17596-WHD, 2003 WL 21656319 (Bankr. N.D. Ga. June 16, 2003) (unpublished).

 

52  261 B.R. 896 (Bankr. W.D. Va.), rev’d, 271 B.R. 249 (W.D. Va. 2001), aff’d, 299 F.3d 296 (4th Cir. 2002).

 

53  261 B.R. at 898.

 

54  261 B.R. at 901.

 

55  261 B.R. at 901.

 

56  Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d 296, 300–303 (4th Cir. 2002). Accord Educational Credit Mgmt. Corp. v. Doane (In re Harig), 302 B.R. 177, 180–83 (W.D. Va. 2003) (Applying Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d 296 (4th Cir. 2002), and distinguishing Spartan Mills v. Bank of America Illinois, 112 F.3d 1251 (4th Cir. 1997), discharge of student loans without filing an adversary proceeding violated procedural due process and was void. In a bankruptcy case filed in 1996, bankruptcy court erroneously entered a discharge order that purported to discharge student loans without the findings required by § 523(a)(8). “This court holds the bankruptcy court’s judgment void because the bankruptcy court entered it in a manner inconsistent with the requirements of due process of law. . . . In the context of student loan debt, discharge requires a showing of undue hardship. . . . [T]he debtor must satisfy the heightened notice requirements of an adversary proceeding by filing a complaint and by serving process upon the appropriate creditor-defendant. . . . [A]bsent specific notice of a debtor’s intent to discharge a student loan debt, including the requisite service of process in an adversary proceeding, a court may not discharge student loan debt without violating due process. . . . [N]otice provided under Bankruptcy Rule 2002 is inadequate when the debtor intends to discharge a nondischargeable student loan debt. . . . [T]he debtor must comply with the notice provisions of Bankruptcy Rule 7004. . . . Unlike Spartan Mills, ECMC did not have the notice required by due process.”); Educational Credit Mgmt. Corp. v. Whelton (In re Whelton), 299 B.R. 306, 318–19 (Bankr. D. Vt. 2003) (Citing Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d 296 (4th Cir. 2002), because finding of undue hardship was beyond the relief possible from confirmation of a Chapter 13 plan and because debtor failed to serve an adversary proceeding on ECMC, completion of payments did not discharge student loans. “Since the subject discharge-by-declaration provision . . . is outside the § 1322-defined boundaries of a chapter 13 plan, and is inconsistent with express mandates of §§ 1322(b)(10) and 1328, it has no legal effect and is hereby declared void and ineffective. Consequently, that portion of the Confirmation Order which confirms the discharge of the ECMC student loan and that portion of the Discharge Order which purports to discharge Whelton’s liability to ECMC are also declared void. . . . The Debtor’s failure to commence an adversary proceeding abrogated ECMC’s due process rights. Relief granted in violation of due process is unenforceable, notwithstanding a creditor’s failure to object at the confirmation hearing or during the pendency of the chapter 13 plan.”); In re Ruehle, 296 B.R. 146, 157–58 (Bankr. N.D. Ohio 2003) (Discharge is vacated 18 months after entry under Rule 60(b)(4) based on holding that student loan discharge provision in confirmed plan was void for lack of due process. “A court may grant relief from a judgment that is void pursuant to Fed.R.Civ.P. 60(b)(4). . . . Whether a judgment is void hinges on whether due process was violated . . . . The procedure to discharge a student loan is clearly set out in the Bankruptcy Code and Rules and Debtor’s failure to follow the process violated ECMC’s right to due process of law. . . . The notice ECMC received apprised it of plan confirmation not student loan dischargeability. Plan confirmation is of little consequence to student loan creditors. . . . The Ninth and Tenth Circuits failed to evaluate the due process concerns of a ‘discharge by declaration’ plan provision.”), aff’d, 307 B.R. 28 (B.A.P. 6th Cir. 2004) (“Discharge by declaration” denied student loan creditor due process.); In re Tyler, 285 B.R. 635, 637, 638–43 (Bankr. W.D. Tex. 2002) (Applying Fed. R. Civ. P. 60(b)(4), discharge order that failed to make exception for nondischargeable student loans is void. “This Discharge Order did not contain the language it should have excepting the Debtor’s student loans from discharge in accordance with then existing law as the Chapter 13 Trustee had neglected to change the form he was using. . . . Although Rule 60(b) motions must be made ‘within a reasonable time’ the Eleventh Circuit has held that there is no time limit for bringing a motion under Rule 60(b)(4) . . . to relieve a party from a final order where a judgment is void. . . . The law in effect at the time this Debtor’s bankruptcy petition was filed did not provide for the discharge of Debtor’s student loans absent an adversary proceeding by the Debtor. This Debtor has never filed an adversary proceeding requesting discharge of his student loans. Thus ECMC had no notice prior to entry of this Discharge Order that this Debtor’s student loans would be discharged. This Court therefore concludes that the Discharge Order is void as to ECMC because ECMC did not have notice and a meaningful opportunity to be heard prior to the discharge of Debtor’s student loan.”). But see Wren v. Sallie Mae Servicing Corp. (In re Wren), 289 B.R. 248, 251 (Bankr. M.D. Ga. 2002) (Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d 296 (4th Cir. 2002), does not preclude adversary proceeding for contempt based on completed Chapter 13 plan that provided for full payment of student loans plus 6% interest amortized over 30 years. “For Banks to be applicable, Defendant must be able to show that the treatment the loan received under the Plan resulted in the discharge of some portion of a non-dischargeable debt. . . . Ordinarily, the only way to discharge student loan debt is to bring an adversary proceeding, which Debtors did not do on this loan. . . . According to Banks, Defendant would not be barred by res judicata and could continue to collect an unpaid debt, including unpaid interest not provided for through the Plan, under the principles of due process. . . . However, there is nothing in the record to show that this is the situation in the present case.”).

