In re Ekenasi

Decision Date16 April 2003
Docket NumberNo. 02-1239.,02-1239.
Citation325 F.3d 541
PartiesIn Re: Geoffrey Ifenay EKENASI, Debtor. Geoffrey Ifenay Ekenasi, Plaintiff-Appellee, v. The Education Resources Institute; Pennsylvania Higher Education Assistance Agency, Defendants-Appellants, and Debra A. Wertman, Trustee.
CourtU.S. Court of Appeals — Fourth Circuit

Steven Leftridge Thomas, Kay, Casto & Chaney, P.L.L.C., Charleston, West Virginia, for Appellants. Andrew

Steven Nason, Pepper, Nason & Hayes, Charleston, West Virginia, for Appellee.

Before TRAXLER and SHEDD, Circuit Judges, and C. Arlen BEAM, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, sitting by designation.

Reversed by published opinion. Judge TRAXLER wrote the opinion, in which Judge SHEDD and Senior Judge BEAM joined.


TRAXLER, Circuit Judge:

The Education Resources Institute and Pennsylvania Higher Education Assistance Agency ("Appellants") appeal an order of the district court affirming the bankruptcy court's order discharging Geoffrey Ifenay Ekenasi's student loan debts pursuant to 11 U.S.C.A. § 523 (West 1993 & Supp. 2002). Because we conclude that the bankruptcy court clearly erred in discharging Ekenasi's student loans more than two years before Ekenasi's scheduled completion of his confirmed Chapter 13 plan, we reverse.


Ekenasi is a native of Nigeria. He obtained a degree in political science at the University of Lagos, Nigeria, in 1978. In the late 1980s, he emigrated to the United States. Upon arriving in this country, he worked briefly in a factory and, for several years, as a taxi driver in New York City.

While working as a taxi driver, Ekenasi learned that he could attend law school in the United States and pay for his postgraduate education through student loans sponsored by the federal government. He was accepted to the West Virginia University College of Law, enrolled in classes in 1992, and graduated on schedule in 1995. In 1997, Ekenasi passed the West Virginia bar examination and obtained a license to practice law in that state. All of this was made possible by his receipt of nearly $90,000 in government-sponsored student loans.

In August 1997, Ekenasi filed a petition for bankruptcy under Chapter 13 of the Bankruptcy Code and a proposed Chapter 13 Plan (the "Plan"). At the time, Ekenasi was employed as a paralegal with the West Virginia Tax Department, a temporary position he had accepted while studying to pass the bar examination and seeking employment as a licensed attorney. As a paralegal, Ekenasi was earning a salary of approximately $22,000 per year and a net monthly income of $1,480. He claimed total monthly expenses of $1,180, which included a $253 student loan payment. His petition also claimed six children of minority age who resided with him in the United States. Ekenasi estimated the non-priority, unsecured claims against him to be $89,418 in student loan debt and $55,494 in other unsecured debt, for a total of $144,912.

Based upon his income and expenses, including the $253 per month student loan payment, Ekenasi claimed excess income of $300 per month. He proposed to make scheduled payments in the amount of $300 per month to the bankruptcy trustee for 60 months for distribution towards his "general unsecured" (i.e., non-student loan) creditors only, while continuing to make his student loan payment directly to the student loan creditors. The Plan proposed that "cause exist[ed]" to extend Ekenasi's payment of the debt "over a period of more than 36 months" due to Ekenasi's desire "to pay student loans outside [the Plan] and pay 27% of [the] general unsecured debt through the trustee." J.A. 46. See 11 U.S.C.A. § 1322(d) (West Supp. 2002) (providing that a Chapter 13 "plan may not provide for payments over a period that is longer than three years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than five years").

In February 1998, the bankruptcy court entered an order confirming Ekenasi's Chapter 13 Plan. Thus, Ekenasi's approved Plan, including its exception of the student loan creditors from any portion of the $300 payment made to the bankruptcy trustee, was premised upon his choice to continue making the student loan payment outside the Plan and directly to the student loan creditors. Ekenasi also obtained an extended payment period towards his other unsecured creditors by pointing to the very same choice.

