In Re Billingsley
Opinion
Pursuant to an official university policy, Temple University refused to release the chapter 13 debtor’s academic transcript because she defaulted on her student loan. The debtor filed a motion to compel Temple University to turnover the transcript, claiming that Temple’s refusal to do so constituted a violation of the automatic stay. For the reasons set forth below, the court holds that where the student loan is concededly nondischargeable, a private educational institution does not violate the automatic stay by withholding the transcript of a student debtor who has defaulted on her loan.
This court has jurisdiction under 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a) and (b)(1), and the Standing Order of Reference from the United States District Court for the District of New Jersey, dated July 23, 1984, referring all cases under Title 11 of the United States Code to the bankruptcy court. Additionally, this is a core proceeding that can be heard and determined by a bankruptcy judge under 28 U.S.C. § 157(b)(2)(G) (automatic stay).
Facts
In May 1987, the debtor, Frances Bill-ingsley, borrowed $750.00 from Temple University through the Federal Perkins Loan/National Direct Student Loan Program. The debtor separated from the university in June 1988. Under the terms of her loan agreement, she was to begin repaying the loan in quarterly installments at 5% simple interest on December 1,1988. The debtor never made any payments on the loan. Temple University, which maintains an official policy of withholding the academic records of students who do not fulfill their financial obligations, placed a financial hold on the debtor’s records in
On July 15, 1994, the debtor filed a chapter 7 bankruptcy petition and obtained a discharge by order entered July 1997. The parties agree that, because the debt- or’s educational loan was not in repayment status for seven years when the petition was filed, the debt to Temple University was not discharged in the chapter 7 case. On July 5, 2000, the debtor filed her first chapter 13 petition, and the court subsequently confirmed a plan. On the trustee’s motion, the court dismissed the case on October 23, 2001 for failure to make payments. Shortly thereafter, the debtor requested that the University release her transcripts to St. Francis College, where the debtor hoped to continue her education. By letter dated October 31, 2001, Temple University advised the debtor that it deemed the debt nondischargeable following her chapter 7 case and asked her to establish a repayment schedule. Temple University did not release the debtor’s transcript as requested. On November 8, 2001, the debtor commenced the instant case under chapter 13.
The debtor filed this motion on short notice to compel Temple University to release the transcripts to St. Francis College on the grounds that the University’s refusal constitutes a violation of the automatic stay. 2
Discussion
Pursuant to Section 362(a) of the Bankruptcy Code, a bankruptcy filing automatically stays,
inter alia,
“any act to collect, assess, or recover a claim against the debt- or that arose before the commencement of a case under this title,” 11 U.S.C. § 362(a)(6). The issue before the court is whether a university violates this section by refusing to release the debtor’s transcripts during her chapter 13 case because she defaulted on a student loan. As suggested by the debtor, numerous courts in other circuits have held that the Code, under § 362(a), § 525, or both, prohibits a university from withholding the transcript of a student-debtor who has defaulted on his or her educational loans. See, e.g.,
Loyola University v. McClarty,
1. Johnson v. Edinboro State College
In
Johnson,
a chapter 7 student-debtor sought a determination that Edinboro University’s refusal to release a copy of his educational transcript violated the “fresh start” provision of the Bankruptcy Code. As in the instant case, the student-debtor made no payments on his student loan and, pursuant to a university policy, Edinboro
no basis in the Bankruptcy Code to nullify Edinboro State’s policy of withholding transcripts from those students who have made no payments on their educational loans, and have not approached the college to arrange a more flexible repayment schedule, and have not had their debts discharged.
Debtor’s counsel argues that Johnson is distinguishable from the case before the court in two important respects: (1) Johnson was decided under the “fresh start” provision of the prior 11 U.S.C. § 525, 3 and (2) Johnson involved a chapter 7 case, and not a chapter 18 ease. The court also notes that Johnson’s debt to Edinboro was declared nondischargeable by the bankruptcy court; however, this last point of distinction was resolved at oral argument when counsel for the debtor conceded (and this court agreed) that the debtor’s debt to Temple is nondischargeable under Section 1328(a).
A. Fresh Start v. Automatic Stay
The considerations surrounding the transcript retention issue under both the automatic stay provision, 11 U.S.C. § 362(a), and the “fresh start” provision, 11 U.S.C. § 525, are essentially the same. As noted by the court in
In re Najafi,
B. Chapter 7 v. Chapter IS
Debtor’s counsel also argues that the court’s holding in
Johnson
was confined to chapter 7 cases. This court disagrees. Underlying the
Johnson
decision was the concept that “courts are bound by Congressional judgments that general bankruptcy policy give way to more specific policy considerations.”
