In re Poland, 02-3020.

• Decision Date: 07 September 2004
• Docket Number: No. 02-3020.,02-3020.
• Citation: 382 F.3d 1185
• Parties: In re Cheryl Ann POLAND, Debtor. Cheryl Ann Poland, Plaintiff-Appellee, v. Educational Credit Management Corporation, Defendant-Appellant, and Equifax Accounts Receivable; and TGA, Inc., Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

382 F.3d 1185

In re Cheryl Ann POLAND, Debtor.

Cheryl Ann Poland, Plaintiff-Appellee, v. Educational Credit Management Corporation, Defendant-Appellant, and Equifax Accounts Receivable; and TGA, Inc., Defendants.

No. 02-3020.

United States Court of Appeals, Tenth Circuit.

September 7, 2004.

Appeal from the District Court, Wesley E. Brown, Senior District Judge.

N. Larry Bork of Goodell, Stratton, Edmonds & Palmer, L.L.P., Topeka, KS, for Defendant-Appellant.

Garry L. Howard of Slape & Howard, Chartered, Wichita, KS, for Plaintiff-Appellee.

Before KELLY and BALDOCK, Circuit Judges, and BRORBY, Senior Circuit Judge.

BRORBY, Circuit Judge.

Generally speaking, a Chapter 13 bankruptcy debtor is relieved of her debts following completion of the bankruptcy plan; in other words, the debts are discharged. 11 U.S.C. § 1328(a). There are, however, exceptions to discharge, including a student-loan debt. Id. §§ 1328(a)(2); 523(a)(8). But there is also an exception to this exception: if excepting a student loan debt from discharge would impose an undue hardship on the debtor and the debtor's dependents, the debt will be discharged. Id. § 523(a)(8). In Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th Cir.1999), we held that, where the debtor's plan contained an express finding of undue hardship, the creditor's failure to object to confirmation barred its attempt to collect the debt because the plan with its finding of undue hardship was res judicata. Unlike the factual scenario in Andersen, it was not established in this bankruptcy that excepting the student-loan debt from discharge would impose undue hardship on the debtor. As a result, the debt was not discharged, and, consequently, we reverse the district court's order upholding discharge of the debt.¹

Background

Ms. Poland filed for Chapter 13 bankruptcy relief in 1993. Her bankruptcy plan stated that she disputed the validity and amount of her student-loan debt and that if a proof of claim was filed on the debt, the debtor would object. It also stated that if no timely proof of claim was filed, "the claim shall be deemed discharged in its entirety upon completion of the Plan." Aplt.App. at 5. The plan was confirmed. A claim on the student-loan debt was filed one day after the proof-of-claim filing deadline, and the untimely claim was disallowed by the bankruptcy court. Thereafter, the bankruptcy court entered an order of discharge and final decree in January 1999. There was no appeal from the discharge order.

Some time after the discharge order, Educational Credit Management Corporation (ECMC), assignee of the student loan debt, attempted to collect payment on the debt. Ms. Poland then reopened the bankruptcy and filed an adversary proceeding to determine whether the student loan debt had been discharged. The bankruptcy court cited our decision in Andersen as controlling and held that because the unchallenged plan and discharge order stated that the student-loan debt was discharged, the issue of discharge was res judicata. The district court affirmed the bankruptcy court's decision, also relying on Andersen. ECMC timely appealed.

Applicability of In Re Andersen

On appeal, ECMC argues that Andersen is distinguishable and should not control the outcome in this case because here, unlike in Andersen, there is no language in the plan or discharge order establishing a finding of undue hardship. In Andersen, the debtor included the following language in her Chapter 13 plan:

Pursuant to 11 U.S.C. § 532(a)(8), excepting the aforementioned education loans from discharge will impose an undue hardship on the debtor and the debtor's dependents. Confirmation of debtor's plan shall constitute a finding to that effect and that said debt is dischargeable.

179 F.3d at 1254. The plan was confirmed without timely objection and the creditor did not appeal the confirmation order. The debtor completed all payments under the plan and was granted a discharge. Shortly thereafter, the creditor began requesting payment of the student loan debt and the debtor reopened her bankruptcy proceeding to determine the dischargeability of the debt.

The bankruptcy court in Andersen determined that the student loans were not dischargeable because there was no judicial determination of undue hardship. The Bankruptcy Appellate Panel (BAP) reversed. Upon review by this court, we acknowledged that "a debtor must normally prove undue hardship by bringing an adversary proceeding directed to that issue," but we stated that "[t]he real issue here is not whether [the debtor] properly met her burden of proving an undue hardship which she clearly did not, but whether confirmation of the plan constitutes a binding adjudication of hardship." Id. at 1256. Relying on earlier Tenth Circuit precedent we stated: "`[u]pon becoming final, the order confirming a chapter 13 plan represents a binding determination of the rights and liabilities of the parties as ordained by the plan. Absent timely appeal, the confirmed plan is res judicata and its terms are not subject to collateral attack.'" Id. at 1258-59 (quoting United States v. Richman (In re Talbot), 124 F.3d 1201, 1209 (10th Cir.1997)). Based on that principle, and given the specific plan language, we concluded that "the order of confirmation is res judicata as to the issue of hardship." Id. at 1259.

We went on to explain that, contrary to the creditor's argument, giving res judicata effect to the provision in the plan did not turn an expressly nondischargeable debt into a dischargeable debt. Distinguishing two cases involving discharge of a tax debt, DePaolo v. United States (In re DePaolo), 45 F.3d 373 (10th Cir.1995), and Grynberg v. United States (In re Grynberg), 986 F.2d 367 (10th Cir.1993), we explained that Andersen:

does not represent an attempt to transform a debt which remained nondischargeable throughout the plan period into a dischargeable debt at the conclusion of the period. Rather, unlike the tax cases, the finding of undue hardship in the confirmed plan changed the nature of the debt into a dischargeable debt.

Id. at 1260 (emphasis added). Because the plan included language that established a finding of undue hardship, the student loan debt had become a dischargeable debt. We concluded by emphasizing that the Andersen holding did not lessen the debtor's burden of proof on the issue of undue hardship, and we limited the holding to the particular facts of that case. See id.

Though there are many similarities between this case now before us and Andersen, there is one all-important difference: this confirmed plan made no mention of undue hardship, let alone established its existence. Instead, in this case, the plan stated only the fact, the amount and the disputed nature of the student loan debt and that if no proof of claim was filed by the creditor, the "claim shall be discharged in its entirety." Aplt.App. at 5. In affirming the bankruptcy court, the district court indicated that it did not matter what the plan language or discharge order said, but instead that ECMC failed to timely object:

In sum, then, if a creditor fails to make a timely objection `it cannot later complain about a certain provision contained in a confirmed plan, even if such a provision is inconsistent with the Code.' Andersen, 179 F.3d at 1258. The same reasoning applies with equal force to the plan in the instant case, notwithstanding the absence of any finding of undue hardship. The plan and discharge order provided for the discharge of...