In re Cassim

• Decision Date: 04 February 2010
• Docket Number: No. 08-6476.,08-6476.
• Citation: 594 F.3d 432
• Parties: In re Jennifer Denise CASSIM, Debtor. Jennifer Denise Cassim, Appellee, v. Educational Credit Management Corporation, Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

594 F.3d 432

In re Jennifer Denise CASSIM, Debtor.

Jennifer Denise Cassim, Appellee, v. Educational Credit Management Corporation, Appellant.

No. 08-6476.

United States Court of Appeals, Sixth Circuit.

Argued: October 13, 2009.

Decided and Filed: February 4, 2010.

ARGUED: A.L. Brown, Educational Credit Management Corporation, Oakdale, Minnesota, for Appellant. Fred N. Owens, Jr., Law Offices, Harlan, Kentucky, for Appellee. ON BRIEF: Curtis P. Zaun, Educational Credit Management Corporation, Saint Paul, Minnesota, Edward M. King, Frost Brown Todd LLC, Louisville, Kentucky, for Appellant. Fred N. Owens, Jr., Law Offices, Harlan, Kentucky, for Appellee.

Before: MOORE and COOK, Circuit Judges; LUDINGTON, District Judge.^*

OPINION

LUDINGTON, District Judge.

Appellee Jennifer Denise Cassim ("Cassim") filed a voluntary petition under Chapter 13 of the United States Bankruptcy Code, 11 U.S.C. §§ 1301-1330, in the United States Bankruptcy Court for the Eastern District of Kentucky. She also commenced an adversary proceeding seeking a determination that her student loan debt owed to Appellant Educational Credit Management Corporation ("Educational Credit") is dischargeable based on "undue hardship" pursuant to 11 U.S.C. § 523(a)(8). Educational Credit filed a motion to dismiss the adversary proceeding for lack of subject matter jurisdiction, contending that whether Cassim's student loan debt is dischargeable was not ripe for review because Cassim had yet to receive a general discharge under 11 U.S.C. § 1328. The bankruptcy court denied Educational Credit's motion to dismiss, denied a subsequent motion for reconsideration, and entered an agreed judgment providing for discharge of Cassim's student loan debt upon the entry of a general discharge. Educational Credit appealed to the United States Bankruptcy Appellate Panel for the Sixth Circuit, which affirmed the decision of the bankruptcy court. This appeal followed.

I

A debtor who seeks relief under Chapter 13 commits to a debt repayment plan, completion of which entitles her to discharge of her remaining debts. See 11 U.S.C. §§ 1322-1328. A Chapter 13 repayment plan must meet numerous requirements, see, e.g., id. § 1322, and can only be confirmed by the bankruptcy court if "the debtor will be able to make all payments under the plan and to comply with the plan." Id. § 1325(a)(6). Generally, a Chapter 13 debtor retains estate property. Id. § 1306. This is in contrast to Chapter 7 proceedings, through which a debtor is entitled to a discharge of debt as soon as her estate is liquidated and distributed. See id. § 727. In either proceeding, a stay is in effect on, inter alia, "any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case...." Id. § 362(a)(6). The stay remains in effect until a discharge is granted or denied, id. § 362(c)(2)(C), or the case is closed or dismissed. Id. § 362(c)(2)(A)-(B).

On April 11, 2007, Cassim filed a voluntary Chapter 13 petition and repayment plan. J.A. 14-54. According to her Chapter 13 petition, Cassim is disabled and her sole income source is social security benefits of $675.00 per month. J.A. 35. Cassim identified no secured creditors, but a total of $63,728.20 owed to unsecured creditors, including claims totaling $1,871.58 for medical care, $200.00 for a personal loan, $33,464.62 for student loans, and $28,192.00 for credit card purchases. J.A. 27-32.

On July 17, 2007, the bankruptcy court confirmed Cassim's plan, which requires Cassim to pay fifty dollars per month to the Chapter 13 trustee to fund the plan. J.A. 51, 55. Under the plan, no funds are to be distributed to unsecured creditors, but $1,474.00 is to be distributed to Cassim's counsel. J.A. 53. It will take approximately twenty-nine months, or until at least December 2009, for Cassim to complete the plan. If Cassim completes the plan, she will be entitled to a general discharge of her debts. See 11 U.S.C. § 1328(a) ("[A]fter completion of all payments under the plan ... the court shall grant the debtor a discharge ...").

Even if Cassim does not complete the plan, she could receive a "hardship" discharge if the bankruptcy court determines that three requirements are met, including: (1) her failure to complete the plan is "due to circumstances for which the debtor should not justly be held accountable"; (2) "the value ... of property actually distributed under the plan ... is not less than the amount that would have been paid on such claim if the estate of the debtor had been liquidated under chapter 7 ..."; and (3) "modification of the plan under section 1329 of this title is not practicable." 11 U.S.C. § 1328(b).

