§ 58.13     Termination of Services to Debtor and Discrimination against Debtor
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 58.13, at ¶ ____, LundinOnChapter13.com (last visited __________).

At the filing of a Chapter 13 petition, most creditors with continuing relationships with the debtor are at least tempted to terminate their services to the debtor. If the creditor supplies utility services, the creditor is forbidden by 11 U.S.C. § 366 to immediately terminate services.1 A utility supplier that conditions restoration of service after a Chapter 13 petition that the debtor repay a prepetition bill may violate the automatic stay in § 362 and the utility stay in § 366.2


When the relationship with the debtor does not involve utility services, the Code generally does not prohibit the creditor from declining to provide further services to the debtor. One exception to this rule is where the refusal to provide services is an effort to collect a prepetition claim. There is no bright line between a legitimate refusal to provide new services and using new services as a carrot (stick?) to coerce payment of a prepetition claim. The creditor that desires to terminate services to the debtor after a Chapter 13 petition should be careful not to appear to blackmail the debtor by ransoming continuing services in exchange for payment of prepetition debt.


For example, in B.F. Goodrich Employees Federal Credit Union v. Patterson (In re Patterson),3 the Eleventh Circuit held that a credit union violated § 362(a)(6) by freezing a debtor’s checking and savings account and suspending services to the debtor based on evidence that the credit union offered to unfreeze the debtor’s accounts and to continue service if the debtor would “reaffirm . . . or make the obligation non-plan.”4 The court concluded that the credit union’s offer constituted an act to collect its prepetition debt in violation of the automatic stay. The lesson for creditors in Patterson is to avoid linking the continuation of services to the debtor to any particular treatment of the creditor’s claim through the plan. This can be a tricky business.


Several reported decisions support the right of creditors to terminate nonutility services to the debtor. For example, where there was no evidence that termination of checking account privileges was an effort by the bank to coerce the debtor into paying prepetition debts, it was not a violation of the automatic stay for the bank to terminate the debtor’s account and return the balance to the debtor.5 In contrast to Patterson, one court concluded it was not an “act to collect” for a credit union to terminate services to a Chapter 13 debtor, notwithstanding a letter from the credit union offering to continue services if the debtor would amend the Chapter 13 plan to separately classify the credit union for full payment.6


The refusal of a creditor to deal further with a Chapter 13 debtor should be carefully distinguished from obligations that the Bankruptcy Code imposes on creditors to undo things started before the petition. Although the Bankruptcy Code does not compel a creditor to continue to do business with a debtor after a Chapter 13 petition, the automatic stay imposes some affirmative obligations on creditors to stop collection efforts initiated before the petition. For example, even a creditor that has stopped doing business with the debtor has to take affirmative steps to stop garnishments or wage assignments in progress at the petition.7


If the provider of services to the debtor is either a “governmental unit” or a “private employer,” then 11 U.S.C. § 525 affects the right of the creditor to change its relationship to the debtor after a Chapter 13 petition. Although technically not a stay of the sort found in § 362 or § 366, 11 U.S.C. § 525(a) prohibits a governmental unit from denying, revoking, suspending or refusing to renew a license, permit, charter, franchise or the like solely because of a bankruptcy case or insolvency, or because a debtor has not paid a dischargeable debt.8 Section 525(a) also prohibits a governmental unit from discriminating against a debtor with respect to employment. Section 525(b) prohibits a private employer from discriminating against a Chapter 13 debtor “with respect to employment” solely because of the bankruptcy case, insolvency or discharge of a debt.9 A governmental unit or private employer to whom the debtor owes a debt must be especially careful not to terminate services or to discriminate against the debtor solely because the debtor filed a Chapter 13 case.


