Pelkowski, In re

• Decision Date: 24 March 1993
• Docket Number: No. 92-3309,92-3309
• Citation: 990 F.2d 737
• Parties: , 61 USLW 2582, 28 Collier Bankr.Cas.2d 1023, Bankr. L. Rep. P 75,192 In re Virginia M. PELKOWSKI a/k/a Virginia M. Dodd, Debtor, Appellant, Ohio Student Loan Commission, The Loan Servicing Center, James K. McNamara, Esq., Trustee.
• Court: U.S. Court of Appeals — Third Circuit

Page 737

990 F.2d 737

120 A.L.R.Fed. 853, 61 USLW 2582, 28

Collier Bankr.Cas.2d 1023,

Bankr. L. Rep. P 75,192

In re Virginia M. PELKOWSKI a/k/a Virginia M. Dodd, Debtor, Appellant Ohio Student Loan Commission, The Loan Servicing Center James K. McNamara, Esq., Trustee.

No. 92-3309.

United States Court of Appeals Third Circuit.

Argued Dec. 15, 1992.

Decided March 24, 1993.

Gary H. Nash (argued), Yochim, Skiba, Moore & Nash, Erie, PA, for appellant.

Lee Fisher, Ohio Atty. Gen., Jay M. Patterson (argued), Asst. Atty. Gen., Columbus, OH, for appellee, Ohio Student Loan Comn.

Sydelle Pittas (argued), Powers & Hall, P.C., Boston, MA, for amicus-appellees The Education Resources Institute; Massachusetts Higher Educ. Assistance Corp.; Massachusetts Educ. Financing Auth.; and Pennsylvania Higher Educ. Assistance Agency.

Before SLOVITER, Chief Judge, GREENBERG, Circuit Judge, and POLLAK, District Judge. ^*

OPINION OF THE COURT

SLOVITER, Chief Judge.

The issue before us, whether a non-student co-obligor of a guaranteed educational loan may be discharged from that debt in bankruptcy without proving one of the statutory exceptions, is one of first impression in the courts of appeals. Over the last ten years, the bankruptcy courts have divided on this issue, ¹ although the three district courts to have considered it have decided against discharge. ²

I. Facts and Procedural History

The relevant facts were stipulated in the bankruptcy court. Appellant Virginia M. Pelkowski, a/k/a Virginia M. Dodd, filed a voluntary petition for Chapter 7 bankruptcy and listed among her debts seven loans guaranteed by the Ohio Student Loan Commission for the educational expenses of her children, Christine and Michael. Pelkowski filed a complaint against the Loan Commission to determine dischargeability of the seven loan debts under Bankr.Rule 4007 and 11 U.S.C. § 523(a)(8) (1988).

Pelkowski signed six of the notes as co-maker, four with Christine and two with Michael. ³ As of April 23, 1991, Pelkowski's liability was $7,163.74 plus 9% interest on the loans for Christine's educational expenses and $3,817.12 plus 9% interest on the loans for Michael's educational expenses.

The bankruptcy court ordered the debts discharged. 135 B.R. 254 (Bankr.W.D.Pa.1992). The court held that 11 U.S.C. § 523(a)(8), the statutory provision limiting dischargeability of debts for certain educational loans, was inapplicable to non-student co-makers of notes for such loans. Thus, Pelkowski was not required to prove either of the exceptions to nondischargeability, i.e., that the loan came due more than five (now seven) years before she filed the bankruptcy petition, 11 U.S.C. § 523(a)(8)(A), or that nondischarge of the debt would create "undue hardship" for her and her dependents, id. § 523(a)(8)(B). The bankruptcy court acknowledged that there was a split of authority, but chose to follow cases such as In re Boylen, 29 B.R. 924, 926-27 (Bankr.N.D.Ohio 1983), which held that section 523(a)(8) was intended to apply only to student obligors. The Loan Commission appealed.

The district court reversed. It distinguished Boylen, treating as dictum the Boylen court's discussion of the applicability of section 523(a)(8) to non-student co-makers of loan notes. Instead, the district court agreed with the majority of recent bankruptcy court decisions which held that section 523(a)(8) applies equally to non-student co-makers and student makers. See cases cited note 1 supra. In view of the parties' stipulation in the bankruptcy court that Pelkowski could not meet either of the statutory exceptions to discharge, the district court held that the six loan debts were nondischargeable.

There was a seventh note which Pelkowski signed as sole maker for the educational expenses of Christine. The bankruptcy court, relying on In re Hudak, 113 B.R. 923 (Bankr.W.D.Pa.1990), held that Pelkowski's debt as sole maker was nondischargeable and ordered the debt of $1,388.89 plus 12% interest not discharged. Pelkowski apparently conceded this issue and did not appeal the order of nondischargeability of that debt to the district court, nor does she challenge that holding here.

