In re Chambers

• Decision Date: 04 November 2003
• Docket Number: No. 03-1557.,03-1557.
• Citation: 348 F.3d 650
• Parties: In re: Sandra Ann CHAMBERS, Debtor-Appellee, Appeal of: Sylvia Manning, not individually, but in her capacity as Chancellor of the University of Illinois at Chicago.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 650

348 F.3d 650

In re: Sandra Ann CHAMBERS, Debtor-Appellee Appeal of: Sylvia Manning, not individually, but in her capacity as Chancellor of the University of Illinois at Chicago.

No. 03-1557.

United States Court of Appeals, Seventh Circuit.

Argued September 3, 2003.

Decided November 4, 2003.

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Norman P. Jeddeloh (argued), Arnstein & Lehr, Chicago, IL, for Appellant.

Peter J. Roberts (argued), Shaw, Gussis, Fishman, Glantz, Wolfson & Towbin, Chicago, IL, Jon C. Vigano, D'Ancona & Pflaum, LLP, Downers Grove, IL, for Debtor-Appellee.

Before RIPPLE, ROVNER and DIANE P. WOOD, Circuit Judges.

RIPPLE, Circuit Judge.

Sandra Ann Chambers filed for Chapter 7 bankruptcy relief. After receiving a discharge, Ms. Chambers brought an adversary proceeding against Sylvia Manning, not individually but in her capacity as Chancellor at the University of Illinois at Chicago ("UIC"), seeking declaratory relief that her unpaid student tuition and related debt was discharged. After a hearing on cross motions for summary judgment, the bankruptcy court concluded that the debt was not excepted from discharge as an educational loan. See 11 U.S.C. § 523(a)(8). The court therefore granted summary judgment to Ms. Chambers and declared the debt discharged. Chancellor Manning appealed the bankruptcy court's decision to the district court. That court affirmed the decision of the bankruptcy court. For the reasons set forth in the following opinion, we now affirm the judgment of the district court.

I BACKGROUND

Ms. Chambers attended UIC from 1993 until May of 1999 to pursue a master's degree. While at UIC, Ms. Chambers incurred tuition and related fees under an open student account. Her final account balance was $1,118.77, plus accruing interest.¹ Ms. Chambers failed to pay this amount.

In October 1999, Ms. Chambers filed a voluntary petition for Chapter 7 bankruptcy relief. In connection with the bankruptcy, Ms. Chambers listed UIC as a creditor and included the account balance on her bankruptcy schedules as a pre-petition unsecured claim. The Chapter 7 trustee later designated Ms. Chambers' bankruptcy a "no asset" case, and in January 2000, Ms. Chambers received a discharge of her debts. After the discharge, Ms. Chambers was unable to obtain her transcripts and other papers from UIC. University officials notified her that UIC considered the account balance due and owing despite the bankruptcy discharge.

In response, Ms. Chambers filed an amended complaint against Chancellor Manning in her official capacity, in which she sought declaratory relief that the debt did not qualify as an educational loan excepted from discharge under § 523(a)(8).² Chancellor Manning filed a motion to dismiss, which the bankruptcy court converted into a motion for summary judgment. Ms. Chambers filed a cross motion for summary judgment. After a hearing, the bankruptcy court granted summary judgment to Ms. Chambers.

The bankruptcy court concluded that the § 523(a)(8) discharge exception did not extend to Ms. Chambers' account balance at UIC. Although Chancellor Manning argued that the debt was the substantive equivalent of a loan, the bankruptcy court noted that the majority of courts to consider this issue had rejected such an expansive interpretation of the term "loan." It noted that the leading case on the issue, Cazenovia College v. Renshaw (In re Renshaw), 222 F.3d 82, 89-90 (2d Cir.2000), held that an extension of credit should qualify as a loan under § 523(a)(8) when a contract to transfer money, goods, or services is reached prior to or contemporaneous with the transfer. The bankruptcy court found the Renshaw analysis consistent with Congress' use of the term "loan." Accordingly, applying this standard, the bankruptcy court found no evidence of intent by either party to enter into a loan arrangement; rather, the debt arose from Ms. Chambers' failure to pay the tuition and expenses when due.

The bankruptcy court therefore declared the debt discharged. On appeal, the district court affirmed the bankruptcy court. Chancellor Manning timely appealed to this court.

II DISCUSSION

A. Section 523(a)(8)

The primary purpose of bankruptcy discharge is to provide debtors with a fresh start. O'Hearn v. Educ. Credit Mgmt. Corp. (In re O'Hearn), 339 F.3d 559 (7th Cir.2003). Congress has decided, however, that some public policy considerations override the need to provide the debtor with a fresh start, and it has excluded certain debts from discharge. Unpaid student loans are among those debts excluded from discharge. The student loan exception is codified in the Bankruptcy Code at 11 U.S.C. § 523:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—

* * * * * *

(8) 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 an obligation to repay funds received as an educational benefit, scholarship or stipend....