For example, in Patterson, the Eleventh Circuit held that a credit union, in addition to violating the automatic stay, violated the anti-discrimination provisions of § 525(b) by suspending a debtor’s membership privileges after notice of the debtor’s Chapter 13 petition. The credit union in Patterson had a policy that any member who caused a loss was denied services. The Eleventh Circuit found that the debtor was not in default of any obligation to the credit union at the filing, and thus the freezing of the debtor’s accounts and suspension of further services constituted discrimination for purposes of § 525(b). The Eleventh Circuit defined employer for purposes of § 525(b) to extend to “credit unions affiliated with a particular employer . . . . ‘[E]mployer’ . . . should be given a broad reading, not bound by conventional state law concepts . . . . The bankruptcy court found that membership in the Credit Union was closely affiliated with employment . . . and this finding is not clearly erroneous.”10


Chapter 13 debtors with employment contracts may fall within the special protections of § 525(b). For example, in Hutchins v. Fordyce Bank & Trust Co. (In re Hutchins),11 the debtor had a written employment contract with a bank. One week after notice of the debtor’s Chapter 13 petition, the bank “authorized an attorney to investigate and evaluate debtor’s work performance.” Within a month, “the bank . . . terminated debtor’s employment contracts.” The bankruptcy court found that the bank violated the automatic stay and that the debtor may be entitled to reinstatement and damages under §§ 362 and 525 because the debtor had a protected contract right to be terminated only for cause and the Chapter 13 petition itself could not be cause under § 525(b).12


Governmental unit has been broadly defined by one court to include a state bar association. In In re Williams,13 the Idaho State Bar Association violated the automatic stay and the prohibition against discrimination in § 525 by refusing to reinstate a Chapter 13 debtor’s law license unless the debtor first paid the expenses of a disciplinary proceeding. As explained by the court:

Section 525 prohibits a governmental unit from refusing to renew the license of a person in bankruptcy solely because the person has not paid a dischargeable prepetition debt. . . . The [Idaho State Bar Association] is a governmental unit. . . . The assessment of costs and expenses is a debt. . . . What the ISB wishes to deny the debtor is a renewal of a license, i.e., the debtor’s license to practice law in this state. . . . The ISB claim is . . . dischargeable, although it has not yet been discharged. Thus, because of the broad dischargeability provisions afforded a chapter 13 debtor, the antidiscrimination provisions of 11 U.S.C. § 525 are applicable.14

The court in Williams recognized that the automatic stay in § 362 and the prohibition against discrimination in § 525 work together to limit actions against debtors in response to a Chapter 13 filing. In contrast, in Asquino v. Federal Deposit Insurance Corp.,15 a district court held that the bankruptcy court was without jurisdiction to determine whether the FDIC’s administrative procedure to fire a Chapter 13 debtor violated the automatic stay or § 525 because a determination by the FDIC to terminate employees who have caused a substantial loss to the FDIC is reserved by statute and regulation to the sole discretion of the FDIC.16 When the United States determined three years before the petition that the debtor was barred from participating in federally funded health care programs because the debtor failed to pay Health Education Assistance Loans, continuing that debarment during the Chapter 13 case did not violate the automatic stay.17


Debtors living in public housing have use for § 525. The agencies that lease public housing are often governmental units for purposes of § 525. Typically, the lease is on very favorable terms and is a substantial asset of the Chapter 13 estate.18 If the debtor is in arrears of rent, § 525(a) is implicated, and the governmental unit may not discriminate solely because the Chapter 13 plan compromises or discharges some or all of the arrearages. One bankruptcy court went further to hold that not only are public housing tenants protected by § 525(a), but also the antidiscrimination provisions in § 525(a) relieve the debtor of some obligations a tenant would face when assuming an ordinary lease in a Chapter 13 case under § 365.19


On truly unusual facts, one court traveled beyond § 525 to protect a Chapter 13 debtor from ouster from public office. In Golliday v. Benton Harbor (In re Golliday),20 the debtor borrowed $25,000 from the City of Benton Harbor’s loan fund established pursuant to Michigan’s Enterprise Zone Act. The debtor was later appointed to the Benton Harbor City Commission. The debtor defaulted on the loan and filed a Chapter 13 petition. After the petition, the debtor was elected to another term on the City Commission. The City of Benton Harbor moved for relief from the stay to enforce a Michigan statute that prohibits a city from giving an official position to anyone who is in default of a debt to the city.


