In re Andresen, 98-6095NE.
| Decision Date | 30 March 1999 |
| Docket Number | No. 98-6095NE.,98-6095NE. |
| Citation | 232 BR 127 |
| Parties | In re Donna Mae ANDRESEN, Debtor. Donna Mae Andresen, Appellee, v. Nebraska Student Loan Program, Inc., Appellant. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
Paul J. Peter, Gary L. Young, Lincoln, NE, for appellant.
Richard Register, Fremont, NE, for appellee.
Before KRESSEL, SCHERMER, and DREHER, Bankruptcy Judges.
The Nebraska Student Loan Program, Inc., appeals from the September 2, 1998, and October 16, 1998, orders of the bankruptcy court1 holding that two of the debtor's student loans were discharged in her Chapter 7 case under the undue hardship provision of § 523(a)(8) of the Bankruptcy Code.
We review the bankruptcy court's factual findings for clear error and its conclusions of law de novo. Johnson v. Border State Bank (In re Johnson), 230 B.R. 608 (8th Cir. BAP 1999); Eilbert v. Pelican (In re Eilbert), 162 F.3d 523, 525 (8th Cir.1998). A determination of undue hardship is a factual determination, and is reversible only if we find clear error.2
Because we conclude that the bankruptcy court correctly interpreted § 523(a)(8) as applying to each student loan individually and not to an aggregate obligation of cumulative student loan debt, and because the bankruptcy court's determination that the debtor would experience undue hardship if two of her student loans were excepted from discharge is not clearly erroneous, we affirm.
The debtor, Donna Mae Andresen, obtained three student loans,3 one each year in 1986, 1987, 1988, while attending school to become a licensed practical nurse. The loans were each guaranteed by NSLP, which is still the holder of the three loans. The loans are not consolidated.
Andresen filed her Chapter 7 bankruptcy petition on January 7, 1991. In 1993, Andresen sustained a severe back injury with a disability rating of 43% for workers' compensation purposes. After her injury, Andresen was unable to find work in Nebraska and commenced a nationwide job search. Eventually she found an employer willing to accommodate her disability, and she moved to Nevada to take that job.
On May 1, 1996, Andresen filed this adversary proceeding seeking determination of dischargeability of her three student loans pursuant to the undue hardship provisions of § 523(a)(8). The bankruptcy court tried the matter on June 16, 1998. On September 2, 1998, the court entered an order finding that Andresen had satisfied the requirements of § 523(a)(8) for a hardship discharge of two of her three student loans, and found that she could pay the third loan without undue hardship.4
NSLP contends that the bankruptcy court erred when it found that excepting Andresen's student loans from discharge would impose undue hardship on her and her dependents, and argues that the court had no authority to grant "partial discharge" of Andresen's student loan debt. For the reasons set forth below, we affirm the judgment of the bankruptcy court.
Partial Discharge
Section 523(a)(8) provides:
A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt — 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 nonprofit institution, or for any obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor\'s dependents.
See 11 U.S.C. § 523(a)(8).5
Across jurisdictions there is wide disparity among treatments of student loans under § 523(a)(8). For the past two decades, a split has developed regarding whether a court may partially discharge a debtor's student loan or whether the courts are restricted to all-or-nothing dischargeability.
The courts practicing revision of student loans, granting partial discharges, and fashioning other case-specific equitable relief have found authority to do so implicit in § 523(a)(8) due to its policy objectives, and alternatively in the discretionary equitable powers reserved to the bankruptcy court by § 105(a). See Thad Collins, Note, Forging Middle Ground: Revision of Student Loan Debts in Bankruptcy as an Impetus to Amend 11 U.S.C. § 523(A)(8), 75 Iowa L. Rev. 733, 757-61 (1990).
Critics of the partial discharge theories, however, note the "well-accepted principle that if Congress is able to specify something in the statute but does not, then its silence controls." Id. at 758, citing NLRB v. Bildisco, 465 U.S. 513, 522-23, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). Accordingly, if Congress had intended revision or partial discharge to be options for the court to consider under § 523(a)(8), then Congress could have expressly enumerated those options or included broader language in order to reveal that policy objective and enable the bankruptcy courts to effectuate it.6
The legislative history clearly identifies the policies behind the exception to discharge for student loans. Congress excepted student loans from discharge in order to close what it deemed a loophole in the student loan program. Id. at 734; see also Johnson v. Missouri Baptist College (In re Johnson), 218 B.R. 449, 451-54 (8th Cir. BAP 1998). This so-called loophole permitted graduates to escape their student loan obligations by filing bankruptcy on the eve of a lucrative career. Id. The exception to discharge was created to "rescue the student loan program from insolvency, and to prevent abuse of the bankruptcy process by undeserving student debtors." See Raymond L. Woodcock, Burden of Proof, Undue Hardship, and Other Arguments for the Student Debtor Under 11 U.S.C. § 523(A)(8)(B), J.C. & U.L. 377, 381-84 (1998).
Nevertheless, as clear as the legislative history is, it suffers a lack of scope. While it identifies the legislative purpose of excepting student loans from discharge, the legislative history offers little to define the nature of the exception (undue hardship) to the exception (nondischargeability). That Congress wanted to save the student loan programs and bar the undeserving student borrower from abusing the bankruptcy process does not directly identify how Congress intended the discharge to be granted in cases of undue hardship.7 The legislative purposes do not illustrate the legislative position on the propriety of partial discharge and other revisions of student loans in undue hardship cases under § 523(a)(8).
Nevertheless, some courts have found that revising student loans, partially discharging them, or deferring payments by maintaining or extending the automatic stay, are proper applications of the undue hardship exception to the nondischargeability of student loans because such manipulation upholds the policies behind nondischargeability generally and attributes significance to the fresh start policy at the same time.8 These courts find that partial discharge of student loans protects the solvency of the student loan programs and deters undeserving debtors while protecting the honest but unfortunate debtor better than the all-or-nothing approach which can lead to harsh results, either for the creditor or the debtor depending on the whether the outcome is all or nothing. See, e.g., Georgia Higher Educ. Assistance Corp. v. Bowen (In re Bowen), 37 B.R. 171, 173 (Bankr.M.D.Fla.1984) ().
Other courts granting partial discharge and other partial relief under § 523(a)(8) rely on the equitable powers of § 105(a), which provides, in relevant part, See, e.g., Conner v. Illinois State Scholarship Commission (In re Conner), 89 B.R. 744, 750 (Bankr.N.D.Ill.1988) ().
However, § 105(a) has been found by some courts to be restricted to exercising equitable powers only within the enumerations of the Code. See Johnson v. First Nat'l Bank of Montevideo, 719 F.2d 270, 273 (8th Cir.1983) (). Indeed, the Supreme Court has also said as much. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988) ().
Accordingly, the question arises whether § 105(a) provides authority for a bankruptcy court to grant an undue hardship discharge under § 523(a)(8) in any manner less than full discharge when the language of § 523(a)(8) does not itself include any particular limiting or broadening language. On its face, the statute asks only whether or not excepting the loan at issue from discharge will impose undue hardship upon the debtor or the debtor's dependents. The telling word in the section is unless, which therefore casts the determination as: if excepting the student loan from discharge will impose undue hardship, then the debt is discharged.
In spite of the unstable foundation upon which rests the authority, if any, to revise student loans or partially discharge student loan debt, courts...
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