11 U.S.C. § 523(a)(8).

The current version of § 523(a)(8) is significantly broader than the exception originally enacted. In 1978, Representative Alan Ertel sponsored the amendment creating the original § 523(a)(8). He stated in debate that "the purpose of this particular amendment is to keep our student loan programs intact." 124 Cong. Rec. H1791 (daily ed. Feb. 1, 1978). Representative Ertel noted that by allowing dischargeability of student loans "we are penalizing students who are coming along through the system." Id. at H1792. Legislators debating the merits of the exception from discharge similarly discussed concerns with the funding of the student loan program. Id. at H1792-98. As enacted, the original exception covered debt "to a governmental unit, or a nonprofit institution of higher education, for an educational loan" unless the loan became due more than five years before the date on which the petition was filed. Pub. L. No. 95-598, § 523(a)(8), 92 Stat. 2549, 2591, 11 U.S.C. § 523(a)(8) (1978).

Despite this original focus on student loan programs, Congress has consistently expanded § 523(a)(8). The legislative developments are thoroughly explored in Johnson v. Missouri Baptist College (In re Johnson), 218 B.R. 449, 453-54 (8th Cir. BAP 1998), and are also discussed in Renshaw, 222 F.3d at 87-88. In brief, Congress has expanded § 523(a)(8) in the following ways: In 1979, Congress effectively equalized the treatment of loans administered by for-profit educational institutions and non-profit educational institutions by amending the language of the provision; under the original version, only loans administered by non-profit educational institutions were covered. See Bankruptcy Act—Student Loan Debts, Pub. L. No. 96-56, § 3(1), 93 Stat. 387 (1979). Also, deferment periods were excluded from the calculation of the repayment period. See id. § 3(2). In 1984, Congress amended the language to include educational loans from "nonprofit institutions" rather than only "nonprofit institutions of higher education." See Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, § 454(a)(2), 98 Stat. 333, 375-76. In 1990, Congress expanded the exception to cover educational benefit overpayments and funds received as educational benefits, scholarships, or stipends, see Federal Debt Collection Procedures Act of 1990, Pub. L. No. 101-647, § 3621(1), 104 Stat. 4933, 4964-65, and increased the period of non-dischargeability from five to seven years, see id. § 3621(2), 104 Stat. at 4965. It also applied § 523(a)(8) to Chapter 13 cases. See Student Loan Default Prevention Initiative Act of 1990, Pub. L. No. 101-508, § 3007(b), 104 Stat. 1388, 1388-28. Thus, although concern for the federally guaranteed loan programs provided the original impetus for § 523(a)(8), the exception has consistently expanded to cover other educational debts. With this legislative history in mind, we turn to the merits of this appeal.

B. Standard of Review

Disposition of cross motions for summary judgment is reviewed de novo. See Hoseman v. Weinschneider, 322 F.3d 468, 473 (7th Cir.2003); Ozlowski v. Henderson, 237 F.3d 837, 839 (7th Cir. 2001) (citing Hendricks-Robinson v. Excel Corp., 154 F.3d 685, 692 (7th Cir.1998)). All facts and inferences are viewed in the light most favorable to each nonmoving party; summary judgment is appropriate when the record reveals no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. See Hoseman, 322 F.3d at 473 (citing Fed. R.Civ.P. 56(c)).

C. Interpretation of § 523(a)(8)

The question presented by this appeal is whether an unpaid balance on a student account meets the definition of an educational loan under § 523(a)(8) and is therefore excepted from discharge in bankruptcy proceedings. Exceptions to discharge "are confined to those plainly expressed in the Code ... and are narrowly construed in favor of the debtor." DeKalb County Div. of Family & Children Servs. v. Platter (In re Platter), 140 F.3d 676, 680 (7th Cir.1998) (internal citations omitted).

In interpreting statutory provisions, we begin with the language of the statute itself. See In re Merchants Grain, Inc., 93 F.3d 1347, 1353 (7th Cir.1996). Section 523(a)(8) excepts from discharge any "debt ... for an educational loan made... by a governmental unit," but the statute leaves the term "loan" undefined. We therefore must turn to the traditional understanding of the term "loan" under common law. See NLRB v. Amax Coal Co., 453 U.S. 322, 329, 101 S.Ct. 2789, 69 L.Ed.2d 672 (1981) ("Where Congress uses terms that have accumulated settled meaning under either equity or the common law, a court must infer, unless the statute otherwise dictates, that Congress means to incorporate the established meaning of these terms."); In re Clark, 738 F.2d 869, 872 (7th Cir.1...