The bankruptcy court first concluded that § 525 did not apply to the situation because the debtor was not a city employee and election to the City Commission was not a “license, permit, charter, franchise or other similar grant.” However, citing the Supreme Court’s decision in Perez v. Campbell,21 the bankruptcy court preliminarily enjoined the City of Benton Harbor from unseating the debtor from the City Commission:

[A]part from, and in addition to § 525, the Perez decision remains as authority for debtor protection in the unprovided-for situations not covered by § 525 . . . . [The Michigan statute] targets a class of individuals (i.e. those in default to the City) who are more likely than the general citizenry to be candidates for bankruptcy or debtors under the Bankruptcy Code.22

Other courts have read employer and governmental unit more restrictively to defeat claims by Chapter 13 debtors under § 525(b).23 Even when there is some evidence of adverse action by a governmental unit or an employer in response to a Chapter 13 petition, debtors have failed to prove discrimination for purposes of § 525.24


The reinstatement of a Chapter 13 debtor’s revoked driver’s license implicates both the automatic stay under § 362 and discrimination by a governmental unit under § 525. The typical fact pattern is that the debtor’s driving privileges were suspended before the petition for some infraction that includes a monetary component—for example, failure to pay traffic fines.25 The Chapter 13 plan proposes to pay the prepetition debt in whole or in part, and the debtor asks the bankruptcy court to require the licensing agency to reinstate the license. Sometimes in lawyerspeak, this request is phrased as a sort of injunction: the bankruptcy court should enjoin the state licensing agency from “continuing the suspension (or revocation)” of the debtor’s license because the suspension is based on the failure to pay a debt provided for by the plan.


When the debtor proved discrimination by a governmental unit in the suspension of the debtor’s driver’s license, one court enjoined a state from suspending the debtor’s driver’s license—using § 525 in much the same way § 362 would stay action by a creditor.26 This same court later held that the bankruptcy court has authority under § 105(a) to remedy discrimination under § 525(a) by ordering a municipal court to rescind the suspension of a driver’s license when a Chapter 13 debtor is paying traffic fines through the plan.27 Other reported decisions find no authority in § 362 or § 525 to order reinstatement of a driver’s license, especially when license revocation was part of a prepetition criminal proceeding against the debtor.28


Although beyond the scope of this book, recent Supreme Court decisions expanding the Eleventh Amendment and sovereign immunity rights of states may impact the use of § 525 by Chapter 13 debtors as a remedy for discrimination by governmental units.29 The defendant in a § 525 action will often be a governmental unit that has Eleventh Amendment immunity or sovereign immunity.30 Although there are reported § 525 cases in which courts have rejected Eleventh Amendment immunity as a defense to a Chapter 13 debtor’s recovery from a governmental unit,31 after the trilogy of Supreme Court sovereign immunity cases on June 23, 1999, those earlier decisions are of doubtful authority.32 The usefulness of § 525 as a remedy for discrimination by states against Chapter 13 debtors is uncertain during this period of changing sovereign immunity jurisprudence.33


The Bankruptcy Reform Act of 1994 added a new antidiscrimination provision to § 525 that may have some significance in Chapter 13 cases. 11 U.S.C. § 525(c) provides that a governmental unit that “operates a student grant or loan program” and any “person engaged in a business that includes the making of loans guaranteed or insured under a student loan program” is prohibited from “deny[ing] a grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor” in a bankruptcy case.34 This new protection extends (awkwardly) to “another person with whom the debtor or bankrupt has been associated.” Congressman Brooks explained the purpose of § 525(c):

        This section clarifies the antidiscrimination provisions of the Bankruptcy Code to ensure that applicants for student loans or grants are not denied those benefits due to a prior bankruptcy. . . . Under this section, as under section 525 generally, a debtor should not be treated differently based solely on the fact that the debtor once owed a student loan which was not paid because it was discharged; the debtor should be treated the same as if the prior student loan has never existed.35

It is not uncommon for Chapter 13 debtors to owe student loans, to be in default of student loans and to desire further student loans to complete an educational program.36 Section 525(c)(1) prohibits discrimination against the debtor in the making of new student loans based on the debtor’s bankruptcy filing, based on the debtor’s insolvency or based on the debtor’s discharge of a prior student loan.


