In re Norman

Decision Date14 December 1982
Docket NumberComplaint No. C82-0655-M.,Bankruptcy No. 82-00027-M7
Citation25 BR 545
PartiesIn re Diane Hirschberg NORMAN, Debtor. FINANCIAL COLLECTION AGENCIES, Plaintiff, v. Diane Hirschberg NORMAN, Defendant.
CourtU.S. Bankruptcy Court — Southern District of California

Wm. Gregory Polster, La Jolla, Cal., for plaintiff.

David L. Buchbinder, San Diego, Cal., for defendant/debtor.


JAMES W. MEYERS, Bankruptcy Judge.


On January 6, 1982, the debtor, Diane H. Norman, filed for protection under Chapter 7 of the United States Bankruptcy Code ("Code"). She received her discharge on April 12, 1982.

On April 14, 1982, the plaintiff filed this complaint to determine the dischargeability of an obligation that the debtor incurred for an educational loan.1 The debtor filed her answer on May 28, 1982. On October 25, 1982, the parties filed a written stipulation agreeing that the debtor owed $5,767.50 to the plaintiff, that the obligation was an educational loan owed to a nonprofit institution of higher learning and that it first became due within five years before the date of filing of the debtor's bankruptcy petition. The parties reserved for trial the sole issue of whether excepting this debt from the discharge would impose an undue hardship on the debtor.

This case came on for trial on October 26, 1982. This opinion is filed to explain this Court's decision, concluding that this debt should not be excepted from the effect of the discharge.


The evidence fully reveals the debtor's poignant story. She suffers from congenital nerve damage resulting in a 95% hearing loss in her right ear and loss of the high frequency range in her left ear. This severe hearing loss has required the debtor to participate in intensive speech therapy throughout her life. She was able to overcome her disability and earn a bachelor of arts degree from Wright State University, majoring in social work.

Unable to obtain employment in her chosen field of vocational rehabilitation, she was advised to get a master's degree. To this end she attended San Diego State University from 1976 to 1978, but was unable to complete this course of study, as she exhausted her funding.

Since leaving San Diego State, the debtor has attempted to find employment as a social worker, but to no avail. She has held a number of temporary and part-time jobs, such as process server for an attorneys service, census taker, retail store clerk, records clerk and real estate agent. These positions have not lasted for long, as the debtor has great difficulty in dealing with people. This problem stems from her hearing disability with its resulting speech difficulty, and her psychiatric problems, as she is currently under treatment for a manic depressive condition with a paranoid reaction.

During the last four years, the debtor has averaged only $2,650 in gross income each year! She is currently living on $38 per week unemployment benefits, with little likelihood of obtaining any employment or generating any real estate commissions. The debtor is no longer actively seeking permanent employment, as her psychiatrist has advised her not to go back to work. Instead, she is currently seeking disability benefits from the Social Security system.

The debtor currently shares her rented house with others in order to cover the $350 per month rental expense. She has limited her food costs by participating in the food stamp program and limits her driving to that which is absolutely necessary. In addition, the debtor must spend $21 per month on batteries for her hearing aids. She does own her own automobile, a 1974 Volkswagen in poor condition, but cannot afford to purchase any insurance for it. It does not appear that the debtor has any surplus above the cost of her necessary living expenses, nor does it appear that she will be generating any surplus in the foreseeable future.


The issues presented in this complaint are governed by Section 523(a)(8) of the Code. This section provides that:

(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt —
(8) for an educational 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 a nonprofit institution of higher education, unless —
(A) such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or
(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor\'s dependents. . . .

11 U.S.C. § 523(a)(8) (West 1979).

Here, the parties have stipulated that the debt involved is owed to a nonprofit institution of higher education and that it first became due less than five years before the debtor filed her Chapter 7 petition. They have left for judicial determination the question of whether this debt should be discharged on the ground that repayment would place an undue hardship on the debtor under Section 523(a)(8)(B).

