In re Pardee
| Decision Date | 31 March 1998 |
| Docket Number | BAP No. AZ-97-1038-RYKJ,Bankruptcy No. 92-02586-TUC-LO,Adversary No. 96-00186. |
| Citation | 218 BR 916 |
| Parties | In re Robert McKnight PARDEE and Darlene Daigle-Pardee, Debtors. GREAT LAKES HIGHER EDUCATION CORP., Appellant, v. Robert McKnight PARDEE and Darlene Daigle-Pardee, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
COPYRIGHT MATERIAL OMITTED
Lloyd J. Blaney, Dew & Blaney, Madison, WI, for Great Lakes Higher Education Corporation.
James L. Robinson, Tucson, AZ, for Robert McKnight Pardee.
BEFORE: RYAN, KLEIN1, and JONES, Bankruptcy Judges.
Robert and Darlene Pardee ("Appellees") filed a chapter 13 plan (the "Plan") that purported to discharge postpetition interest on a nondischargeable student loan debt (the "Discharge Provision") owed to Great Lakes Higher Education Corp. ("Appellant"). Appellant failed to object to the Plan, and the Plan was subsequently confirmed. After Appellees received their chapter 13 discharge, Appellant attempted to collect interest that had accrued on the unpaid principal after the bankruptcy petition was filed. Appellees filed a motion (the "Motion") to enforce the discharge and to enjoin permanently Appellant from attempting to collect postpetition interest on the student loan debt. The bankruptcy court granted the Motion and enjoined Appellant from further collection activity. We AFFIRM.
The facts are undisputed. On August 14, 1992, Appellees filed their chapter 13 bankruptcy petition. On September 9, 1992, Appellant filed its proof of claim (the "Claim") in the amount of $26,015.22. The Claim did not seek either prepetition or postpetition interest.
The Plan proposed to pay the chapter 13 trustee (the "Trustee") $515 per month for 60 months for a total of $30,900. The Plan also purported to pay Appellant's student loan debt as follows:
(second emphasis added).
On June 8, 1993, the Plan was confirmed (the "Confirmation Order"). The Confirmation Order was entered on August 5, 1993. Appellant failed to object to its treatment under the Plan.2
On April 9, 1996, Appellees received their chapter 13 discharge after paying all obligations pursuant to the Plan. After Appellant received full payment of its principal and prepetition interest under the Plan, Appellant demanded and attempted to collect $6,095.92 in postpetition interest. Appellees filed a motion to reopen the bankruptcy case, which was granted, and filed the Motion requesting that the bankruptcy court enforce the discharge and permanently enjoin Appellant from collecting postpetition interest on the student loan debt.
On January 6, 1997, the bankruptcy court granted the Motion by minute order and entered its Order to Enforce Discharge and Permanent Injunction (the "Injunction Order") on January 29, 1997. The bankruptcy court held that: (1) Appellant was bound by the language of the Plan and its failure to request postpetition interest in the Claim or object to the Discharge Provision constituted a waiver of any claim for postpetition interest; (2) Appellant had no claim for postpetition interest because the principal and prepetition interest on the nondischargeable student loan debt was paid in full under the Plan; and (3) Bankruptcy Code (the "Code")3 § 502(b)(2) did not permit Appellant to assert a nondischargeable claim for postpetition interest on the student loan because the debt was paid in full through the Plan.
Accordingly, the bankruptcy court ordered that Appellant "cease and desist in its collection efforts against Debtors . . ." and "file the appropriate documentation with the various taxing credit bureaus, governmental agencies and taxing agencies that indicates that the student loan has been paid in full." The bankruptcy court also ordered Appellant to pay attorney's fees and costs to Appellees.
On January 21, 1997, Appellant filed a premature notice of appeal.4
1. Whether the bankruptcy court erred in holding that Appellant was precluded from collecting postpetition interest on the Claim because the Claim was paid in full under the Plan.
2. Whether the bankruptcy court erred in holding that Appellant, who failed to object to the Plan provision discharging postpetition interest on the Claim, was bound by the Plan even though the provision was contrary to the Code.
