In re Taylor, BAP No. WW-97-1385-RyRuR
| Decision Date | 12 August 1998 |
| Docket Number | BAP No. WW-97-1385-RyRuR,WW-97-1386,Adversary No. 96-05138.,Bankruptcy No. 95-09922 |
| Citation | 223 BR 747 |
| Parties | In re Christopher Harry TAYLOR and Tina Rene Taylor, Debtors. UNITED STUDENT AID FUNDS INC.; State of Alaska; Commission On Post-secondary Education, and Student Loan Corporation, Appellants, v. Christopher Harry TAYLOR and Tina Rene Taylor, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Teresa Williams, Office of the Attorney General, Anchorage, AK, for Alaska Commission on Secondary Education.
Jennifer Burkhardt, Karr, Tuttle & Campbell, Seattle, WA, for United Student Aid Funds, Inc.
Raymond Hoffer, Mauher & Bell, Seguim, WA, for Christopher and Tina Taylor.
Before RYAN, D. RUSSELL,1 and B. RUSSELL, Bankruptcy Judges.
Debtors Christopher and Tina Taylor ("Appellees") filed a complaint (the "Complaint") to discharge Christopher's student loan debt (the "Student Loan") on the basis of undue hardship. Subsequently, United Student Aid Funds, Inc. ("USA Funds") filed a motion to dismiss (the "Motion to Dismiss") the Complaint as premature. The bankruptcy court entered an order denying the Motion to Dismiss (the "Dismissal Order").
Subsequently, trial commenced on the Complaint and the bankruptcy court entered an order granting Appellees a partial discharge of the Student Loan (the "Discharge Order").
USA Funds appealed the Dismissal and Discharge Orders, and Alaska Student Loan Corporation ("ASLC") appealed the Discharge Order. Later, USA Funds and ASLC (collectively, "Appellants") consolidated their appeals. We AFFIRM in part, and VACATE and REMAND in part.
In October 1984, Christopher enrolled at Emery Riddle University ("Emery"). From 1984 to 1988, Christopher borrowed $27,500 from ASLC and $31,669 from different lenders, whose loans were later consolidated and guaranteed by USA Funds. Under the terms of the promissory notes, Christopher had a twelve-month grace period, beginning upon the cessation of enrollment, before his payments became due.
On June 28, 1988, Christopher failed to enroll at Emery. His first payment of $295 became due on July 1, 1989. In September, Christopher made a payment of $50 to ASLC. In December, he made another payment of $25 to ASLC.
Thereafter, returning to Emery, Christopher obtained a deferment of the Student Loan payments from January 1990 through August 15, 1990. He graduated and was granted an additional six-month grace period before having to repay the Student Loan.
On April 1, 1991, Christopher's obligation to repay the Student Loan recommenced. Other than the two payments totaling $75, he did not make another payment until August 1996.
In March 1991, Appellees signed an agreement (the "Agreement") with Consumer Credit Counseling to repay their debts with the exception of the Student Loan. The Agreement provided for full payment of Appellees' debt for a 1990 Toyota pickup truck and a 1991 Ford Escort.
After six months of payments pursuant to the Agreement, Appellees filed a chapter 13 petition. In February 1995, the chapter 13 case was dismissed.
On November 13, 1995, Appellees filed another chapter 13 petition. On February 26, 1996, Appellees filed their chapter 13 plan (the "Plan"). On July 25, 1996, the Plan was confirmed.
On May 2, 1996, Appellees filed the Complaint pursuant to Bankruptcy Code (the "Code")2 § 523(a)(8)(B)3 to discharge the Student Loan because of undue hardship. Appellees sought to discharge the $50,440.90 owed to USA Funds and the $35,748 .88 owed to ASLC.
On June 6, 1996, USA Funds filed the Motion to Dismiss asserting that the Complaint was premature because payments under the Plan had not been completed. On August 5, 1996, the bankruptcy court entered the Dismissal Order.
On April 8, 1997, the nondischargeability trial began, and Appellees' counsel objected to the relevancy of Appellees' alleged bad faith effort to repay the Student Loan. The bankruptcy court sustained the objection.
At the conclusion of the trial, the bankruptcy court granted Appellees a partial discharge of the Student Loan based on a seven-year payment schedule.4 The Student Loan payments were scheduled to commence on April 1, 1997 and continue until 2004, even though the Plan payments were to cease on December 13, 1998. According to the payment schedule, Appellees were required to make total payments of $29,550, including $13,002 to ASLC and $16,548 to USA Funds. Consequently, the bankruptcy court discharged approximately 67% of the ASLC loan and 70% of the USA Funds loan.5
On May 14, 1997, USA Funds filed a timely notice of appeal of the Dismissal and Discharge Orders. On the same day, ASLC filed its notice of appeal of the Discharge Order. The USA Funds and ASLC's appeals were then consolidated.
