Hull v. Fleet Bank (In Re Hull)

223 B.R. 876, 1998 Bankr. LEXIS 1101, 1998 WL 560232
CourtUnited States Bankruptcy Court, W.D. New York
DecidedAugust 31, 1998
Docket1-19-10110
StatusPublished
Cited by4 cases

This text of 223 B.R. 876 (Hull v. Fleet Bank (In Re Hull)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, W.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hull v. Fleet Bank (In Re Hull), 223 B.R. 876, 1998 Bankr. LEXIS 1101, 1998 WL 560232 (N.Y. 1998).

Opinion

DECISION & ORDER

JOHN C. NINFO, II, Bankruptcy Judge.

BACKGROUND

On December 23, 1997, Denise M. Hull (the “Debtor”) filed a petition initiating a *877 Chapter 7 case. On her schedules, required by Section 521 and Rule 1007, the Debtor listed AFSA-Fleet (“Fleet”) as an unsecured creditor for student loans that were refinanced in December 1990 (the “Consolidation Loan”). The outstanding balance on the Consolidation Loan was scheduled as $23,-111.33.

On March 25,1998, the Debtor commenced an adversary proceeding (the “Dischargeability Proceeding”). 1 The Complaint in the Dis-chargeability Proceeding requested that the Court determine that the Consolidation Loan was dischargeable under Section 523(a)(8)(A) 2 because: (1) the student loans that were refinanced were incurred by the Debtor between January 30, 1987 and January 9,1990 (the “Original Loans”), which was more than seven years before the date of the filing of the petition; (2) there were no deferments granted or forbearance agreements entered into in connection with the Original Loans; and (3) there were no new loans made as part of the Consolidation Loan transaction, and the Consolidation Loan merely consolidated the Original Loans.

On May 18, 1998, the New York State Higher Education Services Corporation (“New York Higher Education”) filed an Answer to the Complaint which alleged that: (1) New York Higher Education was a guarantor of the Consolidation Loan; (2) the Original Loans were disbursed to the Debtor between May 1983 and December 1989; (3) the Original Loans were consolidated in January 1991, and again in March 1995; and (4) both the Consolidation Loan and the March 1995 consolidation loan were new student loans that first became due less than seven years before the date the Debtor filed her petition.

The Answer of New York Higher Education also included a First Affirmative Defense On The Basis Of Sovereign Immunity, whieh alleged that: “The Court lacks subject matter jurisdiction in this proceeding, as New York State Higher Education Services Corporation (N.Y.SHESC) is an agency of the State of New York and is immune from suit in Federal Court by a citizen of the same state, pursuant to the Eleventh amendment to the United States Constitution.”

On June 30, 1998, the Court conducted a telephonic pretrial conference at which the attorney for New York Higher Education requested that, since there were no published decisions on these issues within the Second Circuit, the Court issue and publish a Decision & Order on the dischargeability under Section 523(a)(8)(A) of a consolidation student loan and the sovereign immunity affirmative defense which New York Higher Education asserted.

On July 29, 1998, New York Higher Education filed a Brief opposing the discharge-ability of the Debtor’s student loans which alleged that: (1) the Debtor received some of the Original Loans during 1982 and 1983, and these first became due on November 30, 1984; (2) the Debtor received the remaining Original Loans between 1986 and 1989, and these first became due on November 30, 1990; (3) no deferments were requested by or granted to the Debtor, and no forbearance agreements had been entered into between the Debtor and Fleet in connection with the Original Loans; (4) On November 19, 1990, less than seven years after any of the Original Loans first became due, the Debtor signed the agreements for the Consolidation Loan, however, the proceeds of the Consolidation Loan were not applied to pay off the Original Loans until January 15, 1991, more than seven years after some of the Original Loans first became due on November 30, 1984; (5) the first payment due under the *878 Consolidation Loan was February 28, 1991, less than seven years before the Debtor filed her petition; (6) under the Higher Education Act of 1965, a consolidation loan is specifically provided to be a “new loan” for purposes of the Act, and, therefore, for purposes of Section 523(a)(8)(A); and (7) the Court lacked subject matter jurisdiction under the rationale of Seminole Tribe of Florida v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996).

On August 11, 1998, the Debtor interposed a response to the Brief of New York Higher Education which asserted that: (1) the Court should determine that the seven-year period provided for under Section 523(a)(8)(A) runs from November 30, 1984 and November 30, 1990, the dates when the Original Loans first became due; (2) the facts of this case would make such a determination especially appropriate because there was no new lender involved, Fleet was the original and Consolidation Loan lender, and the Consolidation Loan was entered into for the administrative convenience of the parties by providing for one instead of a number of monthly payments; (3) the legislative history to Section 523(a)(8), which indicates that the subsection was intended to stop students from filing bankruptcy shortly after their studies terminated and before they obtained gainful employment and acquired significant assets, does not indicate that Congress intended a consolidation loan to restart the seven-year period, since this could extend the seven-year period for an unlimited time period and be a disincentive for borrowers to enter into consolidation loan agreements; (4) notwithstanding that 20 U.S.C. Section 1078-3(e) of the Higher Education Act of 1965 indicates that “[consolidation [ljoans made under this section which are insured by the Secretary shall be considered to be new loans made to students for the purpose of section 424(a) [20 U.S.C. Section 1074(a) ]]”, the Court should hold that a new loan for purposes of that statute is, nevertheless, not a “new loan” for purposes of Section 523(a)(8)(A) of the Bankruptcy Code; (5) New York Higher Education’s affirmative defense on the basis of sovereign immunity must fail since by letter dated April 21, 1998, New York Higher Education specifically requested that it be permitted to appear in the Dischargeability Proceeding and requested a stipulation to that effect; and (6) the stipulation which the attorney for the Debtor prepared and forwarded to New York Higher Education (the “Intervention Stipulation”) provided that New York Higher Education “shall be entitled to appear, intervene and join in the proceeding as a party defendant and be bound by the jurisdiction of the United States Bankruptcy Court for the Western District of New York in this proceeding.”

DISCUSSION

I. Dischargeability of the Consolidation Loan

This Court has previously decided the question of the dischargeability of consolidation loans under the Higher Education Act of 1965 in an unreported decision in In re Brown, issued on June 20, 1996 (Case # 95-22567; Adversary Proceeding # 96-2007). In that decision, the Court acknowledged that, although there was some disagreement among the courts, the decision of Circuit Judge Thomas J. Meskill, sitting by designation on the Seventh Circuit Court of Appeals, in

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223 B.R. 876, 1998 Bankr. LEXIS 1101, 1998 WL 560232, Counsel Stack Legal Research, https://law.counselstack.com/opinion/hull-v-fleet-bank-in-re-hull-nywb-1998.