In contrast, student loans could be discharged in a successful chapter 13 plan under then-existing 11 U.S.C. § 1328. Before 1990, 11 U.S.C. § 523(a)(8) was not incorporated into 11 U.S.C. § 1328. Thus, when the
Johnson
decision was rendered, an educational loan that was nondischargeable in chapter 7 could be discharged in a successful chapter 13 plan. The Third Circuit ultimately distinguished the case before it from contrary caselaw decided under chapter 13, specifically
In the Matter of Heath,
As amended by the Judicial Improvements Act of 1990, Pub.L. No. 101-650, 104 Stat. 5089 (1990) and by the Higher Education Amendments of 1992, Pub.L. No. 102-325, 106 Stat. 448 (1992), 11 U.S.C. § 1328(a)(2) now expressly incorporates 11 U.S.C. § 523(a)(8), thereby making student loans presumptively nondis-chargeable in chapter 13. See, generally,
In re Segal,
II. Section 362(a) Analysis
Even assuming,
arguendo,
that
Johnson
is not controlling, this court does not believe that Temple University’s refusal to release the debtor’s academic transcript violates the automatic stay of § 362(a). As noted above, the filing of a bankruptcy petition automatically stays,
inter alia,
any act to recover a claim against the debtor that arose pre-petition. See 11 U.S.C. § 362(a)(6). Recognizing the weight of authority to the contrary, this court finds that, in light of the Supreme Court’s ruling in
In re Strumpf
The relationship between a university and a student is essentially contractual in nature.
4
See
Barker v. Trust
In
Strumpf,
Citizen’s Bank placed an administrative hold on the checking account of a chapter 13 debtor who was in default on a loan. The debtor sought to hold the bank in contempt for violation of the automatic stay, arguing, in part, that the bank’s actions constituted an act to compel payment of a pre-petition debt. The Court ultimately concluded that an administrative freeze, or a bank’s refusal to pay on demand, was not a violation of the automatic stay. In so holding, the Court noted that a bank account consists of “nothing more or less than a promise to pay, from bank to depositor” and that the bank’s withholding of funds was not an act in violation of the automatic stay, but “merely a refusal to perform on its promise.”
Similarly, Temple University’s withholding of the debtor’s transcript is merely a refusal to perform on a promise to create and deliver a record of the debt- or’s academic performance. Such conduct is wholly consistent with the very purpose of the automatic stay: “to maintain the status quo that exists at the time of the debtor’s bankruptcy filing.”
In re APF Co.,
In reaching this conclusion, the court is acutely aware of the large number of cases outside of the Third Circuit holding that a college violates § 362(a)(6) by refusing to release a debtor’s transcript because he or she defaulted on a student loan. See, e.g.,
Loyola University v. McClarty,
Conclusion
Under basic contract law, a university is excused from delivering a transcript to a student who is in default under her student loan. It is not a violation of Section 362(a)(6) of the Code to refuse to release a transcript for such a student-debtor in a chapter 13 case. The court therefore denies the debtor’s motion to compel Temple University to release her educational transcript to St. Francis College pursuant to 11 U.S.C. § 362(a).
Notes
. The University certified that it made numerous attempts from 1988 through 1992 to collect this debt; first on its own, then through First Wachovia, SFS, Inc., which serviced the loan, and finally through an outside law firm.
. The debtor's papers fail to indicate the specific section of the Bankruptcy Code allegedly implicated by the university’s actions. However, at oral argument, debtor's counsel relied solely upon cases holding that transcript-retention constitutes pre-petition debt collection in violation of 11 U.S.C. § 362(a)(6).
. In relevant part, 11 U.S.C. § 525 (Supp. V 1981) prohibited a governmental entity from discriminating against a debtor for failing to pay a debt that was dischargeable or actually discharged under the Code. 11 U.S.C. § 525 (Supp. V 1981).
. Since Temple University is located in Pennsylvania, the court assumes that Pennsylvania
. The court notes that a contrary holding— that the retention of a chapter 13 debtor's transcript for failure to repay loans violates the automatic stay — would create a loophole for the unscrupulous chapter 13 student-debt- or. As described by Judge Russell in his dissent in In re Gustafson:
Because of a chapter 13 debtor's absolute right to dismiss the case under 11 U.S.C. 1307, a debtor could file a chapter 13 case and demand the transcripts from a university. If the university must promptly comply with the request, after receiving the transcripts the debtor may then immediately dismiss his case without having filed a plan or having made a single plan payment.
In re Gustafson,