This new protection from discrimination looks like a nightmare for the banks, state agencies, schools and student assistance corporations that originate guaranteed student loans.37 Student loan applications that inquire whether the borrower has had bankruptcy experience could be an invitation to scrutiny under § 525(c) if the lender denies a loan to a debtor or former debtor. Notation of bankruptcy on a Chapter 13 debtor’s student loan records—a common practice prior to 1994—may signal trouble after the enactment of § 525(c).38


New § 525(c) prohibits discriminatory treatment in the making of guaranteed student loans “because” of bankruptcy; the other subsections of § 525 prohibit discrimination “solely because” of bankruptcy.39 Is it enough to establish liability under § 525(c) that bankruptcy is one factor among others in a lender’s decision to refuse a Chapter 13 debtor’s student loan? The omission of the word solely from new § 525(c) could be interpreted that Congress intended to more broadly protect debtors from discrimination in the making of student loans than the protection from discrimination by governments and employers in § 525(a) and (b).


Who is a person “with whom the debtor or bankrupt has been associated”? Associated persons are also protected from student loan discrimination by new § 525(c). Obvious candidates for protection by association are children and spouses of Chapter 13 debtors. That Mom and Dad are in a Chapter 13 case probably cannot be the “because” for denying Junior a guaranteed student loan, even when Mom and Dad are necessary as guarantors to meet lending criteria. “Associated” probably goes further than relationships by blood or marriage. New § 525(c) is bursting with mischief potential.


1  See § 91.1 [ Utility Stay and Continuing Service ] § 68.1  Utility Stay and Continuing Service.


2  See, e.g., Tarrent v. Douglas, GA (In re Tarrent), 190 B.R. 704 (Bankr. S.D. Ga. 1995) (City violated §§ 366 and 362 by terminating electric service after Chapter 13 petition and refusing to reinstate service. Chapter 13 was filed on July 25. City terminated electric service on August 1, the day it received notice of the filing. Debtor tendered $125 deposit, but city insisted that debtor also repay prepetition utility bills. Collection of prepetition utility bills as a condition for reinstatement violated §§ 366 and 362. City ordered to pay attorney’s fees, $190 for lost food, $32 for alternative lodging, and punitive damages.).


3  967 F.2d 505 (11th Cir. 1992).


4  967 F.2d at 512.


5  Spaulding v. Citizens Fed. Sav. & Loan Ass’n of Dayton (In re Spaulding), 116 B.R. 567 (Bankr. S.D. Ohio 1990). But see In re Hedetneimi, 297 B.R. 837 (Bankr. M.D. Fla. 2003) (Bank willfully violated stay by refusing to cash a check payable to the debtor and drawn on another customer’s account.).


6  In re Callender, 99 B.R. 378 (Bankr. S.D. Ohio 1989).


7  See § 75.1 [ Examples of Stay Violations, and Not ] § 62.1  Examples of Stay Violations, and Not.


8  11 U.S.C. § 525(a), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 501, 108 Stat. 4106 (1994), reads as follows:

(a) Except as provided in the Perishable Agricultural Commodities Act, 1930, the Packers and Stockyards Act, 1921, and section 1 of the Act entitled “An Act, making appropriations for the Department of Agriculture for the fiscal year ending June 30, 1944, and for other purposes,” approved July 12, 1943, a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.


9  11 U.S.C. § 525(b) provides:

(b) No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt—
(1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act;
(2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or
(3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.


10  967 F.2d 505, 514 (11th Cir. 1992).


11  211 B.R. 325 (Bankr. E.D. Ark. 1997).


12  211 B.R. at 327–29 (“An employment contract is an example of an executory contract. . . . [E]mployment contracts, become property of the estate . . . . Inasmuch as the contracts were property of the estate, the creditor was required to seek relief from stay to terminate the debtor’s rights in those contracts. . . . Most Chapter 13 debtors . . . have no written contract and hold only those employment rights afforded them by law. In Arkansas, these rights are few, and individuals may be terminated at the will of the employer. . . . Accordingly, debtors may be terminated from their employment positions during the pendency of the Chapter 13 case without the necessity of the employer seeking relief from the stay. In the instant case, however, the debtor holds interests in particular employment contracts which afford him certain rights, including . . . the right to be terminated only for cause. . . . [A] debtor has the right to plead causes of action for violations of the automatic stay, and recover the appropriate damages. . . . The matter will proceed to trial.”).


13  158 B.R. 493 (Bankr. D. Idaho 1993).


14  158 B.R. at 495–96.


15  196 B.R. 25 (D. Md. 1996).