Pelkowski appeals the order holding nondischargeable the six loans on which she served as co-obligor. We have jurisdiction under 28 U.S.C. § 158(d) (1988). As this case turns on the interpretation of a provision of the Bankruptcy Code, our review is plenary. In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir.1992). ⁴

II. Discussion

A.

The Guaranteed Student Loan Program (hereafter Program), which was established as part of the comprehensive Higher Education Act of 1965, was designed to ensure that colleges and students attending colleges would have reasonable access to low interest rate loans. S.Rep. No. 673, 89th Cong., 1st Sess. (1965), reprinted in 1965 U.S.C.C.A.N. 4027, 4030. Under the Program, educational loans from banks, credit unions, educational institutions, and other lenders are insured by the United States Department of Education or by state agencies or nonprofit organizations and reinsured by the Department of Education. 20 U.S.C. §§ 1078, 1084, 1085(d) (1988); see H.R.Rep. No. 595, 95th Cong., 2d Sess. 135, 140 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6096, 6101. If the borrower fails to make repayments because of death or disability, or is relieved of the obligation to pay through discharge in bankruptcy, the lender is entitled to repayment from the federal government. 20 U.S.C. § 1087; see H.R.Rep. No. 595, at 135, 140, reprinted in 1978 U.S.C.C.A.N. at 6096, 6101.

Initially, loans made under the Program were fully dischargeable in bankruptcy. A major change in this regard was effected by the Bankruptcy Reform Act of 1978 which severely restricted dischargeability of student loans. ⁵ That provision, section 523(a)(8), in the form applicable to Pelkowski, reads:

(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) (1988). ⁶

The parties stipulated in the bankruptcy court that the Ohio Student Loan Commission is a "governmental unit" and thus the loan program is within the statute. The parties also stipulated that payment on Pelkowski's seven loans did not come due more than five (or seven) years before she filed for bankruptcy, and that excepting the debts from discharge would not create "undue hardship" for her and her dependents. Thus the appeal turns only on whether Pelkowski's debt as co-maker on the notes signed for loans for her children's education falls within section 523(a)(8).

B.

Pelkowski first suggests that because she is not a student, the statute does not apply to her. Apparently Pelkowski seeks to distinguish between signatories to the loan who receive the educational benefits and those who do not, and to argue that only the former are covered by the provision making such debts nondischargeable. Some courts have made a similar distinction, holding that an "educational loan" includes only the debt incurred by the student for his or her own education. See, e.g., In re Washington, 41 B.R. 211, 214 (Bankr.E.D.Va.1984) (student loan "is only an 'educational loan' as to that party that received the benefits of the loan"). But see In re Martin, 119 B.R. 259, 261 (Bankr.E.D.Okla.1990) (debt is educational loan because "the obligation incurred by the [debtors] was for educational purposes, albeit for their son").

We find no support in the statutory language for any distinction based on the status of the borrower as student or as beneficiary of the education. Section 523(a)(8) does not refer to a "student debtor" but applies to limit discharge of any "individual debtor" from "any debt" for a covered educational loan. In the absence of clearly expressed contrary legislative intent, the statutory language must be regarded as conclusive. Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980); United States v. Bey, 736 F.2d 891, 893 (3d Cir.1984).

Like the other subsections of 11 U.S.C. § 523(a), section 523(a)(8) describes a particular kind of debt that is excepted from discharge. See 11 U.S.C. § 523(a)(1)-(8) (1988); id. § 523(a)(9)-(12) (Supp.III 1992). Examples are tax debts, excepted by subsection (1), and spousal and child support obligations, excepted by subsection (5). 11 U.S.C. § 523(a)(1), (a)(5); cf. In re Roberts, 149 B.R. 547 (C.D.Ill.1993) ("The focus of § 523(a)(8) is on the nature and character of the loan, not how the recipient actually spent the money."). We note that any suggestion that there is a statutory distinction based on the status of the obligor of the note is inconsistent with Pelkowski's own concession that the seventh note, for which she was the sole maker, cannot be discharged.

In any event, the language and structure of the statute reveal no intent to restrict its reach to student debtors for expenses for their own education. To the contrary, such exceptions to nondischargeability as exist are "carefully delineated in subsections (A) and (B)." In re Barth, 86 B.R. 146, 148 (Bankr.W.D.Wis.1988). Our rejection of any limitation of section 523(a)(8) based on the beneficiary of the loan or the recipient of the education is consistent with the weight of authority. See In re Wilcon, 143 B.R. 4, 5 (D.Mass.1992) ("[t]he plain language of 11 U.S.C. § 523(a)(8) mandates that any debt...