Strahm v. Great Lakes Higher Education Corporation

UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION AT DAYTON
In re: 	LINDA J. STRAHM ,
Debtor
Case No. 	04-39457
Adv. No. 	05-3147
LINDA J. STRAHM ,
Plaintiff
v.
G REAT L AKES HIGHER EDUCATION
CORPORATION,
Defendant
Judge Waldron
Chapter 13
DECISION ON ORDER DENYING
MOTION TO DISMISS FOR
FAILURE TO STATE A CLAIM
DATED AT DAYTON, OHIO this 6th Day of July, 2005:
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: July 06, 2005
____________________________________________________________
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Background
On October 28, 2004, Linda J. Strahm (the Debtor), filed a chapter 13
petition (Estate Doc. 1) and proposed a chapter 13 plan. (Estate Doc. 4) The
Debtor scheduled a student loan debt in the amount of $2,641.68 on Schedule F.
(Estate Doc. 1) The chapter 13 plan was, without objection, confirmed on
February 1, 2005 (Estate Doc. 12) and provides for payments of $218 per month
for at least 36 months with a proposed dividend to unsecured creditors of one
percent.
On March 25, 2005, the Debtor filed an adversary proceeding against
Great Lakes Higher Educational Corporation (the Creditor), seeking to discharge
the student loan debt pursuant to the undue hardship standard of 11 U.S.C. §
523(a)(8). (Adv. Doc 1)
On April 27, 2005, the Creditor filed a Motion to Dismiss For Failure to
State a Claim. (Adv. Doc. 5) 	The standard for determining a motion to dismiss
imposes stringent requirements on the movant. A motion to dismiss must not be
granted unless it appears beyond doubt that the movant is unable to prove any
set of well-pleaded facts in support of the claim which would entitle the movant to
relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957); Eubanks v.
CBSK Fin. Group, Inc, 385 F.3d 894, 897 (6th Cir. 2004); Talbot v. Ohio Student
Loan Comm’n (In re Stall), 125 B.R. 754, 756 (Bankr. .S.D. Ohio 1991).
The Creditor asserts that this complaint (and suggests that any other
similar complaints), filed in the early months following confirmation of a chapter
13 case, rather than the later months near the time of discharge, must be
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dismissed for failure to state a claim since the issue of the dischargeability of the
student loan debt is not “ripe” and further:
Because the Plaintiff’s circumstances may change in the next five
years, now is not the time to consider this complaint. Because any
determination now would be speculative, the Plaintiff’s complaint
must be dismissed until consummation of Plaintiff’s Chapter 13
Plan is imminent. (Adv. Doc. 5)
On May 17, 2005, the Debtor filed a Response To Motion To Dismiss
(Adv. Doc. 6) which asserted:
Your debtor wishes to have the determination made in the within
case, so that it might be possible to complete the payments in the
within chapter 13, if the court determines that it is possible, after
payment of the amounts due all other unsecured creditors under
the plan, so that the discharge in this chapter 13 may truly be a
discharge of all debts included by the debtor in her plan.
On May 24, 2005, the Creditor filed a Reply to Response To Motion To
Dismiss (Adv. Doc. 8).
Issue
May the Debtor file an adversary proceeding seeking to determine the
dischargeability of a student loan in the early months following confirmation of a
chapter 13 plan, rather than the later months near the time of discharge, or, upon
the Creditor’s motion, must such an adversary be dismissed for failure to state a
claim upon which relief can be granted?
Determination
The court determines that a debtor in a chapter 13 case is not prohibited
from filing an adversary proceeding seeking to determine the dischargeability of a
student loan at any point during the chapter 13 case and is not subject to
dismissal for failure to state a claim upon which relief can be granted by filing
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such an adversary proceeding in the early months following confirmation of a
chapter 13 plan, rather than in the later months near the time of discharge.
Analysis
Applicable Bankruptcy Rule
Initially, it is necessary to note that Bankruptcy Rule 4007(b), in relevant
part, specifically authorizes that “[a] complaint other than under § 523(c) may be
filed at any time.” (emphasis added) A student loan adversary, brought pursuant
to 11 U.S.C. § 523(a)(8), is not raised under § 523(c) and, accordingly, may be
filed at any time.
The creditor, appropriately, does not argue that any provisions of the
Bankruptcy Rules, the Bankruptcy Code, or any other statutes require a debtor to
file an adversary proceeding seeking to determine the dischargeability of a
student loan at any specific time in a chapter 13 case.
