506 B.R. 287
Bankr. W.D. Wash.2014Background
- Benson co-signed two $4,000 student loans from SLMC for Corbin in 2007; Corbin used proceeds for University of Phoenix tuition. Benson received no consideration for co-signing.
- SLMC contacted Benson in 2011 about an alleged default; Benson paid SLMC $8,455.34 in November 2011 to protect her credit and later obtained a state-court default judgment against Corbin for that amount.
- Corbin declared she was actually in forbearance when SLMC contacted Benson and that Benson’s payment foreclosed additional forbearance options.
- Benson sued in state court and then sought a bankruptcy determination that the judgment debt is nondischargeable under 11 U.S.C. § 523(a)(8)(A)(i) and (ii); parties stipulated facts and sought summary judgment.
- Court addressed whether an accommodation party (or subrogee/assignee) who pays a student loan can invoke § 523(a)(8) nondischargeability rights of the original lender.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether an accommodation party who pays an insured student loan can assert § 523(a)(8)(A)(i) (loan made/insured by government) | Benson: paying under RCW 62A.3‑419(e) subrogates her to SLMC’s rights so she can invoke (A)(i) | Corbin: federal bankruptcy law (Trahan) bars subrogees/sureties from invoking nondischargeability; state-law subrogation cannot override federal discharge policy | Denied for Benson — (A)(i) claim fails. Ninth Circuit precedent and discharge policy prevent an accommodation party from asserting (A)(i) rights. |
| Whether Benson’s judgment constitutes an "obligation to repay funds received as an educational benefit" under § 523(a)(8)(A)(ii) | Benson: her accommodation enabled funds to be received for education, so the resulting obligation is an educational‑benefit obligation and nondischargeable under (A)(ii) | Corbin: the judgment arises from a state‑court obligation to Benson, not directly from an educational loan; (A)(ii) does not apply | Granted for Benson — (A)(ii) claim succeeds. Court holds accommodation that secures funds used for education gives rise to an obligation under (A)(ii). |
| Whether state statutory subrogation/RCW accommodation rights control over federal discharge policy | Benson: state law (RCW and UCC accommodation rules) allows enforcement of lender’s rights after payment | Corbin: federal bankruptcy policy and Ninth Circuit precedent limit state‑law subrogation effect in bankruptcy | Court: federal policy controls; state law cannot override § 523 discharge framework as to (A)(i) claim. |
| Whether defendant may recover fees under § 523(d) | Corbin: requested fees under § 523(d) for defending the § 523 action | Benson: § 523(d) applies only to § 523(a)(2) actions | Denied — § 523(d) inapplicable because this action arises under § 523(a)(8). |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Grogan v. Garner, 498 U.S. 279 (burden to prove nondischargeability by preponderance)
- National Collection Agency v. Trahan, 624 F.2d 906 (9th Cir.) (surety/subrogee cannot assert governmental nondischargeability exception; federal discharge policy limits state subrogation)
- Hamada v. Far East Nat’l Bank (In re Hamada), 291 F.3d 645 (9th Cir.) (discussion of types of subrogation and treatment under § 509)
- Boyajian v. Citibank (In re Boyajian), 564 F.3d 1088 (9th Cir.) (assignee can pursue nondischargeability where debtor’s misconduct is at issue)
- Plein v. Lackey, 149 Wash.2d 214 (Wash. 2003) (rules on accommodation parties and enforcement under state law)