16  196 B.R. at 27–29 (FDIC had a judgment for $92,439.09 arising out of the debtor’s guarantee of a loan at a failed financial institution. “After receiving notice of Asquino’s bankruptcy filing, FDIC informed Asquino . . . that it was proposing to terminate his employment contract. The letter related that the reason for the proposed termination was that Asquino caused a substantial loss to federal deposit insurance funds, thereby failing to meet the minimum standards for continued employment required by 12 U.S.C. § 1822(f)(4)(E). . . . 12 U.S.C. § 1822(f)(4) . . . compels the FDIC ‘to prohibit any person who has . . . caused a substantial loss to Federal deposit insurance funds . . . from performing any service on behalf of the [FDIC].’ . . . Section 1822(f)(4)(D)(ii) of the statute declares that any determination made by the FDIC pursuant to paragraph (f)(4) ‘shall be in the [FDIC’s] sole discretion and shall not be subject to review.’ . . . [T]he Court holds that the preclusive language of Section 1822(f)(4)(D)(ii) supersedes the Bankruptcy Code’s automatic stay and anti-discrimination provisions, thereby divesting this Court of jurisdiction.”).


17  In re Moss, 270 B.R. 333, 343 (Bankr. W.D.N.Y. 2001) (“Any right of the Debtor to participate in and be compensated for his participation in government programs was fully and completely terminated pre-petition by the Exclusion and Debarment . . . . [A]t the time of the filing of the petition, there were no property rights or interests of the Debtor or the bankruptcy estate to participate in any government programs that the Stay could protect.”).


18  See § 47.5 [ Leases and Other Contract Rights ] § 46.9  Leases and Other Contract Rights.


19  In re Day, 208 B.R. 358, 360–68 (Bankr. E.D. Pa. 1997) (Reaffirming In re Sudler, 71 B.R. 780 (Bankr. E.D. Pa. 1987), “public housing tenants are protected by 11 U.S.C. § 525(a) and . . . a public housing tenant can generally retain a premises despite the failure of the case trustee to assume the lease or, except where a prior Chapter 7 discharge was obtained in a previous case instituted within six years of a refiling, paying dischargeable rent. . . . [D]espite the HACP’s protests to the contrary, it is in fact evicting the Tenant solely because she failed to repay dischargeable rent to it. The actions of the HACP therefore do appear to lie within the scope of 11 U.S.C. § 525(a), no matter how narrowly that Code section is read. . . . [Section] 525(a) should override § 365(b). . . . [T]he additional protection enjoyed by the Debtors by virtue of § 525(a) protects them from having to relinquish a government benefit due to their nonpayment of a dischargeable debt.”). Accord Stoltz v. Brattleboro Hous. Auth., 259 B.R. 255 (D. Vt. 2001) (After conversion from Chapter 13 to Chapter 7, § 525 prohibits landlord for government-subsidized housing from evicting the debtor based on the discharge of rent that accrued before or during the Chapter 13 case.). But see Robinson v. Chicago Hous. Auth. (In re Robinson), 54 F.3d 316 (7th Cir. 1995) (Section 525 does not prohibit Chicago Housing Authority from dispossessing Chapter 13 debtor because lease terminated before the petition.). See also § 173.1 [ Debtor Must Cure Defaults and Assure Future Performance ] § 102.2  Debtor Must Cure Defaults and Assure Future Performance.


20  216 B.R. 407 (Bankr. W.D. Mich. 1998).


21  402 U.S. 637, 91 S. Ct. 1704, 29 L. Ed. 2d 233 (1971).


22  216 B.R. at 410–11.


23  See In re Liggins, 145 B.R. 227 (Bankr. E.D. Va. 1992) (That debtor’s landlord receives government rent subsidies does not render the landlord a governmental unit for purposes of § 525(a). Even if the landlord is a governmental unit, the debtor’s proposal to assume a lease and to provide adequate assurance of prompt curing of default under § 365 is not sufficient to accomplish confirmation.); Spaulding v. Citizens Fed. Sav. & Loan Ass’n of Dayton (In re Spaulding), 116 B.R. 567 (Bankr. S.D. Ohio 1990) (Neither § 362 nor § 525 prohibits a bank from terminating checking account services and returning to the debtor the balance in the debtor’s accounts. A bank is not obviously a quasi-governmental entity; but even if it is, nothing in § 525 requires the bank to continue to do business with the debtor. It is the bank’s policy to close any account that results in a loss to the bank. No discrimination is apparent.); In re Callender, 99 B.R. 378 (Bankr. S.D. Ohio 1989) (Neither § 362(a)(6) nor § 525 prohibits a credit union from terminating all services to a Chapter 13 debtor when it is the credit union’s policy to terminate all services to any person who causes a loss. Credit union’s offer to provide future services if the debtor would pay the credit union 100% of its claim was not an “act to collect.”).