1. Whether the bankruptcy court erred by failing to dismiss the Complaint as premature and not ripe for adjudication.
2. Whether the bankruptcy court erred by partially discharging the Student Loan.
3. Whether the bankruptcy court erred by failing to consider whether Appellees attempted to make a good faith effort to repay the Student Loan.
Whether a claim is ripe for adjudication is a question of law that we review de novo. See Christensen v. Yolo County Bd. of Supervisors, 995 F.2d 161, 162 (9th Cir.1993) (citing Southern Pac. Transp. Co. v. City of Los Angeles, 922 F.2d 498, 502 (9th Cir.1990), cert. denied, 502 U.S. 943, 112 S.Ct. 382, 116 L.Ed.2d 333 (1991); Herrington v. County of Sonoma, 857 F.2d 567, 568 (9th Cir.1988), cert. denied, 489 U.S. 1090, 109 S.Ct. 1557, 103 L.Ed.2d 860 (1989)).
Similarly, whether a student loan debt is dischargeable on the basis of undue hardship is a question of law that we review de novo. See United Student Aid Funds, Inc. v. Pena (In re Pena), 207 B.R. 919, 920 (9th Cir. BAP 1997) (citing Tully v. Taxel (In re Tully), 202 B.R. 481, 483 (9th Cir. BAP 1996)); Dolph v. Pennsylvania Higher Educ., Assistance Agency, 215 B.R. 832, 834 (6th Cir. BAP 1998). Additionally, the bankruptcy court's interpretation of the Code is a question of law that we review de novo. See Great Lakes Higher Educ. Corp. v. Pardee (In re Pardee), 218 B.R. 916, 919 (9th Cir. BAP 1998).
Finally, we review the bankruptcy court's application of a legal standard de novo. See Pena, 207 B.R. at 920.
Appellants argue that the issue of dischargeability was not ripe for adjudication until Plan completion because circumstances regarding Appellees' financial condition could change during the Plan period that would show an ability to pay the Student Loan. Additionally, Appellants contend that § 1328(a) dictates that a debt should not be discharged until after completion of plan payments.
Although a chapter 13 debtor is generally not entitled to a discharge of debts until after completion of payments under a plan, student loans are specifically excepted from a § 1328 discharge. See 11 U.S.C. § 1328(a)(2).6See also Strauss v. Student Loan Office-Mercer (In re Strauss), 216 B.R. 638, 640 (Bankr.N.D.Cal.1998). However, within the § 523(a)(8) exception to discharge is an exception to nondischargeability of a student loan if repayment creates an undue hardship for the debtor. See 11 U.S.C. § 523(a)(8). Under Federal Rule of Bankruptcy Procedure ("FRBP") 4007(b), a § 523(a)(8)(B) action can be brought at any time. See FED.R.BANKR.P. 4007(b).
Appellants rely on Superior Court v. Heincy (In re Heincy), 858 F.2d 548 (9th Cir. 1988), for their ripeness argument. The bankruptcy court in Heincy held that the "dischargeability issue was not ripe for resolution until ... the debtor ... successfully completed payments under the plan." Id. at 550. However, Heincy is distinguishable. In Heincy, the debt was for criminal restitution. Id. at 549.7 Such a debt is dischargeable in a chapter 13 upon completion of the plan payments. Id. at 550. See also 11 U.S.C. § 1328(a). However, student loans are excepted from a § 1328 discharge. See 11 U.S.C. § 1328(a)(2). Therefore, Heincy does not support Appellants' position.
Appellants also cite United States v. Cleveland (In re Cleveland), 89 B.R. 69, 72 (9th Cir. BAP 1988), for support. However, Cleveland is also distinguishable. Cleveland involved a debtor's attempt to discharge a Health Education Assistance Loan ("HEAL") governed by 42 U.S.C. § 292f(g).8 Pursuant to § 292f(g), HEAL loans cannot be discharged until "after the expiration of the seven-year period beginning on the first date when repayment of such loan is required...." 42 U.S.C. § 292f(g). In Cleveland, we held that the complaint was "premature" because the clear language of § 292f(g) prohibited a discharge until the expiration of the § 292f(g) waiting period. Cleveland, 89 B.R. at 72. See also Student Loan Mktg. Ass'n v. Zierden-Landmesser (In re Zierden-Landmesser), 214 B.R. 300, 301 (Bankr. M.D.Pa.1997) ().
On the other hand, student loans can be discharged pursuant to § 523(a)(8) if the petition is filed seven years after the loan first became due or repayment will cause a debtor undue hardship. See 11 U.S.C. § 523(a)(8). The filing of a complaint at any time to discharge a student loan based on undue hardship does not conflict with any statutory right or procedure or with public policy. Furthermore, FRBP 4007(b) expressly permits the filing of a § 523(a)(8) complaint at any time.9 See FED.R.BANKR.P. 4007(b).
Accordingly, Appellees had the right to file the Complaint when they did, and the issues were ripe for adjudication at that time.
Appellants argue that the bankruptcy court erred in granting Appellees a partial...
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