 

57  See In re Evans, 242 B.R. 407, 410–12 (Bankr. S.D. Ohio 1999) (A debtor’s attorney who includes a provision for hardship discharge under § 523(a)(8) in a Chapter 13 plan is subject to sanctions under Bankruptcy Rule 9011. “In [Andersen v. Higher Education Assistance Foundation (In re Andersen), 215 B.R. 792 (B.A.P. 10th Cir. 1998), aff’d, 179 F.3d 1260 (10th Cir. 1999),] and [Great Lakes Higher Education Corp. v. Pardee (In re Pardee), 193 F.3d 1083 (9th Cir. 1999)], the plan had already been confirmed when the validity of the student loan provision was raised. . . . Had the issue in Andersen and Pardee been raised prior to confirmation, a different result likely would have occurred given that both decisions contain language indicating that the plans at issue would not have been confirmed had the issue been raised prior to confirmation. . . . The Court does not see how the student loan addendum in the plan proposed by the Debtor is warranted by existing law or a good faith argument for the extension, modification or reversal of the same. . . . The Court is concerned that counsel for debtors may begin to view this issue as a ‘can’t lose’ proposition. If they include the student loan addendum and the plan is confirmed without objection, they can argue that the student loan obligation is discharged under the doctrine of res judicata and the authority of Andersen and Pardee. If an objection is raised, they simply strike the addendum and are no worse off than if they hadn’t tried. . . . Fed. R. Bank. P. 9011 serves as one means of deterring such abuse.”). Accord In re Hensley, 249 B.R. 318 (Bankr. W.D. Okla. 2000) (Citing In re Evans, 242 B.R. 407 (Bankr. S.D. Ohio 1999), inclusion of undue hardship finding in confirmed plans is unethical and sanctionable under Bankruptcy Rule 9011 notwithstanding Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir. 1999). To avoid sanctions, debtors’ attorneys must modify confirmed plans to delete the offending provisions or dismiss or convert the cases to Chapter 7.).

 

58  285 B.R. 327 (Bankr. W.D. Okla. 2002).

 

59  285 B.R. at 330.

 

60  285 B.R. at 333.

 

61  Haddox v. Johnson (In re Haddox), Nos. WO-03-048, 00-20020-NLJ, 2003 WL 22681412, at *3 (B.A.P. 10th Cir. Nov. 12, 2003) (unpublished).

 

62  2003 WL 22681412, at *3.

 

63  See also In re Wright, 279 B.R. 886, 889 (D. Kan. 2002) (Bankruptcy court appropriately denied confirmation of a plan that contained a provision finding an undue hardship with respect to student loans, but it was also appropriate to reject “per se rule” that including hardship discharge language in future plans would be sanctionable. “As correctly pointed out by the bankruptcy court, the inclusion of these provisions in a plan in the hope that they will trap the unwary student loan creditor should result in the imposition of sanctions. The court, however, does not believe that a per se rule should be adopted. Debtors’ counsel are on notice that the filing of plans containing this language will not be allowed unless there is a good faith basis for them. . . . [T]hese matters can be handled when they arise. ‘[I]t is perfectly reasonable to expect interested creditors to review the terms of a proposed plan and object if the terms are unacceptable, vague, or ambiguous.’”).