24  See, e.g., Shaw v. Housing Auth. (In re Shaw), 158 B.R. 400 (W.D. La. 1993) (Court affirms judgment for defendants in § 525 action for discriminatory firing. Debtor was a maintenance worker for the Lake Providence Housing Authority. One of the debtor’s debts was owed to Great American Acceptance Corp., whose president and majority shareholder was also a member of the Housing Authority’s board. Debtor alleged that this board member demanded that he pay the debt to Great American outside the Chapter 13 plan. Bankruptcy court disbelieved the debtor notwithstanding that the debtor’s employment problems and firing all occurred shortly after he filed the Chapter 13 case.); Geiger v. Pennsylvania (In re Geiger), 143 B.R. 30 (E.D. Pa. 1992) ($25 driver’s license restoration fee imposed by Pennsylvania law is not discriminatory or violative of § 525(a) because debtors in bankruptcy are not treated differently than other drivers. The restoration fee is applicable to all individuals who seek restoration of driver’s licenses that were suspended or revoked for the reasons listed in the statute.); Granger v. Harris (In re Harris), 85 B.R. 858 (Bankr. D. Colo. 1988) (State statute requiring the automatic revocation of a real estate license violates § 525 when Chapter 13 debtor proposes to discharge a judgment arising from a real estate transaction.); In re Andrews, 78 B.R. 420 (Bankr. E.D. Pa. 1987) (Assertion of claim for reimbursement of past welfare benefits by Department of Public Welfare does not transgress the antidiscrimination provisions of § 525(a) when the validity of the claim will not require any additional payments by the debtor and the impact of the department’s action upon the payment of benefits to the debtor and to others is too faint to give rise to discrimination.).


25  See also §§ 70.1 [ Criminal Action or Proceeding Exception ] § 58.7  Criminal Action or Proceeding Exception and 71.1 [ Police and Regulatory Power Exception ] § 58.8  Police and Regulatory Power Exception.


26  In re DeBaecke, 91 B.R. 3 (Bankr. D.N.J. 1988) (Section 525 prohibits the state of New Jersey from suspending the debtor’s driver’s license solely because of the debtor’s failure to pay surcharges imposed as a result of convictions for refusal to submit to a Breathalyzer test and operating a motor vehicle under a suspended driver’s license. The New Jersey Department of Motor Vehicles is enjoined from suspending the debtor’s license for nonpayment of surcharges for so long as his bankruptcy case remains open.). See also In re Adams, 106 B.R. 811 (Bankr. D.N.J. 1989); Christensen v. State Div. of Motor Vehicles (In re Christensen), 95 B.R. 886 (Bankr. D.N.J. 1988); In re Bill, 90 B.R. 651 (Bankr. D.N.J. 1988).


27  In re Brown, 244 B.R. 62, 65–67 (Bankr. D.N.J. 2000) (Rejecting In re Raphael, 238 B.R. 69 (D.N.J. 1999), bankruptcy court can order municipality to rescind suspension of Chapter 13 debtor’s driver’s license. Confirmed plan provided full payment of traffic fines owed to the Buena Vista Municipal Court. Debtor moved the bankruptcy court to compel the municipal court to direct the Division of Motor Vehicles to rescind the suspension of his driver’s license because the suspension was based upon the nonpayment of traffic fines. “I respectfully disagree with the Raphael conclusion. The authority to direct the municipal court to rescind a driver license suspension based on failure to pay a fine, which fine is proposed to be paid through a debtor’s Chapter 13 plan, is found in 11 U.S.C. § 525(a). . . . The plain meaning of section 525 is that a state cannot refuse to renew a debtor’s license solely because he has not paid a ‘dischargeable’ debt. The statute does not apply only to debts that are ‘discharged,’ although discharged debts are also included within section 525 protections. . . . [W]here, as here, a Chapter 13 debtor is paying an otherwise dischargeable debt through a Chapter 13 plan, section 525 of the Bankruptcy Code prohibits a municipal court from refusing to renew the debtor’s license, and authorizes the bankruptcy court to direct the municipal court to rescind its suspension of the debtor’s driving privileges.”).


