Ray v. Educ. Credit Mgmt. Corp. (In re Ray), Case No.: 17-12521-13

Decision Date20 September 2018
Docket NumberAdversary No.: 17-102,Case No.: 17-12521-13
Citation591 B.R. 834
Parties IN RE: Donna B. RAY, Debtor. Donna B. Ray, Plaintiff, v. Educational Credit Management Corporation, Performant Recovery, Old National Bank, Anchor Bancorp Wisconsin Inc., and ABC Corporation, Defendants.
CourtU.S. Bankruptcy Court — Western District of Wisconsin

591 B.R. 834

IN RE: Donna B. RAY, Debtor.

Donna B. Ray, Plaintiff,
Educational Credit Management Corporation, Performant Recovery, Old National Bank, Anchor Bancorp Wisconsin Inc., and ABC Corporation, Defendants.

Case No.: 17-12521-13
Adversary No.: 17-102

United States Bankruptcy Court, W.D. Wisconsin.

Signed September 20, 2018

591 B.R. 836

Reed J. Peterson, Reed Peterson & Associates, Madison, WI, for Plaintiff.

Jeffrey W. Guettinger, Eau Claire, WI, for Defendant.

Performant Recovery, Livermore, CA, pro se.

Old National Bank, Evansville, IN, pro se.

Anchor BanCorp Wisconsin Inc., Madison, WI, pro se.

ABC Corporation, pro se.


Hon. Catherine J. Furay, U.S. Bankruptcy Judge

Plaintiff Donna Ray filed a chapter 13 petition. She filed this adversary proceeding seeking a finding that Defendant Educational Credit Management Corporation ("ECMC") is prohibited from collecting her student loans and discharging her from liability under 11 U.S.C. §§ 727(a) and (b).1 Plaintiff also objected to ECMC's claim in her chapter 13 petition. The Court

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held a trial in the adversary and a final hearing on the claim objection.


On September 16, 2004, Plaintiff signed a Federal Consolidation Loan Application and Promissory Note ("Note") through which Anchor Bank consolidated her preexisting student loans. The Note referred to a preexisting debt in the amount of $24,400. Plaintiff testified she had several student loans, but she did not clarify or recall which loans she intended to consolidate when she filled out the application. In any event, whatever loans she consolidated were student loans—Plaintiff certified on the Note that the proceeds of the relevant loans were "used to finance my education or my child's education."

The Note identifies Anchor Bank as the lender. It lists no guarantor. ECMC presented testimony that Great Lakes Higher Education Guaranty Corporation ("Great Lakes") was the guarantor. Donna Thigpen, ECMC's witness, testified that Great Lakes paid the balance of the Note to Anchor Bank after Plaintiff defaulted. Great Lakes then held title to the Note. Plaintiff provided no contrary evidence.

In 2014, Great Lakes contacted Plaintiff about her default. They explained they were the guarantor of her loan and provided information related to the loan. Two months later, Plaintiff sent a letter to Great Lakes requesting information on the Note. Great Lakes replied with a copy of four pages of the original loan package. It also provided a payment history explanation. The payment history explicitly names Great Lakes as the guarantor and says it acquired title to the loan through a purchase. The Note contains:

• Identification of Plaintiff as the Borrower

• References for Plaintiff

• Identification of the educational loan indebtedness—the loan holder (Anchor Bank), the person asking to consolidate (borrower Plaintiff) and the amount ($24,400)

• Certifications by the Plaintiff

• The Promissory Note section containing the promise to pay to the order of the lender the sums listed plus interest and fees

• Acknowledgement that Plaintiff read the terms and conditions of the Note, the Certification and Authorization, and the Borrower's Rights and Responsibilities Statement

• Plaintiff's acknowledgement that she was entitled to a copy of the Note and the Rights and Responsibilities Statement at the time of signing.

In that same month, Plaintiff also received a letter from Performant Recovery, Inc. ("Performant"). The letter asserts Plaintiff failed to make payments and Great Lakes therefore referred the Note to Performant for collection. Plaintiff alleged in her complaint that Performant claimed an interest in the Note. But it is clear Performant served only as the collection agent on behalf of Great Lakes.

In 2016, Plaintiff filed a different chapter 13 petition. ECMC filed a claim in that case. Plaintiff objected to the claim on the grounds ECMC had not provided the underlying contract. ECMC did not respond to the objection and the Court denied ECMC's claim. That bankruptcy was dismissed at Plaintiff's request in June 2017.