 

64  See §§ 229.1 [ 11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors ] § 120.2  11 U.S.C. § 1327(a): Binding Effect on Creditors and Debtors and 233.1 [ Notice and Due Process Considerations, Including Claims Allowance and Valuation ] § 121.2  Notice and Due Process Considerations, Including Claims Allowance and Valuation for further discussion of the binding effect of confirmation under § 1327(a) and the limitations on binding effect.

 

65  541 U.S. __, 124 S. Ct. 1905, __ L. Ed. 2d __ (2004).

 

66  124 S. Ct. at 1914.

 

67  236 B.R. 426 (N.D. Ala. 1999).

 

68  The discharge injunction is discussed beginning at § 162.1  In General, Including Discharge Hearing and Discharge Injunction.

 

69  236 B.R. at 428–30. Accord Gallick v. United States Dep’t of Educ. (In re Gallick), 292 B.R. 830 (Bankr. W.D. Pa. 2003) (Failure of the Department of Education to file a timely proof of claim does not affect the nondischargeability of student loans when debtor does not allege or prove an undue hardship for purposes of § 1328(a)(2) and § 523(a)(8).); Cruz v. Educational Credit Mgmt. Corp. (In re Cruz), 277 B.R. 793, 794, 796 (Bankr. M.D. Ga. 2000) (Disallowance of ECMC’s student loan claim did not discharge the debt at the completion of payments under the plan. ECMC filed a proof of claim. Debtors objected. ECMC did not respond to the objection. Bankruptcy court order disallowing the claim stated “claim has been paid in full.” Debtors completed payments and received a discharge. ECMC then intercepted tax refund. The discharge order “specifically excepted from discharge any debt ‘for a student loan or educational benefit overpayment as specified in 11 U.S.C. § 523(a)(8).’” The order disallowing ECMC’s claim did not discharge the debt under principles of collateral estoppel because “the issue in the prior litigation involved a claim objection while the latter one entails the dischargeability of a student loan” and the order disallowing ECMC’s claim was “akin to a default judgment” and thus dischargeability was not actually litigated when the claim was disallowed.); In re Klassen, 227 B.R. 187, 188 (Bankr. D. Kan. 1998) (Balance of student loan claim is nondischargeable after the completion of payments under Chapter 13 plan notwithstanding that confirmation order listed the student loan as “($7,000.00) To be paid 100%, pro rata” and debtor objected successfully to a larger proof of claim filed by the student loan creditor. Student loan creditor filed a timely proof of claim for $13,826.63. Debtors objected, and the creditor’s failure to respond to that objection resulted in entry of an order that disallowed the student loan creditor’s proof of claim but allowed an unsecured claim for $7,000. Debtors completed a plan that paid the $7,000. Claims objection process did not resolve the dischargeability of the underlying student loan debt. No provision of the plan discharged the balance above the $7,000 allowed and paid through the plan.). See also McAlpin v. Educational Credit Mgmt. Corp. (In re McAlpin), 278 F.3d 866 (8th Cir. 2002) (Bankruptcy court was without jurisdiction to entertain debtor’s postdischarge injunction action seeking to stop ECMC from recovering collection costs that were not paid through the confirmed Chapter 13 plan. Without addressing the merits of the bankruptcy court’s decision that collection costs were discharged because ECMC failed to respond to the debtor’s claim objection, because discharge had been entered and the bankruptcy estate no longer existed, the bankruptcy court’s injunctive order was entered without jurisdiction.).

 

70  See also § 343.1 [ Timing and Procedure for Discharge and Objecting to Discharge ] § 156.1  Timing and Procedure for Discharge and Objecting to Discharge.

