In re Cleveland, BAP No. SC 87-1232 MoAsV

• Decision Date: 09 August 1988
• Docket Number: BAP No. SC 87-1232 MoAsV,Adv. No. C86-0182 H13.,Bankruptcy No. 85-05242 H-13
• Citation: 89 BR 69
• Parties: In re Stephan George CLEVELAND, Debtor. UNITED STATES of America, Plaintiff/Appellee, v. Stephan George CLEVELAND, Defendant/Appellant.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

89 B.R. 69 (1988)

In re Stephan George CLEVELAND, Debtor UNITED STATES of America, Plaintiff/Appellee, v. Stephan George CLEVELAND, Defendant/Appellant.

BAP No. SC 87-1232 MoAsV, Bankruptcy No. 85-05242 H-13, Adv. No. C86-0182 H13.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted March 17, 1988.

Decided August 9, 1988.

Robert S. Norwood, Santa Ana, Cal., for defendant/appellant.

Robert A. Plaxico, Asst. U.S. Atty., San Diego, Cal., for plaintiff/appellee.

Before MOOREMAN, ASHLAND and VOLINN, Bankruptcy Judges.

ROBERT G. MOOREMAN, Bankruptcy Judge:

This appeal arises out of the bankruptcy court's decision in In re Cleveland, 64 B.R. 810 (Bankr.S.D.Cal.1986), which determined that pursuant to 42 U.S.C. § 294f(g), Health Education Assistance Loans (HEAL Loans) are nondischargeable under 11 U.S.C. § 1328(a). The basis of the decision was that § 294f(g) provides for a limited exception to the "super discharge" of § 1328(a) in the Bankruptcy Code.

FACTS

In June 1983, the debtor applied for and obtained a $12,000 HEAL Loan in order to attend the California School of Professional Psychology.¹ Apparently the debtor was later dropped from the enrollment of the school because of poor academic performance. As a result, the HEAL Loan became due in May 1985. In October 1985, the debtor filed his Chapter 13 petition, listing seven creditors with claims totaling approximately $35,000, most of which ($30,752), were student loans. The then present holder of the note, SLMA (see nt. 1), received notice of the debtor's confirmation hearing, however, no specific objections to the discharge of the HEAL Loan were made. The debtor's plan was approved by the bankruptcy court on January 13, 1986.²

Pursuant to the loan guarantee provisions of the HEAL Loan, HHS paid SLMA in February 1986 and received an assignment of the note. Accordingly, in February 1986, the United States filed a proof of claim, later followed by a Complaint to Determine Dischargeability of the HEAL Loan, a motion for summary judgment on the complaint and a motion to vacate or modify the appellant's confirmed Chapter 13 plan.

The trial court held the United States' argument that the plan had not been filed in "good faith" was untimely in that the "Loan Servicing Center for the United States had received notice of the confirmation hearing on December 16, 1985." Thus, the trial court denied the United States' motion to modify the plan. However, the trial court did find that the complaint to determine the dischargeability of the HEAL Loan could be brought at any time pursuant to Bankruptcy Rule 4007(b).³ Additionally, the trial court determined:

42 U.S.C. § 294f(g) is an absolute prohibition against discharge of the loan in question prior to expiration of the five year period commencing with the first date repayment begins. After the five year period expires, the loan may be discharged upon a finding by the Bankruptcy Court that nondischarge would be unconscionable. In re Hampton, 47 B.R. 47, 49 (Bankr.N.D.Ill.1985).

64 B.R. at 812.

In following Matter of Johnson, 787 F.2d 1179 (7th Cir.1986), the court below held that "the dischargeability of HEAL Loans is not governed by § 523 or § 1328 but rather by 42 U.S.C. § 294f(g)" and consequently "the debtor's HEAL obligation is not dischargeable within a Chapter 13 case."⁴ In re Cleveland, 64 B.R. at 812. Pursuant to the above reasoning, and because "the five year period required for discharge had not expired" the court below granted the United States' motion for summary judgment. In re Cleveland, 64 B.R. at 813. Additionally, the trial court ruled that because the plan had been confirmed without objection, the United States was bound by the payments under the confirmed plan "until the debtor obtains his discharge, at which time the debtor will be obligated to pay off the nondischarged remainder of the HEAL loan." Id.