We review conclusions of law, including the bankruptcy court's interpretation of the Bankruptcy Code, de novo. See Grey v. Federated Group, Inc. (In re Federated Group, Inc.), 107 F.3d 730, 732 (9th Cir.1997) (citing Abele v. Phoenix Suns Ltd. Partnership (In re Harrell), 73 F.3d 218, 219 (9th Cir.1996)).
The bankruptcy court held that Appellant's claim for postpetition interest on the Claim was discharged or extinguished by Appellees' completion of the Plan, when the principal and prepetition interest was "paid in full." We disagree.
Student loan debts are nondischargeable in bankruptcy unless either the payment first became due more than seven years before the date of filing the bankruptcy petition, or the debtor can prove that excepting the debt from discharge will impose an undue hardship. See 11 U.S.C. § 523(a)(8).5 This nondischargeability provision applies in chapter 13. Section 1328 states in pertinent part:
11 U.S.C. § 1328(a)(2) (emphasis added).
However, the Code is silent as to whether postpetition interest on a nondischargeable student loan is nondischargeable in bankruptcy. The seminal case on this issue is Bruning v. United States, 376 U.S. 358, 84 S.Ct. 906, 11 L.Ed.2d 772 (1964). In Bruning, a case decided under the Bankruptcy Act of 1898, the Supreme Court held that although postpetition interest on a nondischargeable tax debt could not be paid by the bankruptcy estate, it nevertheless survived bankruptcy and could be recovered personally from the debtor. Id. at 361, 84 S.Ct. at 908. The Court reasoned that "interest is an integral part of a continuing debt," and becomes part of the debt itself. Id. at 360, 84 S.Ct. at 908. The Court distinguished between the disallowance of postpetition interest against the bankruptcy estate on a nondischargeable debt, and the creditor's right to recover postpetition interest on a nondischargeable debt from the debtor personally after the discharge has been entered. Id. at 362-63, 84 S.Ct. at 908-09. The Court also recognized that the reasons for denying post-petition interest as a claim against the bankruptcy estate, "the avoidance of unfairness as between competing creditors and the avoidance of administrative inconvenience," are inapplicable to an action brought against the debtor personally. Id.
Here, the bankruptcy court erroneously held that Bruning was inapplicable to the instant case because Bruning was decided under the Bankruptcy Act and is distinguishable because the "allowed" portion of the nondischargeable debt was "paid in full" through the bankruptcy estate, whereas in Bruning, only part of the underlying debt was paid. This conclusion is not supported by principles of statutory construction or stare decisis. Unless Congress expressly manifests its intent to change well-established judicial interpretation of the bankruptcy laws as they existed prior to enactment of the Bankruptcy Code in 1978, we must presume that pre-Code interpretations of the Act have survived the enactment. See United States v. Ron Pair Enter., Inc., 489 U.S. 235, 244-45, 109 S.Ct. 1026, 1032, 103 L.Ed.2d 290 (1989); Rodriguez v. United States, 480 U.S. 522, 525, 107 S.Ct. 1391, 1393, 94 L.Ed.2d 533 (1987) (per curiam). As the Eighth Circuit aptly stated:
Taken together, sections 502 and 523 simply demonstrate Congress\' intent to codify the general principle that applied under Bruning. Postpetition interest is disallowed against the bankruptcy estate under section 502. Priority tax claims remain nondischargeable for individual debtors. . . . Thus, postpetition interest is nondischargeable and the debtors remain liable for that interest subsequent to the bankruptcy proceedings.
Hanna v. United States (In re Hanna), 872 F.2d 829, 831 (8th Cir.1989).
Additionally, although the Ninth Circuit has not addressed whether the Bruning rule continues to apply under the Code, five circuit courts have held that Bruning remains good law under the Code. See Leeper v. Pennsylvania Higher Educ. Assistance Agency (In re Leeper), 49 F.3d 98, 101-02 (3d Cir.1995); Fullmer v. United States (In re Fullmer), 962 F.2d 1463, 1468 (10th Cir. 1992); Burns v. United States (In re Burns), 887 F.2d 1541, 1543 (11th Cir.1989); Hanna, 872 F.2d 829, 831 (8th Cir.1989); and Bradley v. United States, 936 F.2d 707, 709-10 n. 3 (2d Cir.1991) (). Accordingl...
To continue reading
Request your trial