 

71  See § 343.1 [ Timing and Procedure for Discharge and Objecting to Discharge ] § 156.1  Timing and Procedure for Discharge and Objecting to Discharge. See, e.g., Bender v. Educational Credit Mgmt. Corp. (In re Bender), 297 B.R. 126, 132–33 (D. Neb. 2003) (“As a matter of law, . . . the question of dischargeability under § 523(a)(8) should not hinge upon the Benders’ current financial condition, but, rather, should be dependent upon their ability to pay off the loans after emerging from bankruptcy protection. . . . While a complaint to determine the dischargeability of a debt ‘may be filed at any time,’ . . . it does not necessarily follow that a determination under § 523(a)(8) can be made at any time during the pendency of a Chapter 13 case. . . . [A] determination that is based on a record made 2 ½ years before the expected completion date of the Benders’ Chapter 13 plan entails unnecessary guesswork and presupposes that the Benders will complete their payments under the plan. . . . [I]t has not been shown that [the debtor] would be harmed if a determination were not made until at or about the time that a discharge order can be entered under § 1328(a). . . . [T]he issue of ‘undue hardship’ under § 523(a)(8) was not ripe for decision by the bankruptcy court.”); Pair v. United States (In re Pair), 269 B.R. 719, 720–21 (Bankr. N.D. Ala. 2001) (Adopting Raisor v. Education Loan Servicing Center (In re Raisor), 180 B.R. 163 (Bankr. E.D. Tex. 1995), “it is impossible to address the [Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987),] factors in a Chapter 13 case until near or at the time the plan is scheduled for completion. . . . . The fact that a complaint under § 523(a)(8) can be filed at anytime [sic] under Rule 4007(b) does not mean that such a complaint is actually ripe for adjudication. . . . [T]he issue is not ripe for adjudication until the end of a Chapter 13 case when the debtor’s financial circumstances are clearer.”); Soler v. United States (In re Soler), 250 B.R. 694 (Bankr. D. Minn. 2000) (Because the dischargeability of student loans under 11 U.S.C. § 523(a)(8) and 42 U.S.C. § 294f(g) depends on the debtor’s situation at the time of discharge, complaint to determine dischargeability of student loans at the beginning of a Chapter 13 case is premature.); Raisor v. Education Loan Servicing Ctr., Inc. (In re Raisor), 180 B.R. 163, 166–67 (Bankr. E.D. Tex. 1995) (Complaint to determine dischargeability of student loans filed a few months after confirmation is premature because “undue hardship” cannot be determined until the debtor becomes entitled to discharge. “The Fifth Circuit in Rubarts v. First Gibraltar Bank (In re Rubarts), 896 F.2d 107, 109 (5th Cir. 1990), stated in dictum that the issue of dischargeability is not ripe under Chapter 13 until either after the Chapter 13 plan has been successfully completed or the debtor has applied for a hardship discharge under § 1328(b). Because neither of these two events has occurred to date, the matter before the Court is premature. . . . At this juncture, neither the parties nor the Court can fully address [the undue hardship] factors. . . . [I]t is speculative at this time what the Debtors’ income and expenses will be at the time the Plan is scheduled for completion. . . . [B]ecause other unsecured debts will be discharged after the completion of the Plan, the elimination of these debts could facilitate the Debtors’ abilities to repay the PLUS Loans. . . . [B]y attempting to discharge the PLUS Loans prior to the completion of the Plan, the Debtors are not demonstrating a good faith effort to repay the obligation. . . . [T]he Court can best follow congressional intent of preserving student loans from discharge if the Court can fully and accurately analyze the Debtors’ financial condition at the time the discharge is granted. . . . [B]ecause there is uncertainty regarding whether the Plan will be completed and a discharge granted, proceeding further at this time is an inefficient use of very limited judicial resources. . . . [T]he fact that Federal Rule of Bankruptcy Procedure 4007(b) provides that a § 523(a)(8) proceeding ‘may be filed at any time’ is not controlling of the issue before the Court. The lack of a time limitation should not be interpreted as meaning that any proceeding filed pursuant to Bankruptcy Rule 4007(b) is ripe for adjudication.”).