Significantly, not all debts are automatically discharged upon completion of a Chapter 13 plan. In this case, Cassim's student loan debt owed to Educational Credit is dischargeable only upon proof that repayment of the debt would impose an undue hardship on Cassim and any dependents. See id. § 523(a)(8). To establish undue hardship, it must be proved:

(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

Barrett v. Educ. Credit Mgmt. Corp. (In re Barrett), 487 F.3d 353, 358-59 (6th Cir. 2007) (alterations and quotations omitted).

On July 13, 2007, Cassim initiated an adversary proceeding for a determination that her student loan debt owed to Educational Credit in the amount of $22,241.39 is dischargeable under § 523(a)(8). J.A. 56-57. Pursuant to Rule 4007(a) of the Federal Rules of Bankruptcy Procedure, a debtor or creditor may file a complaint to determine the dischargeability of a debt. Such a complaint, except under certain circumstances identified by the rule, but not pertinent to this case, may be filed by a debtor or creditor at any time. Fed. R. Bankr.P. 4007(b).

On August 13, 2007, Educational Credit responded to Cassim's complaint with a motion to dismiss for lack of subject matter jurisdiction, brought pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure. J.A. 58-64. Educational Credit contended that the issues presented in the complaint were not ripe for adjudication until, and unless, Cassim received a discharge order under § 1328. On September 19, 2007, the bankruptcy court denied Educational Credit's motion. In a one-page order, the bankruptcy court indicated that it agreed with the determination in Strahm v. Great Lakes Higher Education Corp. (In re Strahm), 327 B.R. 319 (Bankr.S.D.Ohio 2005), that "a rigid time period for filing a determination of dischargeability of student loans should not be established when such time restrictions are absent from the Bankruptcy Code and Bankruptcy Rules." J.A. 65.

On September 28, 2007, Educational Credit filed a motion for reconsideration, contending that the bankruptcy court's reliance on Strahm was misplaced because Strahm did not address the issue of constitutional ripeness and only addressed a motion to dismiss for failure to state a claim. Educational Credit contended that the U.S. Constitution places more stringent limitations on the proper timing for a determination regarding the dischargeability of student loan debt than the Bankruptcy Code and Bankruptcy Rules. On October 22, 2007, the bankruptcy court denied Educational Credit's motion for reconsideration. J.A. 73-75. The bankruptcy court explained that Strahm addressed ripeness concerns and rejected "any assertion that [the] court lacks subject matter jurisdiction or any decision would be a mere advisory opinion."

To expedite review of the issue by an appellate court, an agreed judgment was entered in the adversary proceeding on December 4, 2007. J.A. 76-77. The agreed judgment provided that Cassim's student loan obligations held by Educational Credit "shall be discharged upon the entry of a discharge order in this case." The agreed judgment preserved Educational Credit's right to appeal the orders denying its motions to dismiss and for reconsideration.

On December 10, 2007, Educational Credit appealed to the bankruptcy appellate panel ("B.A.P."). J.A. 78-79. In an opinion affirming the decision of the bankruptcy court, the B.A.P. noted that at oral argument, Educational Credit "confirmed that its ripeness argument was a constitutional one, based on the contingency of Cassim's discharge rather than any contingency as to the particular facts and circumstances of Cassim's hardship claim." Cassim v. Educ. Credit Mgmt. Corp. (In re Cassim), 395 B.R. 907, 911 (B.A.P. 6th Cir.2008). The B.A.P. further noted that Educational Credit argued that "a student loan dischargeability claim in a Chapter 13 case is never ripe until the debtor receives a discharge." Id. (emphasis in original). Ultimately, the B.A.P. held that "the contingency of Cassim's discharge does not create a constitutional ripeness impediment to the bankruptcy court's resolution of this adversary proceeding." Id.

The B.A.P. found that a "`substantial controversy' arose between Cassim and [Educational Credit] when she filed for bankruptcy relief under [C]hapter 13 seeking the discharge of her financial obligations." Id. (internal citation omitted). It further found that the controversy was of "`sufficient immediacy and reality' to warrant review prior to the entry of Cassim's discharge." Id. at 912. The B.A.P. rejected the argument that it was "too speculative" that Cassim would receive a general discharge because confirmation of the plan was premised on a finding that "the debtor will be able to make all payments under the plan." Id. at 913 (citing 11 U.S.C. § 1325(a)(6)). The B.A.P. emphasized that requiring a debtor to wait until entry of a general...