A. Allocation of Burden of Proof

The basic legislative policy of the Code is to offer the honest, but unfortunate, debtor a fresh start in life free from oppressive debt. In re Clay, 12 B.R. 251, 255 (Bkrtcy.N.Iowa 1981); In re Mendoza, supra, 16 B.R. at 993. To forward this policy, the courts have determined that the debtor's discharge should be considered a prima facie defense to a claim that a debt should not be discharged, with the burden being placed on the creditor to show that the obligation should be excepted from the discharge. In re Hamilton, 21 B.R. 487, 489 n. 1 (Bkrtcy.W.D.Va.1982); Matter of Slutzky, 22 B.R. 270, 271 (Bkrtcy.E.Mich.1982). In this, exceptions to dischargeability must be narrowly construed against the creditor's objections, being confined to those plainly expressed in the Code. See In re Stewart, 10 B.R. 214, 216 (Bkrtcy.C.Cal.1981); Matter of Newmark, 20 B.R. 842, 853 (Bkrtcy.E. N.Y.1982); Matter of Thomas, 21 B.R. 553, 556 (Bkrtcy.E.Wis.1982).

Reference to Section 523 reveals that it has no provision allocating the burden of proof. Matter of Newmark, supra, 20 B.R. at 853. In the only case that has even mused over the question, the court concluded that the creditor has the burden to show that the student loan became due within five years before the date of the petition being filed, but reserved the question as to who should have the burden on the hardship issue. See In re Wright, 7 B.R. 197, 200, 7 B.C.D. 114, 116 (Bkrtcy.N.Ala.1980).

That leaves us with the task of determining what would be the proper basis for such an allocation. We are aware that there are no hard-and-fast standards governing the allocation of the burden of proof in every situation. See Keyes v. School District No. 1, Denver, Colo., 413 U.S. 189, 209, 93 S.Ct. 2686, 2697, 37 L.Ed.2d 548 (1973). Rather, the issue is merely a question of policy based on experience. Old Ben Coal Corp. v. Interior Bd. of Mine Op. App., 523 F.2d 25, 36 (7th Cir.1975).

Under the Bankruptcy Act, the predecessor of the Code, the practice was to look to Bankruptcy Rule 407 for guidance concerning the allocation of the burden of proof in dischargeability cases, even though that rule is specifically limited to complaints objecting to the discharge itself. See Matter of Amador, 596 F.2d 428, 432 (10th Cir. 1979); Melichar v. Ost, 7 B.R. 951, 963 (D.C.D.Md.1980). This practice has continued under the Code. See In re Stewart, 19 B.R. 165, 170 (Bkrtcy.E.Tenn.1982). Rule 407 provides that "at the trial on a complaint objecting to a discharge, the plaintiff has the burden of proving the facts essential to his objection."2 See In re Armijo, 13 B.R. 175, 177 (Bkrtcy.N.M.1981).

Reference to Rule 407 is of limited use in this context since the creditor and the debtor are each as likely to appear as the plaintiff. Even if we assume that Rule 407 anticipated that the creditor would be cast in the plaintiff's role, it is of little help. Clearly, the creditor must establish the existence of the debt, that it is owed to or insured or guaranteed by a governmental agency or a nonprofit institution of higher education, and that it first became due less than five years prior to the date the bankruptcy petition was filed. See In re Wright, supra, 7 B.R. at 200, 7 B.C.D. at 116. The question is whether it is essential to the creditor's case that it disprove the existence of a hardship on the debtor. To answer this we should be guided by the usual rules of the law of evidence, that:

(1) the burden of proof generally lies on the party asserting the affirmative of a proposition, citation or the party seeking to change the present state of affairs citation;
(2) where a party is in a position to have peculiar knowledge of the facts with regard to an issue, the burden of proof as to that issue lies upon that party citation; and
(3) the burden of going forward with the evidence on an issue generally rests upon the party having the burden of proof on that issue.

Williams v. Administrator of the Nat. Aero. & Space Admin., 463 F.2d 1391, 1400 (C.C.P.A.1972).

Then, the question is who has the affirmative position on a claim of "undue hardship." Several courts have declared that such a claim is in the nature of an affirmative defense. See Matter of Thomas, 4 B.C.D. 796 (W.N.Y.1978); Matter of Kohn, 5 B.C.D. 419, 420 (S.N.Y.1979). But see Matter of McLemore, 6 B.C.D. 973, 974 (Bkrtcy.N.Ga.1980). If it is properly treated as an affirmative defense, then the burden of proof is to be placed on the debtor as the one asserting it. See Ocean Accident & Guaranty Corporation v. Rubin, 73 F.2d 157, 166 (9th Cir.1934); Organizations United for Ecology v. Bell, 446 F.Supp. 535, 546 (M.Pa.1978); In re Wolff, 22 B.R. 510, 512, 9 B.C.D. 451, 452 (9th Cir.B.A.P.1982) ("burden of proof on the party who...

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