 

72  United Student Aid Funds Inc. v. Taylor (In re Taylor), 223 B.R. 747, 751–54 (B.A.P. 9th Cir. 1998) (“Under Federal Rule of Bankruptcy Procedure (FRBP) 4007(b), a § 523(a)(8)(B) action can be brought at any time. . . . Superior Court v. Heincy (In re Heincy), 858 F.2d 548 (9th Cir. 1988) . . . is distinguishable. In Heincy, the debt was for criminal restitution. . . . Such a debt is dischargeable in a chapter 13 upon completion of the plan payments. . . . However, student loans are excepted from a § 1328 discharge. . . . United States v. Cleveland (In re Cleveland), 89 B.R. 69, 72 (9th Cir. B.A.P. 1988), . . . is also distinguishable. . . . HEAL loans cannot be discharged until ‘after the expiration of the seven-year period beginning on the first date when repayment of such loan is required. . . .’ . . . In Cleveland, we held that the complaint was ‘premature’ because the clear language of § 292f(g) prohibited a discharge until the expiration of the § 292f(g) waiting period. . . . [S]tudent loans can be discharged pursuant to § 523(a)(8) if the petition is filed seven years after the loan first became due or repayment will cause a debtor undue hardship. . . . The filing of a complaint at any time to discharge a student loan based on undue hardship does not conflict with any statutory right or procedure or with public policy.”).

 

73  Education Resources Inst. v. Ekenasi (In re Ekenasi), 325 F.3d 541, 548–50 (4th Cir. 2003) (Applying Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), “bankruptcy court clearly erred in finding that Ekenasi had sufficiently proven that he would be unable, two years in the future, to maintain a minimal standard of living for himself and his dependents for a significant portion of the repayment period of the student loan. . . . We also conclude that Ekenasi failed to prove that he ‘has made good faith efforts to repay the loans.’” Evidence of Ekenasi’s projected income was “simply too speculative to substantiate the findings made by the bankruptcy court on this issue.” Plan confirmed three months before filing of adversary proceeding provided direct payments of $253 per month to the student loan creditors. “[H]e has not presented . . . evidence of a good faith attempt to make the student loan payments he included in the confirmed Chapter 13 Plan. Instead, Ekenasi filed the adversary proceeding to discharge the student loan debt in its entirety within a mere three months of obtaining that confirmation.”).

 

74  See, e.g., Stuart v. Parr (In re Parr), 222 B.R. 337, 339 (Bankr. D. Minn. 1998) (Portion of student loans that survived discharge in prior Chapter 13 case is nondischargeable in subsequent Chapter 7 case under § 727(a)(9). In 1992, debtor filed Chapter 13 petition listing only two unsecured student loan claims. Confirmed plan provided for five years of payments and 20.25% distribution to student loan claim holders. Debtor completed payments and discharge was entered in the Chapter 13 case on June 5, 1997. On July 17, 1997, debtor filed Chapter 7 case and sought to discharge the student loans, which apparently had aged past the seven-year time period in § 523(a)(8). The “six-year moratorium on receiving a successor discharge” in § 727(a)(9) applied because the debtor’s Chapter 13 case did not pay 70% of allowed claims. The fact that the debtor “received less than full relief from her creditors” in the prior Chapter 13 case—the student loans were not discharged—is “irrelevant to the application of § 727(a)(9).”); Strauss v. Student Loan Office–Mercer Univ. (In re Strauss), 216 B.R. 638, 639 (Bankr. N.D. Cal. 1998) (After completion of payments in Chapter 13 plan and applying a “totality of the circumstances” test, debtor can discharge the balance of her student loans under the undue hardship provisions of § 523(a)(8)(B). Debtor had a law degree but never passed the bar. “[S]he experienced a traumatic . . . personal experience” and eventually found employment as a legal assistant. Debtor owed $51,000 in student loan obligations and paid $43,117.90 to student loan creditors through her completed Chapter 13 plan. Debtor is eligible to file a Chapter 7 case and discharge the balance of the student loans because they are all now more than seven years old.); Oswalt v. University of Buffalo (In re Oswalt), 215 B.R. 337 (Bankr. W.D.N.Y. 1997) (Debtor has shown “undue hardship” justifying discharge of student loans under § 523(a)(8)(B) based on anxiety disorder, other psychiatric problems and the debtor’s recent completion of a three-year Chapter 13 plan in which the debtor repaid approximately 5% of his unsecured debt.); Elebrashy v. Student Loan Corp. (In re Elebrashy), 189 B.R. 922 (Bankr. N.D. Ohio 1995) (On debtor’s complaint under § 523(a)(8) in Chapter 13 case reopened after completion of payments and entry of discharge, student loans are dischargeable under undue hardship standard. Debtor had $80,000 of student loans incurred in unsuccessful effort to qualify as a podiatrist.); Keilig v. Massachusetts Higher Educ. Assistance Corp. (In re LaFlamme), 188 B.R. 867 (Bankr. D.N.H. 1995) (Applying § 523(a)(8) after completion of payments in a Chapter 13 case, student loans are nondischargeable notwithstanding that the debtor was a non-student borrower and the institution that originally issued the loan was a private bank. Debtor failed to prove “undue hardship.” Debtor has capability of earning more than $29,174 a year as licensed practical nurse. Debtor is living alone and has relatively few expenses. Massachusetts Higher Education Assistance Foundation agreed to accept a reduced monthly payment with no interest.). See also Tanski v. United States (In re Tanski), 195 B.R. 408 (Bankr. E.D. Wis. 1996) (HEAL loans that were nondischargeable in the debtors’ Chapter 7 case in 1987 were discharged in the debtors’ Chapter 7 case in 1994. Section 523(b) requires this result. The unpaid balance on the HEAL loans need not be paid in the current Chapter 13 case.); Roy v. United States (In re Roy), 189 B.R. 245 (Bankr. D.N.H. 1995) (Court issued declaratory judgment that HEAL loans enabling debtor to become a dentist were nondischargeable in Chapter 13 case.).