Then, in May 1998, Ekenasi instituted this adversary proceeding, seeking a discharge of his student loan debts in their entirety on the basis that they imposed an undue hardship upon him. Since filing his Chapter 13 Plan, however, Ekenasi had passed the West Virginia bar examination and secured employment as an attorney with the West Virginia Bureau of Child Support Enforcement with a starting salary of $36,000 per year. In his complaint, Ekenasi represented that he was "unmarried but living in the same household as his ex-wife with his six (6) children ranging in age from four (4) years to seventeen (17) years old." J.A. 54. By 1999, Ekenasi's salary had increased to $39,899 and, by the time trial in the adversary proceeding commenced in December 2000, Ekenasi's salary had increased to $42,000 per year — nearly double the $22,000 salary he was earning when he filed his proposed Chapter 13 Plan claiming $300 in excess monthly income. Also by this time, two of the six children residing with Ekenasi in this country had achieved majority status. However, Ekenasi testified that he had three additional children (ages 18, 11 and 9) living in Nigeria who were dependent upon him for support and that he was subject to a Nigerian court order for such support in the monthly amount of $300 per child.

In January 2001, the bankruptcy court entered an order granting Ekenasi a complete discharge of his student loan debts based on undue hardship. Although noting that Ekenasi had the education necessary to practice law, the bankruptcy court found that Ekenasi's nationality and language skills "impose[d] a barrier to [his] practicing law in a private practice setting or in a corporate setting." J.A. 232. Additionally, the bankruptcy court found that Ekenasi had nine children who were dependent upon him for support, including three children in Nigeria to whom he was obligated under a foreign support order requiring him to pay $900 per month. Based primarily upon these factors, the bankruptcy court found that Ekenasi "[did] not possess a reasonable likelihood of an increase in income" and would not likely "have additional disposable income to utilize towards paying back these student loans" after he completed payments under the Chapter 13 Plan. J.A. 233. These findings were made approximately two years before the scheduled conclusion of Ekenasi's Chapter 13 Plan. The district court affirmed on appeal.


Because the district court "act[ed] in its capacity as a bankruptcy appellate court, we review the bankruptcy court's decision independently." Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d 296, 300 (4th Cir.2002). We review the bankruptcy court's factual findings for clear error and its legal conclusions de novo. See Kielisch v. Educational Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 319 (4th Cir.2001).

We begin with a brief summary of the Chapter 13 statutory provisions that are pertinent to the proceeding before us. See 11 U.S.C.A. §§ 1301-1330 (West 1993 & Supp.2002). As an alternative to liquidation under Chapter 7, Chapter 13 of the Bankruptcy Code allows a debtor to propose and file a plan for payment to his creditors from his regular income, see 11 U.S.C.A. § 1321, within certain parameters, see 11 U.S.C.A. § 1322. After the petition and plan are filed, and notice is given, the bankruptcy court conducts a hearing on confirmation of the plan, at which time any party in interest may object to confirmation. See 11 U.S.C.A. §§ 1324, 1325. A Chapter 13 plan may not exceed a period longer than three years, unless the bankruptcy court approves a longer period "for cause." 11 U.S.C.A. § 1322(d). The bankruptcy court, however, "may not approve a period that is longer than five years." 11 U.S.C.A. § 1322(d).

Once a debtor has satisfied his payments under the confirmed plan, the bankruptcy court grants the debtor a discharge of all debts provided for by the plan, see 11 U.S.C.A. § 1328(a), but not those debts which are nondischargeable under 11 U.S.C.A. § 523(a).1 The debtor remains personally responsible for all such nondischargeable debts. See In re Kielisch, 258 F.3d at 318 n. 1; Internal Revenue Serv. v. Cousins (In re Cousins), 209 F.3d 38, 40 (1st Cir.2000).

Student loans, as a general rule, fall within the category of nondischargeable debts and pass through the bankruptcy process unaffected. See In re Kielisch, 258 F.3d at 320 (noting that Chapter 13 debtors ordinarily "remain personally responsible for their nondischargeable student loan debts, and those debts pass or ride through the bankruptcy unaffected and are a postbankruptcy liability of the former debtor") (internal quotation marks omitted). The federal government, under the Guaranteed Student Loan Program, "serves as guarantor of unsecured student loans and subsidizes interest payments on those loans." In re Kielisch, 258 F.3d at 319 (internal quotation marks omitted). However, Congress has also provided that such government-guaranteed student loans are nondischargeable in bankruptcy proceedings unless the debtor can demonstrate that repayment of the loans would constitute an "undue hardship." 11 U.S.C.A. § 523(a)(8) (West Supp.2002).2 The exception of such government-sponsored student loan debts from discharge in bankruptcy "`was enacted to prevent indebted college or graduate students from filing for bankruptcy immediately upon graduation, thereby absolving themselves of the obligation to repay their student loans.'" In...

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