Shortly after Debtor filed her 2016 chapter 13, Great Lakes assigned the Note to ECMC. It appears Great Lakes sent a letter to evidence a batch assignment of loans for debtors who had filed bankruptcy. ECMC presented testimony that Great Lakes automatically assigns all loans to ECMC when the borrower files bankruptcy.

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Again, Plaintiff provided no contrary evidence.


The Court has jurisdiction to hear and determine this contested matter pursuant to 28 U.S.C. §§ 157 and 1334 and the general order of reference entered in this district. This is a core proceeding. See 28 U.S.C. §§ 157(b)(2)(A), (I), and (O).

A. Dischargeability Under 11 U.S.C. § 727

Plaintiff filed her adversary under sections 727(a) and (b). That section says the Court shall grant a discharge except in certain circumstances that are not relevant here. It appears Plaintiff cites that section under the belief the previous petition discharged the Note. ECMC filed a claim in the previous case. Plaintiff objected to that claim. Because ECMC did not respond to the objection, the Court denied the claim in that case. No action was filed seeking dischargeability of the loan. Plaintiff then voluntarily dismissed the chapter 13 without a discharge.

Despite the Court's order denying the claim, the Note was not discharged in the previous chapter 13. First, there was no discharge. Thus, none of Debtor's liabilities were discharged. The mere fact the Court sustained the objection does not determine the debt is dischargeable.

Second, failure to file or have a claim allowed affects distributions under a plan. A chapter 13 debtor is entitled to a discharge only after she has made all plan payments and the Court grants the discharge. 11 U.S.C. § 1328(a). Neither of those events came to pass in the 2016 case.

Finally, under Bankruptcy Rule 7001(6), an adversary is required to determine the dischargeability of a student loan. ECMC's claim in both the prior and current case relate to a student loan. It was not eligible for discharge unless so determined through an adversary. The parties brought no adversary in the previous case and the Note was not discharged. Plaintiff's claims under sections 727(a) and (b) fail and are dismissed.

B. Even if Pleaded, Plaintiff's Claims Under 11 U.S.C. § 523(a)(8) Fail

While the complaint asks that Plaintiff be discharged from liability on the ECMC claim, it appears she may have intended to file this adversary proceeding under some section 523(a)(8) theory since that governs dischargeability of student loans. Much of the argument presented by Plaintiff sounds like an argument under section 523(a)(8). For that reason, and in the interest of completeness, the Court will address such a claim based on the evidence and record here.

Section 523(a)(8) excepts from discharge a debt for an educational benefit, unless the obligation imposes an "undue hardship" on the debtor. Though the debtor bears the ultimate burden at trial to prove the elements of an undue hardship, "[t]he creditor bears the initial burden of establishing that the debt is of the type excepted from discharge under § 523(a)(8)." Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon) , 435 B.R. 791, 796 (1st Cir. BAP 2010). In the context of 523(a)(8), that rule makes practical sense because it is "consistent with the parties' relative access to information." Connecticut Student Loan Found. v. Keenan (In re Keenan) , 53 B.R. 913, 916 (Bankr. D. Conn. 1985).

ECMC has met its burden. ECMC produced the Note in which Plaintiff certified she incurred the original loans to support payments for her education. Plaintiff also executed the consolidation through

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the Federal Family Education Loan Program, a government program designed "to encourage lenders to loan money to students and their parents on favorable terms." Bible v. United Student Aid Funds, Inc. , 799 F.3d 633, 640 (7th Cir. 2015) (citation omitted). The Note therefore meets the definition of "educational benefit" under section 523(a)(8). Its proof of claim is also prima facie evidence of its claim.

The burden of proof therefore shifts to Plaintiff. Plaintiff does not argue the ECMC debt would impose an undue hardship. Instead, she insists the Note is invalid for three reasons—including incompleteness, insufficient evidence proving valid transfers between the various lenders and guarantors, and lack of consideration.

Her testimony was, in most significant parts, incredible. Plaintiff concedes she had many student loans. She admits she didn't pay some loans. She acknowledges looking into consolidation. The handwriting listing the student loans is hers. She admits the signature on the Note is hers. She admits receiving notice from Great Lakes when she didn't make payments. She says that she simply does not recollect signing the Note, agreeing to consolidate, or what loans...

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