 

75  In re Battrell, 105 B.R. 65, 67 (Bankr. D. Or. 1989) (Court denies confirmation of plan calling for discharge of HEAL loan at completion of payments under the plan. “The court cannot find that nondischarge of the obligation would be unconscionable when the circumstances existing at the time of the discharge are not known.”). See In re Johnson, 787 F.2d 1179 (7th Cir. 1986); United States v. Williams (In re Williams), 96 B.R. 149 (Bankr. N.D. Ill. 1989) (42 U.S.C. § 294f(g) does not permit a final resolution of the dischargeability of HEAL loans in a Chapter 13 case until the debtor is eligible for a discharge—at the completion of all payments or at the debtor’s request for a hardship discharge.); In re Owens, 82 B.R. 960 (Bankr. N.D. Ill. 1988); United States v. Lee, 71 B.R. 833 (Bankr. N.D. Ga.), rev’d, 89 B.R. 250 (N.D. Ga. 1987); In re Gronski, 65 B.R. 932 (Bankr. E.D. Pa. 1986).

 

76  See above in this section.

 

77  See Ellzey v. United States Dep’t of Health & Human Servs., No. CIV.A. 03-0200-CG-M, 2003 WL 22927349 (S.D. Ala. Nov. 21, 2003) (Seven-year period in 42 U.S.C. § 292f(g)(1) is tolled during the time that the debtor was protected from collection by the automatic stay in a prior Chapter 13 case.).

 

78  See United States v. Williams (In re Williams), 96 B.R. 149 (Bankr. N.D. Ill. 1989) (Potentially nondischargeable unsecured debts such as a HEAL loan can be included in the Chapter 13 plan, and the holder of the loan is bound by the terms of the confirmed plan. Notwithstanding that the debtor proposes to pay only 1% of unsecured claims, the holder of the HEAL loan is precluded from seeking collection of its claim until the plan has been completed.); In re Owens, 82 B.R. 960 (Bankr. N.D. Ill. 1988).

 

79  United States v. Cleveland, 89 B.R. 69 (B.A.P. 9th Cir. 1988).

 

80  See, e.g., Innes v. Kansas State Univ. (In re Innes), 184 F.3d 1275 (10th Cir. 1999), cert. denied, 529 U.S. 1037, 120 S. Ct. 1530, 146 L. Ed. 2d 345 (2000) (Kansas State University’s agreement with the Department of Education to participate in the Perkins Loan Program was a knowing and voluntary waiver of Eleventh Amendment immunity to a Chapter 13 debtor’s complaint to determine the dischargeability of a student loan under §§ 1328 and 523(a)(8).); Drivas v. Intuition, Inc. (In re Drivas), 266 B.R. 515 (Bankr. M.D. Fla. 2001) (Applying Georgia Department of Revenue v. Burke (In re Burke), 146 F.3d 1313 (11th Cir. 1998), and Gardner v. New Jersey, 329 U.S. 565, 67 S. Ct. 467, 91 L. Ed. 504 (1947), Florida Department of Education waived sovereign immunity with respect to Chapter 13 debtor’s complaint for hardship discharge under § 523(a)(8) by filing proofs of claim totaling $61,749.96.).