456 B.R. 748
Bankr. E.D.N.C.2010Background
- Kinney filed Chapter 13 petition and plan on Aug 11, 2010; plan included Student Loan Provision to discharge College Foundation/USDOE loans as unsecured per Espinosa; NCSEAA objected; proof of claim by NCSEAA for $27,563.61; no adversary proceeding filed to determine dischargeability; hearing held Nov 17, 2010; trustee offered to amend without Student Loan Provision; court to decide proper procedure in EDNC.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a Chapter 13 plan may discharge government-funded student loans without an undue-hardship finding. | Kinney argues Espinosa allows discharge via plan provision. | NCSEAA contends no discharge without undue-hardship finding and proper adversary proceeding. | Denied; plan cannot discharge without undue-hardship finding and proper procedures. |
| Whether inclusion of a discharge by declaration provision complies with Bankruptcy Code/Rules. | Kinney relied on Espinosa to justify discharge by declaration. | NCSEAA and Court require undue-hardship determination and adversary proceeding. | Not valid to discharge without undue-hardship finding; provision unsupported. |
| Whether the confirmation order is void or subject to sanction for improper discharge of student loans. | Espinosa suggests no jurisdictional defect; order valid. | Discharge without undue-hardship could violate the Code and due process may be implicated. | Court cautions against improper conduct and denies confirmation with leave to amend. |
Key Cases Cited
- Banks v. Sallie Mae Servicing Corp., 299 F.3d 296 (4th Cir. 2002) (adversary proceeding burden and dischargeability standards under § 523(a)(8))
- Ruehle v. Educ. Credit Mgmt. Corp., 412 F.3d 679 (6th Cir. 2005) (plan-based dischargeability not recognized without undue-hardship finding)
- Mersmann (Educ. Credit Mgmt. Corp. v. Mersmann), 505 F.3d 1033 (10th Cir. 2007) (discharge by declaration in plan rejected by circuits, requires undue-hardship finding)
- Hanson v. Educ. Credit Mgmt. Corp., 397 F.3d 482 (7th Cir. 2005) (disallowance of discharge by declaration without undue-hardship finding)
- Pardee v. Educational Credit Mgmt. Corp., 193 F.3d 1083 (9th Cir. 1999) (limits on discharge by plan provision without adversary proceeding)