In re Fagan

559 B.R. 718, 76 Collier Bankr. Cas. 2d 1146, 2016 Bankr. LEXIS 3961, 2016 WL 6777807
CourtUnited States Bankruptcy Court, E.D. California
DecidedNovember 14, 2016
DocketCase No. 15-28694-C-7
StatusPublished
Cited by4 cases

This text of 559 B.R. 718 (In re Fagan) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. California primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Fagan, 559 B.R. 718, 76 Collier Bankr. Cas. 2d 1146, 2016 Bankr. LEXIS 3961, 2016 WL 6777807 (Cal. 2016).

Opinion

OPINION REGARDING MILITARY DEBT DISCHARGE EXCEPTION

CHRISTOPHER M. KLEIN, Bankruptcy Judge:

Inconspicuous exceptions to bankruptcy discharges lurking at 37 U.S.C. §§ 303a(e)(4) and 373(c) surprised the debtor who assumed that his debt to repay the unearned part of his Navy reenlistment bonus had been discharged. He urges that Bankruptcy Code § 727(b) (dis-charge “from all debts” not named in § 523) trumps statutes not named in Bankruptcy Code § 523, but Congress has said otherwise in a later-enacted statute. His motion for an order of contempt to enforce the discharge injunction is DE-NIED.

[719]*719These obscure discharge exceptions, en-acted in 2006 and 2008, warrant exegesis as a case of first impression. They anchor more than 60 repayment provisions scat-tered around Titles 10, 14, and 37 of the United States Code and have not been reviewed in reported bankruptcy decisions.

Facts

The debtor was involuntarily discharged from the Navy after serving fifteen months of a six-year reenlistment.

The Defense Finance and Accounting Service (DFAS) billed him $5,945.09 to recoup the unearned portion (1735 days) of his'reenlistment bonus.

He filed a chapter 7 bankruptcy case on November 9, 2015, scheduling a $5,945.10 debt to DFAS, which he expected to be discharged. His chapter 7 discharge was entered on February 22, 2016; the case closed four days later.

DFAS sent the debtor a bill dated March 24, 2016, noting that additional charges are assessed under 31 U.S.C. § 3717 and that the debt could be turned over to the Treasury for collection or off-set from tax refunds and other federal benefits. It was followed by another DFAS bill dated May 26,2016.

The Department of the Treasury billed him on August 6, 2016, for $5,975.33, with a payment coupon showing a $7,648.42 debt.

The debtor filed a motion for an order of contempt in his reopened case on Septem-ber 14, 2016.

He does not interpose a fact-based de-fense or question the amount of the debt, relying instead on the theory that Bank-ruptey Code § 523 controls all exceptions to the chapter 7 discharge.

Issue

Do 37 U.S.C. §§ 303a(e) and 373(c)-op-erate as exceptions to discharge under 11 U.S.C. § 727(b), thereby insulating the United States from exposure to liability for violation of the discharge injunction under 11 U.S.C. § 524(a)?

Jurisdiction

Federal subject-matter jurisdiction is founded on 28 U.S.C. § 1334. Enforcing the injunction against collecting a dis-charged debt, including determining whether such debt is discharged, is a core proceeding that may be heard and deter-mined by a bankruptcy judge. 28 U.S.C. §§ 157(b)(2)(I) and (O).

Congress abrogated sovereign immunity for Bankruptcy Code § 524 discharge in-junction violations. 11 U.S.C. § 106(a)(1).

Discussion

Two substantially identical discharge ex-ceptions in Title 37—37 U.S.C. § 303a(e)(4) and § 373(c)—are considered because the record is ambiguous about the statutory basis for the debt. They amount to two paths to the same result. The debt- or still has to pay the unearned portion of his Navy reenlistment bonus.

I

If, as implied by the invocation of § 303a(e)(4), the debtor reenlisted under the authority granted by 37 U.S.C. § 308 (“Special pay: reenlistment bonus”), then his repayment obligation is triggered by § 308(d)1 and is restated and implemented [720]*720at § 303a(e).2

If he reenlisted under the authority of 37 U.S.C. § 331 (“General bonus authority for enlisted members”), then his repayment obligation is triggered by § 331(g)3 and is restated and implemented at § 373(a).4 .

Sections 303a and 373 collectively are cross-referenced by, and anchor, more than 60 separate uniformed services pay provisions that entail repayment obli-gations.

II

The discharge exceptions at § 303a(e)(4) and § 373(c) are identical.5

Each excepts repayment debts under §§ 303a and 373(a) from any discharge order entered in a bankruptcy case within five years after the trigger date of the debt. Specifically, they provide “discharge in bankruptcy under title 11 does not dis-charge a person from such debt if the discharge order is entered less than five years after” termination of the service or the agreement on which the debt is based.6

[721]*721A

Section 302a(e) was added to § 303a in 2006. Act of Jan. 6, 2006, Pub. L. 109-163, § 687,119 Stat. 3326, 3336.

The bankruptcy discharge exception, initially enacted as § 303a(e)(3), was redesig-nated § 303a(e)(4) in 2009. Act of Oct. 28, 2009, Pub. L. 111-84, § 617(a), 123 Stat. 2190, 2354.

The 'text of § 303a(e)(4) has not been amended since 2006.

B

Section 373 (c) was enacted in 2008 and plainly was cloned from § 303a(e). Act of Jan. 28, 2008, Pub. L. 110-181, § 661, 122 -Stat. 3,163.

The text of § 373(c) has not been amended since 2008.

Ill

The debtor served only fifteen months of a sixty-month reenlistment for which he had received a reenlistment bonus of about $7,500.00. DFAS calculated that the unearned portion of the bonus was $5,945.09. That sum is owed to the United States by virtue of the statutes described above.

The chapter 7 case was filed with the expectation that the debt to the United States would be discharged. This motion for an order of contempt brings § 303a(e)(4) and § 373(c) into play.

A

This is a situation in which the parties rely on what the debtor contends are con-flicting statutes.

The 1978 Bankruptcy Code used manda-tory terms in § 727(b) naming the Bank-ruptcy Code § 523 nondischargeability provisions as the sole source of exceptions to discharge:

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559 B.R. 718, 76 Collier Bankr. Cas. 2d 1146, 2016 Bankr. LEXIS 3961, 2016 WL 6777807, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-fagan-caeb-2016.