DISCUSSION

The essence of the debtor's argument is that although section 294f(g) makes specific reference to discharges in bankruptcy "under Title 11," the Congressional intent was not to limit the super discharge available under section 1328(a). In support of this argument the debtor relies exclusively on the extensive opinion of In re Lee, 71 B.R. 833 (Bankr.N.D.Ga.1987).⁵

In response to the debtor's reliance on In re Lee, HHS points out that In re Lee, has subsequently been reversed by the District Court for the Northern District of Georgia in an unpublished memorandum decision.⁶

In reconciling between two different but applicable statutes, several rules of statutory interpretation have been established. In determining the Congressional intent behind the enactment of each statute, the starting point is the language of the statute itself. Watt v. Alaska, 451 U.S. 259, 265, 101 S.Ct. 1673, 1677, 68 L.Ed.2d 80 (1981). However, "the circumstances of the enactment of particular legislation may persuade a court that Congress did not intend words of common meaning to have their literal effect." Id. at 266, 101 S.Ct. at 1678 (citations omitted). Additionally, courts "must read the statutes to give effect to each if they can do so while preserving their sense and purpose." Id. at 267, 101 S.Ct. at 1678 (emphasis supplied) (citations omitted).

In applying the above doctrines to § 294f(g), the language itself appears to make the section applicable to all discharges "under Title 11," which would include the super discharge under § 1328(a). However, as the Lee court pointed out, the reference to discharges "under Title 11" may be ambiguous in view of the fact that the legislative history in 42 U.S.C. § 294f(g) does not indicate any intention by Congress to amend the recognized concept that student loans are generally dischargeable under § 1328(a). Indeed there is no legislative discussion concerning the intended effect of § 294f(g) in the bankruptcy context. Recognizing such an exception to the § 1328(a) discharge through a completely separate statute would, as the Lee court recognized, be a "significant departure from existing bankruptcy law" and would amount to a modification of § 1328(a) by implication.

On the other hand, the Johnson court's rationale for recognizing the exception was that "in reenacting section 294f(g), Congress was presumably aware of section 1328(a)'s more general discharge provision and other previously enacted provisions of the Bankruptcy Code dealing with the discharge of educational loans." Matter of Johnson, 787 F.2d at 1182.

Additional considerations are that two separate attempts to pass amendments to § 1328(a) failed. (The proposed amendments would have made all § 523(a) debts nondischargeable in Chapter 13's). One of the bills was proposed during the same year that § 294f(g) was enacted. Thus, an inference may exist that Congress would not have intended to modify § 1328(a) through the enactment of § 294f(g) without some indication of that intent in the legislative history. Also, for mere policy reasons, it may be arguable that Congress would not have intended to hold certain student loans nondischargeable, while still allowing debts arising out of fraud (§ 523(a)(4)), willful and malicious injury (§ 523(a)(6)), or criminal fines (§ 523(a)(7)), to remain dischargeable under § 1328(a).

Although the above arguments are both persuasive, this Panel finds that a dispute in this case on the applicability of the statutes involved is unnecessary. As previously set forth, the clear language of 42 U.S.C. § 294f(g) provides that HEAL Loans are dischargeable if: (1) the discharge is not granted until after the expiration of the 5-year period from the date when payments first become due; (2) after the 5-year period the Bankruptcy Court determines that the nondischarge of such debt would be unconscionable; and (3) there are no set off rights against Federal payments to "borrowers practicing their professions." 42 U.S.C. §§ 294f(f)-(g).⁷

The obvious rationale for the allowance of discharge under the above circumstances is that HEAL borrowers generally enter lucrative careers in the health care profession, however, in some circumstances (as in the instant case) a HEAL borrower who is not able to complete his health care education never obtains the financial benefits from such education. Thus, Congress determined that in the limited exception of HEAL Loans, a determination as to the dischargeability of the loan should wait until 5-years had passed from the date payments first became due, thereby providing a better opportunity to take into consideration subsequent events and make a final determination as to the "conscionability" of allowing the HEAL borrower to be discharged from the debt.

The bankruptcy court determined that pursuant to Bankruptcy Rule 4007(b), "a complaint to determine the dischargeability of a HEAL loan may be filed at any time before the discharge is granted." 64 B.R. at 812. However, the clear language of 42 U.S.C. § 294f(g) requires that a determination of discharge regarding a HEAL loan not occur until "after the expiration of the 5-year period. . . . " 42 U.S.C. § 294f(g) (emphasis added). Given this specific statutory language, this Panel holds that the instant complaint to determine the dischargeability of the debtor's HEAL loan was premature and should have been dismissed.

This holding is also supported by the important public policy of judicial economy. It was unnecessary to hold a dischargeability hearing with regard to the HEAL loan in the instant case, when such discharge cannot be finally determined until the year 1990 (after the passing of the statutory 5-year requirement). Although the bankruptcy court recognized this aspect of § 294f(g), it determined that Bankruptcy Rule 4007 allowed the dischargeability complaint to be brought at any time. It is well recognized, however, that the Bankruptcy Rules are not to be construed so as to modify specific statutory rights or procedures. Additionally, Bankruptcy Rule...