In re Hines
| Decision Date | 20 August 1986 |
| Docket Number | Adv. No. 486-0038.,Bankruptcy No. 485-00084 |
| Citation | 63 BR 731 |
| Parties | In re Stewart Lyle HINES, Debtor. Stewart Lyle HINES, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. Bankruptcy Court — District of South Dakota |
Doug Cummings, Sioux Falls, S.D., for plaintiff.
R.P. Murley, Asst. U.S. Atty., Sioux Falls, S.D., for defendant.
This is before the Court on a complaint to determine dischargeability of a debt filed on behalf of Stewart Lyle Hines ("debtor") by Attorney Doug Cummings on June 11, 1986. Debtor substantively alleges that: 1) Because the loan which was received pursuant to the Health Education Assistance Loan Act (HEAL) has been due and owing for more than a five-year period prior to filing, the debt is dischargeable under Bankruptcy Code Section 523(a)(8); or 2) If 42 U.S.C. § 294f(g), and not Section 523(a)(8), applies for determining dischargeability of HEAL student loans, then this debt is dischargeable under that section because it meets those requirements for dischargeability. In its answer, filed on July 1, 1986, by Assistant United States Attorney R.P. Murley, the Government contends that 42 U.S.C. § 294f(g), and not Section 523(a)(8), is paramount for determining dischargeability of HEAL student loans and the debt in question is nondischargeable under that section. A trial was held in Sioux Falls, South Dakota, on August 12, 1986, and the Court took the matter under advisement.
Debtor filed for relief under Chapter 7 of the Bankruptcy Code on February 28, 1985. During his fall semester term at the University of South Dakota Medical School, the debtor applied for and received a $5,000 loan from the Chase Manhattan Bank pursuant to the Health Education Assistance Loan program (HEAL) (42 U.S.C. § 294).1 The debtor, who was in his third year of medical school, was dismissed for academic reasons in March of 1979 and was, thereafter, unsuccessful in his suit for reinstatement.2 His loan was declared due ten months after his dismissal and was subsequently purchased by the Department of Health and Human Services on June 30, 1981. The amount of principal and interest claimed due and owing on the filing date is $11,274.51.
The debtor, who is admittedly in good health, lives in Yankton, South Dakota, is married, and has two children ages two and four.3 Between the time of his school dismissal and bankruptcy filing, the debtor has worked in Yankton as a chimney sweep, a bartender, a satellite dish salesman, and at a nursery. He represented that he only averaged about $2,000 per year in income.
After the time of filing, he began a tire business. He estimates that his income is presently approximately $262 per month against $500 in expenses and the business assets equal the debts. Also, he was pessimistic as to whether there will be any substantial increase in his income in the near future. During the past several years, his wife has worked for the Yankton, South Dakota, Police Department, and her income is approximately $7,000 per year. At the time of filing and trial, his wife and children were in good health and they had no substantial outstanding debts.4
According to the promissory note which the debtor signed in conjunction with receiving the loan in question, interest is payable at an annual percentage rate not to exceed twelve percent, which is equal to the sum of the following:
Also, although the loan repayment period is generally over a ten-to-fifteen-year period, it may be extended up to twenty-three years.
The principal issues raised are: 1) Whether 42 U.S.C. § 294f(g), and not 11 U.S.C. § 523(a)(8), is paramount for determining HEAL student loan dischargeability in Chapter 7 matters; and 2) If so, whether the $5,000 HEAL student loan plus applicable interest is dischargeable under 42 U.S.C. § 294f(g).
As to the first issue, the Court holds 42 U.S.C. § 294f(g), and not 11 U.S.C. § 523(a)(8), is paramount for determining HEAL student loan dischargeability in Chapter 7 matters. This is based on the following discussion.
Debtor contends that, because his HEAL student loan has been due and owing for more than a five-year period prior to his bankruptcy filing, the debt is not precluded discharge under Bankruptcy Code Section 523(a)(8). Bankruptcy Code Section 523(a)(8)(A) provides that:
Conversely, the Government insists that 42 U.S.C. § 294f(g), and not Section 523(a)(8), is paramount for determining dischargeability of HEAL student loans. Section 294f(g) provides that a HEAL loan is not dischargeable unless three conditions are met:
Under Section 294f(g), a HEAL loan may not be discharged until five years from the date the repayment period begins. Then, after the expiration of the five-year period, a HEAL loan may only be discharged if the Bankruptcy Court finds that nondischarge would be unconscionable and the Secretary of the United States Department of Health and Human Services has not waived certain rights. Matter of Johnson, 787 F.2d 1179, 1181 (7th Cir.1986).
Bankruptcy Judge Schwartz, in In re Hampton, 47 B.R. 47 (Bkrtcy.N.D.Ill.1985), addressed the issue in question and held that 42 U.S.C. § 294f(g) is paramount for determining HEAL student loan dischargeability in Chapter 7 matters. After noting the conflict between Sections 294f(g) and 523(a)(8), Judge Schwartz first determined that:
When there is a conflict between statutes, the later enacted statute should be given primary consideration. (citations omitted) And, a specific statute controls over a general one `without regard to priority of enactment.\' (citations omitted)
And, thereafter, found that:
The Seventh Circuit Court of Appeals, in the Matter of Johnson, 787 F.2d 1179 (7th Cir.1986), addressed the issue of whether 42 U.S.C. § 294f(g), and not 11 U.S.C. § 1328(a), is paramount for determining HEAL student loan dischargeability in Chapter 13 matters and, based on reasoning similar to that of the Hampton court, held that Section 294f(g) controls.7
The Court finds the Hampton and Johnson courts' reasoning persuasive and, therefore, holds that Section 294f(g), and not Section 523(a)(8), is paramount for determining dischargeability in Chapter 7 matters.
As to the second issue, because the Court finds that nondischarge of the debtor's HEAL student loan is not unconscionable as required by 42 U.S.C. § 294f(g)(2), the Court, therefore, holds that this debt is denied discharge. This is based on the following discussion.
As said before, Section 294f(g) provides that a HEAL loan is not dischargeable unless three conditions are met: 1) the bankruptcy filing date is at least five years from the repayment period beginning date; 2) the Bankruptcy Court, thereafter, finds that nondischarge of this debt is unconscionable; and 3) the Secretary of the United States Department of Health and Human Services has not waived certain rights.8
In the instant case, because the bankruptcy filing date was at least five years after the repayment period beginning date and the Secretary did not waive any rights, the parties agreed that the only issue before the Court was whether the nondischarge of the debtor's HEAL student loan is "unconscionable" as required by 42 U.S.C. § 294f(g)(2). Both parties, however, disagreed as to the proper test or standard for determining unconscionable pursuant to that provision. No case was offered or found on this point.
The debtor contends that the...
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