28  See §§ 70.1 [ Criminal Action or Proceeding Exception ] § 58.7  Criminal Action or Proceeding Exception and 71.1 [ Police and Regulatory Power Exception ] § 58.8  Police and Regulatory Power Exception. See, e.g., Kimsey v. Suskie (In re Kimsey), 263 B.R. 244, 248 (Bankr. E.D. Ark. 2001) (City did not violate § 525 by failing to reinstate driver’s license revoked before the petition for failure to pay traffic fines. Debtor committed 12 traffic violations, and the City of North Little Rock suspended the debtor’s driver’s license for failure to pay fines. Confirmed plan proposed to pay the traffic fines. Debtor filed an adversary proceeding to compel reinstatement of the driver’s license. “[T]he City is not refusing to reinstate the debtor’s license because of his bankruptcy filing, but, rather, seeks to enforce the traffic laws which permit termination of the driving privilege based upon violations of the law. Section 525(a) protects Kimsey’s right to hold a valid driver’s license based upon his bankruptcy filing; it does not bar the City from enforcing the terms of the laws and policies under which it operates in an effort to safeguard the public from individuals who repeatedly violate the traffic laws. . . . [S]ection 525 does not operate to cure Kimsey’s traffic violations, including the failure to comply with the criminal sentence imposed upon him, and does not require the City to reinstate a privilege afforded by the state to drive a motorized vehicle. . . . While the City may be required to consider future applications for reinstatement of the license after the debtor has complied with the law, it is not required to reinstate the license which was validly suspended prepetition.”).


29  See Alden v. Maine, 527, U.S. 706, 119 S. Ct. 2240, 144 L. Ed. 2d 636 (1999); College Sav. Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 119 S. Ct. 2219, 144 L. Ed. 2d 605 (1999); Florida Prepaid Postsecondary Educ. Expense Bd. v. College Sav. Bank, 527 U.S.627, 119 S. Ct. 2199, 144 L. Ed. 2d 575 (1999); Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S. Ct. 1114, 134 L. Ed. 2d 252 (1996).


30  See, e.g., Kidd v. Driver Control Section Dep’t of Fin. & Admin. (In re Kidd), 227 B.R. 161 (Bankr. E.D. Ark. 1998) (Chapter 13 debtor’s adversary proceeding against Texas Department of Public Safety and its manager for alleged violations of § 525 based on the defendant’s suspension of the debtor’s driving privileges for failure to pay fines is barred by Eleventh Amendment immunity to the extent it seeks relief from the state of Arkansas, but falls within the Ex Parte Young, 209 U.S. 123, 28 S. Ct. 441, 52 L. Ed. 714 (1908), exception to the extent that the debtor seeks prospective injunctive relief against the individual manager of the Driver Control Section Department of Finance & Administration.); In re Burkhardt, 220 B.R. 837, 844 (Bankr. D.N.J. 1998) (Reaffirming In re Perez, 220 B.R. 216 (Bankr. D.N.J. 1998), the antidiscrimination provisions of § 525 do not provide a basis for the debtor’s motion to require the state of New Jersey to reinstate the debtor’s driver’s license, which had been suspended by municipal courts based on the debtor’s prepetition motor vehicle offenses. “[W]ith the Third Circuit’s holding in Sacred Heart Hosp. of Norristown v. Pennsylvania Dep’t of Public Welfare (In re Sacred Heart Hosp. of Norristown), [133 F.3d 237 (3d Cir. 1998),] that Bankruptcy Code section 106 is unconstitutional to the extent that it purports to abrogate states’ sovereign immunity, any decision by this Court to restore driving privileges to a debtor, pursuant to Bankruptcy Code section 352, 525 or otherwise, would be violative of the State of New Jersey’s Eleventh Amendment immunity from federal suit.”).