Applicable “Ripeness” Considerations
In the absence of a Code or Rule based argument, the Creditor’s primary
argument is a policy argument that the timing of the filing of this adversary is
such that the determination of the dischargeability of the student loan is not “ripe”
for decision. 	Although both counsel use the term “ripe,” the court rejects any
assertion that this court lacks subject matter jurisdiction or any decision would be
a mere advisory opinion. See generally J-II Enters., LLC v. Bd. of Comm’rs of
Warren 	County, 	Ohio, 	2005 	WL 	1285640, 	*1 	(6th 	Cir. 	May 	18, 	2005)
(unpublished), citing Bigelow v. Michigan Dep’t of Natural Res., 970 F.2d 154,
157 (6th Cir. 1992). 	Jurisdiction in this court is pursuant to 28 U.S.C. § 1334(a)
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in a case referred to this court under the Standing Order of Reference entered in
this District. 	The court determines this is a core proceeding pursuant to 28
U.S.C. § 157(b)(2)(I) [See 11 U.S.C. § 523(a)(8)] 	None of the parties’ filings
contest these determinations.
The parties do not employ the term “ripe” in a jurisdictional sense, but,
rather, in a “timing” sense. 	The argument presented is more prudential, rather
than jurisprudential. 	The Creditor asserts (1) the Debtor’s discharge is “distant
and uncertain” and (2) circumstances may change which would result in a
different determination of undue hardship in the future. 	This policy argument
continues that it would be an inappropriate burden on the Creditor and an
unnecessary expenditure of judicial resources to require pretrial preparations and
a resolution through an evidentiary, or non-evidentiary, determination at this
stage of this chapter 13 case, rather than at or near the time of discharge. 	The
court recognizes the case law adopting the policy arguments advanced by the
Creditor as an operating principle in various bankruptcy courts. 	See, e.g.,
Bender v. Educ. Credit Mgmt. Corp. (In re Bender), 297 B.R. 126, 132-33 (D.
Neb. 2003) (Court finding student loan adversary filed by chapter 13 debtor is not
yet ripe for adjudication and collecting cases.) 	This court respectfully disagrees
with such decisions 1 and rejects the Creditor’s request to establish a rigid time
period regarding such a complaint, particularly when such a time restriction is
notably absent from the Bankruptcy Code, Bankruptcy Rules or other statutes.
1 The Creditor has attached an Order Granting Defendant’s Motion To Dismiss in a case from the
Southern District of Ohio. Although this court recognizes the Defendant in that case was Great
Lakes, the two sentence order, without any factual information or other analysis, is not helpful to
this court in determining the pending issues.
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It should also be noted in determining § 523(a)(8) issues, consideration of
the factor involving whether “additional circumstances exist indicating that this
state of affairs is likely to persist for a significant portion of the repayment period”
of the student loans. [Oyler v. Educ. Credit Mgmt. Corp. 	(In re Oyler), 397 F.3d
382, 385 (6th Cir. 2005)] always requires the court to consider a future time
period where certainty is never available, whether evidence in regard to this
factor is presented in the early stages, or the later stages, of a chapter 13 case.
Although the court, as is required, expresses no position on what prefiling
or filing considerations, including timing, should be undertaking by a debtor in
connection with a § 523(a)(8) adversary, the court does note the significance
recently given by the Sixth Circuit to income contingent repayment opportunities:
While 	not 	a 	per 	se 	indication 	of 	a 	lack 	of 	good 	faith, 	see
Educational Credit Management Corp. v. Polleys, 356 F.3d 1302,
1311 (10th Cir.2004), Tirch's decision not to take advantage of the
ICR is probative of her intent to repay her loans. See Brunner, 831
F.2d at 397. In cases involving a partial discharge of student loans,
"it is a difficult, although not necessarily an insurmountable burden
for a debtor who is offered, but then declines the government's
income contingent repayment program, to come to this Court and
seek an equitable adjustment of their student loan debt." In re
Swinney, 266 B.R. 800, 806-07 (Bankr.N.D.Ohio 2001) (citing In re
Ritchie, 	254 	B.R. 	913, 	923 	(Bankr.D.Idaho 	2000) 	and 	In 	re
Douglass, 237 B.R. 652, 657 (Bankr.N.D.Ohio 1999)); see also In
re Storey, 312 B.R. 867, 875 (Bankr.N.D.Ohio 2004); In re Alderete,
289 B.R. 410, 420 (Bankr.D.N.M.2002).
Tirch v. Pennsylvania Higher Educ. Assistance Agency (In Re Trich), 409 F.3d
677, 682 (6th Cir. 2005).
The policy 	considerations, advanced 	in connection with the issue of
“ripeness”, do not persuade this court to adopt a rigid rule prohibiting the Debtor’s
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filing, when neither the applicable bankruptcy Codes and Rules require such a
result.
