549 B.R. 11
Bankr. E.D.N.Y.2016Background
- Debtor borrowed about $161,592 in private loans from Citizens Bank to attend St. Christopher’s College of Medicine in Senegal (an unaccredited, unlicensed foreign medical school).
- Debtor alleges St. Christopher’s misrepresented accreditation/licensure and that the degree would qualify her for U.S. medical boards; she ceased payments in 2011 and filed Chapter 7 in July 2015.
- Loans were private: not made, insured, guaranteed, or funded by any governmental unit or nonprofit; Citizens did not appear timely in the adversary proceeding and default was entered.
- Debtor sought a declaration that the Citizens loans were dischargeable because they do not fall within 11 U.S.C. § 523(a)(8).
- Citizens later appeared and challenged service (Rule 7004(h)) and personal jurisdiction but did not answer merits; court refused to set aside default and considered whether the complaint states a prima facie case.
- Court held the loans are dischargeable: they do not fall within § 523(a)(8)(A)(i) (government-funded/guaranteed), § 523(a)(8)(A)(ii) (educational benefits/scholarships/stipends), or § 523(a)(8)(B) (qualified education loans tied to eligible institutions).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the loans are non-dischargeable under § 523(a)(8)(A)(i) as loans made/guaranteed/insured by a governmental unit or under a government-funded program | Debtor: loans were private and not government-made, insured, guaranteed, or government-funded | Citizens: did not contest substance; challenged service and jurisdiction | Held: loans not government-made/insured/guaranteed or government-funded; § 523(a)(8)(A)(i) does not apply (dischargeable) |
| Whether the debt is an “obligation to repay funds received as an educational benefit, scholarship, or stipend” under § 523(a)(8)(A)(ii) (i.e., a catch-all for education-related debt) | Debtor: § 523(a)(8)(A)(ii) does not cover private loans used for tuition; it targets scholarships/benefits/stipends and conditional grants, not ordinary loans | Citizens (and some courts): § 523(a)(8)(A)(ii) should be read broadly to include debts whose proceeds were used for education | Held: § 523(a)(8)(A)(ii) is not a catch-all; it targets conditional educational benefits/scholarships/stipends (non-loan obligations); does not cover these private loans |
| Whether the loans are non-dischargeable as “qualified education loans” under § 523(a)(8)(B) (IRC §221) | Debtor: school was not an eligible educational institution, so loans are not “qualified education loans” | Citizens: did not present a contrary factual showing that school was eligible | Held: St. Christopher’s was not an eligible institution on the Federal School Codes List; loans are not qualified education loans under § 523(a)(8)(B) |
| Whether default judgment was appropriate despite service/formal defects and Citizens’ later appearance | Debtor: default noted; default judgment appropriate on prima facie showing | Citizens: challenged service (not certified mail as required by Rule 7004(h)) and personal jurisdiction; requested more time | Held: Court declined to set aside default; Citizens had notice and failed to timely defend; default judgment granted after Court found prima facie entitlement on the merits |
Key Cases Cited
- United States v. Sotelo, 436 U.S. 268 (Supreme Court 1978) (Bankruptcy discharge purpose: fresh start)
- Kawaauhau v. Geiger, 523 U.S. 57 (Supreme Court 1998) (exceptions to discharge construed narrowly)
- Nash v. Connecticut Student Loan Found., 446 F.3d 188 (1st Cir. 2006) (student-loan policy favors nondischargeability)
- Russello v. United States, 464 U.S. 16 (Supreme Court 1983) (statutory text separation indicates distinct meanings)
- Gustafson v. Alloyd Co., 513 U.S. 561 (Supreme Court 1995) (noscitur a sociis canon supports similar meaning in statutory lists)
- Mackey v. Lanier Collection Agency & Servs., Inc., 486 U.S. 825 (Supreme Court 1988) (avoid interpretations that render statutory provisions superfluous)
- Rolls-Royce PLC v. Rolls-Royce USA, Inc., 688 F. Supp. 2d 150 (E.D.N.Y. 2010) (court must ensure well-pleaded facts support relief on default)