31  See, e.g., Wyoming Dep’t of Transp. v. Straight (In re Straight), 143 F.3d 1387 (10th Cir. 1998) (Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S. Ct. 1114, 134 L. Ed. 2d 252 (1996) and Eleventh Amendment immunity do not bar Chapter 13 debtor’s recovery of fees and costs caused by Wyoming Department of Transportation’s revocation of the debtors’ “disadvantaged business” certificate in violation of §§ 362 and 525 because other departments of Wyoming state government filed proofs of claim for unpaid bonding and payroll obligations arising out of same transactions. Citing Gardner v. New Jersey, 329 U.S. 565, 67 S. Ct. 467, 91 L. Ed. 504 (1947), “[w]hen the State becomes the actor and files a claim against the [bankruptcy] fund, it waives any immunity which it otherwise might have had respecting the adjudication of the claim.”); In re Brown, 244 B.R. 62 (Bankr. D.N.J. 2000) (Bankruptcy court has authority under § 105(a) to direct a municipal court to rescind the suspension of a driver’s license when a Chapter 13 debtor is paying traffic fines through the plan; applying Fitchik v. New Jersey Transit Rail Operations, Inc., 873 F.2d 655 (3d Cir.), cert. denied, 493 U.S. 850, 110 S. Ct. 148, 107 L. Ed. 2d 107 (1989), municipal courts in New Jersey are funded by the municipalities, not by the state, and thus are not entitled to Eleventh Amendment immunity.).


32  See, e.g., Straight v. Wyoming Dep’t of Transp. (In re Straight), 248 B.R. 403 (B.A.P. 10th Cir. 2000) (Adversary proceeding under § 525 for damages against the Wyoming Department of Transportation resulting from revocation of debtor’s Disadvantaged Business Enterprise certification is barred by sovereign immunity; § 106(a) is an unconstitutional attempt to abrogate Eleventh Amendment immunity and § 106(b) is not available because postpetition action belonged to debtor after conversion to Chapter 7.).


33  See also In re Walker, 276 B.R. 568 (Bankr. W.D. Tex. 2002) (“Principles of justiciability” preclude bankruptcy court from interfering with “hold” on Chapter 13 debtor’s passport imposed by Secretary of State pursuant to 42 U.S.C. §  652 upon notice from state of Texas that debtor was delinquent in payment of child support.).


34  11 U.S.C. § 525(c)(1), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 313, 108 Stat. 4106 (1994), provides in full:

(c)(1) A governmental unit that operates a student grant or loan program and a person engaged in a business that includes the making of loans guaranteed or insured under a student loan program may not deny a grant, loan, loan guarantee, or loan insurance to a person that is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, or another person with whom the debtor or bankrupt has been associated, because the debtor or bankrupt is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of a case under this title or during the pendency of the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.
(2) In this section, “student loan program” means the program operated under part B, D, or E of title IV of the Higher Education Act of 1965 or a similar program operated under State or local law.


35  140 Cong. Rec. H10,771 (section-by-section analysis by Congressman Brooks).


36  The separate classification of student loans for payment through a Chapter 13 plan is discussed in § 153.1 [ Student Loans ] § 88.6  Student Loans. The dischargeability of student loans in Chapter 13 cases is discussed in § 346.1 [ Student Loans ] § 158.2  Student Loans. The “good faith” test for confirmation of a Chapter 13 plan that proposes to pay less than 100% of a student loan is discussed in § 186.1 [ Student Loans ] § 106.4  Student Loans.


37  See, e.g., Taylor v. United States (In re Taylor), 252 B.R. 201 (Bankr. N.D. Ala. 2000).


38  See Colon v. Professional Recoveries Inc. (In re Colon), 212 B.R. 23, 26 (Bankr. D.P.R. 1997) (Great Lakes Higher Education Corporation did not violate antidiscrimination provision in § 525(a) by refusing to remove its bankruptcy notation from the debtor’s records because “it was permissible for educational financial aid institutions to refuse educational aid to debtors who sought bankruptcy for relief but had not discharged their pre-existing educational loans.” 11 U.S.C. § 525(c), which would have required Great Lakes to make a loan or grant to the debtor in spite of a Chapter 13 case, did not apply because the debtor filed Chapter 13 on September 9, 1994, and new § 525(c) is only effective with respect to cases filed after October 22, 1994.).


39  See above in this section. Congressman Brooks’s commentary, reproduced above, inaccurately inserts “solely” into the new section.