Applicable Appellate Authority
Although appellate authority has cautioned that the presentation of these
issues in an earlier, rather than a later, time period may be disadvantageous to
debtors, it has rejected the Creditor’s position. In Ekenasi v. The Educ. Res. Inst.
(In re Ekenasi), 325 F.3d 541, 546-47 (4th Cir. 2003), the Fourth Circuit Court of
Appeals rejected any time restriction on filing a student loan adversary in chapter
13:
We first address Appellants' contention that Ekenasi's adversary
proceeding seeking a discharge of his student loan obligations as
an "undue hardship" was premature. More specifically, they urge us
to follow those courts that have held that student loan hardship
cases are never ripe for adjudication in a Chapter 13 case until
near or at the time of completion of the Chapter 13 plan. See Pair v.
United 	States 	(In 	re 	Pair), 	269 	B.R. 	719, 	720-21
(Bankr.N.D.Ala.2001); Soler v. United States (In re Soler), 250 B.R.
694, 697 (Bankr.D.Minn.2000); Raisor v. Education Loan Servicing
Ctr., Inc. (In re Raisor), 180 B.R. 163, 167 (Bankr.E.D.Tex.1995).
Appellants argue that this interpretation is implicit in the language of
§§ 	1328 	and 	523(a)(8), 	which 	focuses 	on 	the 	debtor's
circumstances at the point of discharge. Ekenasi, on the other
hand, urges us to follow those cases that allow a debtor to seek a
hardship determination at any time of his choosing. He contends
the debtor may choose "the date of the 'snapshot' which the [c]ourt
must examine for Brunner purposes." Goranson v. Pennsylvania
Higher Educ. Assistance Agency (In re Goranson), 183 B.R. 52, 56
(Bankr.W.D.N.Y.1995); 	see 	United 	Student 	Aid 	Funds, 	Inc. 	v.
Taylor (In re Taylor), 223 B.R. 747, 751 (B.A.P. 9th Cir.1998).
As Appellants correctly observe, the Brunner factors, which were
developed in the context of an adversary proceeding brought to
discharge student loan obligations at the conclusion of a Chapter 7
proceeding, do not transfer neatly to an adversary proceeding
brought to discharge student loan obligations in the midst of the
debtor's attempts to comply with a confirmed Chapter 13 plan.
Brunner requires the debtor to establish that he "cannot maintain,
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based on current income and expenses, a 'minimal' standard of
living" for himself and his dependents if he is forced to repay the
student loans and that this condition will "likely ... persist for a
significant portion of the repayment period of the student loans."
Brunner, 831 F.2d at 396 (emphasis added).
In a Chapter 7 case, the bankruptcy proceeding is short-lived and
the 	debtor 	achieves 	a 	quick 	discharge 	of 	his 	unsecured,
dischargeable debts. Thus, predicting whether the debtor's current
inability 	to 	maintain 	a 	minimal 	standard 	of 	living 	will 	persist
throughout a significant portion of the repayment period is based
upon a known, current situation. Where an adversary proceeding
seeking a discharge of student loan obligations is brought early in a
Chapter 13 case, however, the question of whether the debtor will
be unable to maintain a minimal standard of living throughout a
significant portion of the repayment period must be premised upon
a prediction of what the debtor's situation will be at the conclusion
of the Chapter 13 plan which, as here, may extend up to five years.
Having 	carefully 	considered 	these 	problems, 	as 	well 	as 	other
rationales underlying the opposing viewpoints that have developed
on this issue, we decline to adopt a hard and fast rule which would
preclude bankruptcy courts from ever entertaining a proceeding to
discharge student loan obligations until at or near the time the
debtor has completed payments under a confirmed Chapter 13
plan. The text of the pertinent statutes does not prohibit such an
advance 	determination 	and, 	although 	cognizant 	of 	the 	policy
concerns expressed by Congress in its refusal to discharge such
loans, 	we 	can 	envision 	exceptional 	circumstances 	where 	the
Brunner 	factors 	could 	be 	predicted 	with 	sufficient 	certainty 	in
advance 	of 	the 	conclusion 	of 	a 	Chapter 	13 	proceeding.
Nevertheless, while we do not preclude debtors from seeking a
discharge 	determination 	of 	student 	loan 	debts 	prior 	to 	the
completion of payments under a confirmed Chapter 13 plan, our
cognizance of those policy concerns also counsels us to emphasize
that it will be most difficult for a debtor, who has advanced his
education 	at 	the 	expense 	of 	government-guaranteed 	loans, 	to
prove with the requisite certainty that the repayment of his student
loan 	obligations 	will 	be 	an 	"undue 	burden" 	on 	him 	during 	a
significant portion of the repayment period of the student loans
when the debtor chooses to make that claim far in advance of the
expected completion date of his plan.
