104 A.D.2d 11 | N.Y. App. Div. | 1984
OPINION OF THE COURT
In February, 1978, defendant executed a promissory note to Union National Bank in the amount of $1,000, representing a student loan. The note was guaranteed by plaintiff. After defendant defaulted on the note, plaintiff paid the balance owing to the bank ($1,010.94). In July, 1978, shortly after his graduation, defendant filed for bankruptcy, listing the above loan with his other debts. He was discharged by order of the Bankruptcy Court dated December 7, 1978. In November, 1982, plaintiff commenced the instant action for repayment of the student loan. Defendant pleaded the affirmative defense of discharge in bankruptcy. When plaintiff moved to dismiss this defense, Special Term denied the motion and dismissed the complaint on jurisdictional grounds. This appeal by plaintiff ensued.
At the time defendant filed for bankruptcy, the nondischargeability of student loans was governed by section 1087-3 of title 20 of the United States Code, which provided that such a debt was not released if the discharge in bankruptcy was granted less than five years after repayment first became due, except where “the court in which the proceeding is pending determines that payment from future income or other wealth will impose an undue hardship on the debtor or his dependents” (US Code, tit 20; former § 1087-3, subd [a]). This section was repealed by and recodified in the Bankruptcy Reform Act of 1978 (hereafter BRA) (Pub L 95-598; BRA, §§ 317, 402, subd [a]; US Code, tit 11, § 523, subd [a], par [8]). Through an apparent inadvertency, however, Congress provided that the effective date of the repeal of the former statute was November 6, 1978, that being when the BRA was actually enacted (BRA, § 402,
Undeniably, defendant was not entitled to automatic exemption from the nondischargeability of his student loan, since his discharge was granted well within five years from the date he was required to commence the payment of the loan. Also conceded is that the Bankruptcy Court did not make a specific determination that the debt should be released on the ground of undue hardship. It is defendant’s contention, however, that since the loan was included in his schedule of debts and plaintiff was put on notice thereof, the burden was on plaintiff to have filed a complaint in the Bankruptcy Court for determination that the debt should not have been discharged. Defendant further argues that because plaintiff failed to seek such a determination before the Bankruptcy Court, the discharge is a complete defense. Special Term accepted defendant’s argument, holding that the question of whether defendant’s student loan was discharged was exclusively within the jurisdiction of the Bankruptcy Court. It also dismissed the complaint on the further ground that the injunctive provisions of defendant’s discharge barred this creditor’s action on the debt.
We disagree with Special Term’s conclusion. Under neither the dischargeability section of the Bankruptcy Act of 1898 (§ 17; US Code, former tit 11, § 35) nor the comparable provision of the BRA (US Code, tit 11, § 523) is a student loan creditor required to initiate a proceeding in the Bankruptcy Court for a determination of the nondischarge of the debt in order to prevent the loan from being released by the general discharge of the debtor. Both sections are quite specific in identifying only three classes of nondischargeable debts where the Bankruptcy Court is given exclusive jurisdiction and the debt is discharged unless the creditor obtains a ruling of nondis
Even more importantly here, the issue is not dischargeability, but rather the effect of the discharge on a particular debt after the completion of the bankruptcy proceeding. The general long-standing Federal rule has been that where a creditor brings suit against the bankrupt after discharge, the question of whether the debt was discharged or falls within one of the statutory exceptions to discharge is ordinarily one to be resolved by the local court in which the suit on the debt was brought (Hilton Credit Corp. v Jaggli, 366 F2d 793, 793-794; White v Public Loan Corp., 247 F2d 601, 602-603). Therefore, Special Term erred in holding that it lacked jurisdiction to determine whether plaintiff’s claim was released by the discharge in bankruptcy.
Nor were the injunctive provisions of defendant’s discharge authority for dismissal of plaintiff’s action. The discharge, by its terms (par 1), only released defendant from “all dischargeable debts”. Insofar as the discharge referred to statutory exceptions, it only expressly barred subsequent suits with respect to the same three classes of nondischargeable debts previously discussed (arising from fraud, malicious injury to property and the like) (Bankruptcy Act of 1898, § 17, subd [a], pars [2], [4], [8]; US Code, former tit 11, § 35, subd [a], pars [2], [4], [8]) wherein, as we have noted, exclusive jurisdiction was conferred on the Bankruptcy Court to apply the exception if requested by the creditor. Since student loan debts did not fall within those classes of debts, defendant’s discharge did not enjoin the instant suit and Special Term erred in dismissing it on that ground.
Having thus concluded that the State courts have jurisdiction to determine whether defendant’s student loan debt was released by his prior discharge in bankruptcy, it remains for us to address the merits of that issue. Having already concluded that student loans do not fall within the statutory classes of exceptions in which the creditor must obtain a determination of nondischarge and only from the Bankruptcy Court, it logically follows that defendant had the onus of seeking the Bankruptcy
Mahoney, P. J., Kane, Casey and Weiss, JJ., concur.
Order and judgment reversed, on the law, with costs, complaint reinstated and plaintiff’s motion to dismiss defendant’s defense of discharge in bankruptcy granted.