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See also United Student Aid Funds Inc. v. Taylor (In re Taylor), 223 B.R. 747
(B.A.P. 9th Cir. 1998); Goranson v. Pennsylvania Higher Educ. Assistance
Agency (In re Goranson), 183 B.R. 52 (Bankr. W.D.N.Y. 1995).
Applicable Sixth Circuit Authority
The Creditor argues:
Although it is not clear, it appears that the Debtor/Plaintiff believes
that this Court’s determination of whether the student loans will be
discharged upon the consummation of her plan will impact her plan
payments 	or 	ECMC’s 	claim 	in 	the 	case. 	The 	Debtor/Plaintiff
requests that this Court “allow this matter to proceed on its merits
and to allow the debtor’s plan to be modified,” which suggests her
belief 	that 	this 	Court’s 	determination 	could 	affect 	the 	claims
allowance process. 	This demonstrates a misunderstanding of the
claims process. 	Like any other claim in this case, ECMC’s claim is
based upon the amount owed as of the date of filing. To the extent
this 	Court 	determines 	that 	the 	debt 	underlying 	that 	claim 	is
dischargeable, 	such 	determination 	merely 	affects 	the
Debtor/Plaintiff’s post-discharge obligations on that debt – it does
not affect the amount of ECMC’s claim or ECMC’s right to receive
distributions from the Debtor/Plaintiff’s chapter 13 estate.
(Adv. Doc. 8).
The Sixth Circuit, however, has determined that, provided a bankruptcy
court determines as a part of an adversary proceeding, a student loan debt
constitutes an undue hardship pursuant to § 523(a)(8), the court, pursuant to
§105(a), 	can, 	upon 	discharge, 	provide 	complete, 	or 	partial, 	relief 	from 	the
payment requirements of a student loan debt by altering the total amount, or the
components of the amount, of the student loan debt which the debtor will be
required to pay:
Therefore, when a debtor does not make a showing of undue
hardship 	with 	respect 	to 	the 	entirety 	of 	her 	student 	loans, 	a
bankruptcy 	court 	may--pursuant 	to 	its 	§ 	105(a) 	powers--
contemplate 	granting 	the 	various 	forms 	of 	relief 	discussed 	in
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Hornsby, 	including granting a partial 	discharge of the debtor's
student loans. See DeMatteis v. Case W. Reserve Univ. (In re
DeMatteis), 97 Fed.Appx. 6, 9, No. 02-3003, 2004 WL 445167, at
(6th 	Cir. 	Mar.8, 	2004) 	("Although 	the 	Hornsby 	decision 	is 	not
perfectly clear on the question of partial discharge, the best reading
is that Hornsby does in fact contemplate partial discharge under §
105."). Accordingly, PHEAA's assertion that a bankruptcy court
must rely exclusively on § 523(a)(8) to grant any discharge of
student loans in bankruptcy must fail.
Miller v. Pennsylvania Higher Educ. Assistance Agency (In re Miller), 377 F.3d
616, 620 (6th Cir. 2004).
Although 	understandably 	advocating its position, the Creditor fails to
recognize the significance of the continuing, collective component of a chapter 13
bankruptcy. 	Of course, if the debt is determined to be non-dischargeable,
nothing has changed for the parties, except the significance of the preclusive
effect of the decision; however, if the Debtor prevails, in whole, or in part, a
number of options may be available to the Debtor, which may impact future
collective proceedings in the chapter 13 case. 2
Conclusion
Although the Court expresses no opinion concerning the point in time at
which the Debtor may chose to seek a determination concerning the discharge of
a §523(a)(8) debt, the Creditor’s position that the Debtor is never permitted, in a
chapter 13 case, to seek such a judicial determination until, at, or near, discharge
is rejected. 	The Creditor’s Motion to Dismiss For Failure to State a Claim (Adv.
2 As with any judicial determination impacting the total, or partial, amount a debtor is required to
pay in connection with a specific claim in the chapter 13 case, options become available which
may not have been otherwise available. 	Although it is the responsibility of the parties, not the
court, to evaluate such options, they might include modification of the chapter 13 plan, increased
funding of the chapter 13 plan, accelerated distribution of funds in the chapter 13 plan,
conversion, dismissal or other options.
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Doc. 	5) 	is 	DENIED. 	An 	order 	in 	accordance 	with 	this 	decision 	will 	be
simultaneously entered.
SO ORDERED.
c:
Duane A. Goettemoeller, Esq., 126 N. Main Ave., P.O. Box 987, Sidney, Ohio
45365 (Atty. for the Plaintiff)
Jeffrey S. Rosenstiel, Esq., 2200 PNC Center, 201 East Fifth Street, Cincinnati,
Ohio 45202 (Atty. for Educational Credit Management Corporation)
###
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