Palmer v. Student Loan Finance Corp. (In Re Palmer)

153 B.R. 888, 28 Collier Bankr. Cas. 2d 1338, 1993 Bankr. LEXIS 628, 1993 WL 154548
CourtUnited States Bankruptcy Court, D. South Dakota
DecidedMay 11, 1993
Docket19-05002
StatusPublished
Cited by14 cases

This text of 153 B.R. 888 (Palmer v. Student Loan Finance Corp. (In Re Palmer)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. South Dakota primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Palmer v. Student Loan Finance Corp. (In Re Palmer), 153 B.R. 888, 28 Collier Bankr. Cas. 2d 1338, 1993 Bankr. LEXIS 628, 1993 WL 154548 (S.D. 1993).

Opinion

PEDER K. ECKER, Bankruptcy Judge.

ISSUE

The matter before the Court is an adversary complaint filed by Sioux Falls, South Dakota, Attorney Cecelia A. Grunewaldt on behalf of Plaintiff-Debtor [hereinafter “Debtor”] seeking a determination of dis-chargeability which raises the following issue: whether a non-student debtor who cosigned applications for a former spouse’s educational loans is subject to the exception to discharge provision of 11 U.S.C. § 523(a)(8). Debtor maintains the provision does not apply when a non-student cosigner receives no funds or educational benefits from student loan proceeds. In resistance, Aberdeen, South Dakota, Attorney Jeffrey T. Sveen on behalf of Defendant Student Loan Finance Corporation, f/d/b/a South Dakota Student Loan Corporation, and Sioux Falls, South Dakota, Attorney Terry N. Prendergast on behalf of Pennsylvania Higher Education Assistance Agency [hereinafter “PHEAA”] as assign-ee/guarantor of Defendant Student Loan Finance Corporation filed answers stating funds were disbursed for the intent of student loans and educational benefits, therefore, the debts are nondischargeable under the provisions of the Bankruptcy Code. This Memorandum Decision shall constitute Findings of Fact and Conclusions of Law as required by Federal Rule of Bankruptcy Procedure 7052. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(1).

FACTS AND PROCEDURAL BACKGROUND

In 1988 and 1989, Debtor co-signed financial aid applications completed and submitted by her spouse, Gerald Haddican, for the purpose of financing his post-secondary education at Dakota State University in Madison, South Dakota. 1 The couple divorced in 1992, and on August 17 of that year, Debtor filed a Chapter 7 petition for relief followed by the filing of this complaint November 16, 1992. The adversary action was filed to determine that the indebtedness arising from the two federally insured loans is dischargeable based on the theory that 11 U.S.C. § 523(a)(8) does not apply to situations where non-student debtors cosign applications for student loans that are subsequently approved, disbursed to, and utilized by former spouses. On December *890 7, 1992, an answer in quest of dismissing the complaint was filed by Defendant Student Loan Finance Corporation alleging Debtor failed to state a claim for relief. On December 15,1992, an answer was filed by PHEAA urging the Court to adjudicate the debt nondischargeable. An evidentiary trial was held January 13, 1993, at which time, the Court took the matter under advisement and issued a scheduling order for Debtor and PHEAA to submit written briefs.

COMPETING ARGUMENTS

Debtor states the majority view concerning this issue is espoused in In re Boylen, 29 B.R. 924 (Bankr.N.D.Ohio 1983), a case that held 11 U.S.C. § 523(a)(8) inapplicable to a non-student debtor who was co-maker on a former spouse’s loan. While admitting that the statute’s plain language was not limited to student debtors alone, the Boylen court found that the congressional intent and legislative history of 11 U.S.C. § 523(a)(8) revealed an intent to curb abuse of educational loan programs by students who sought a discharge of school loan debts immediately after graduation. Id. at 927. The court reasoned that applying the non-limiting language to wow-student debtors would frustrate this specific intent: “Congress had no intention to except a comaker’s liability on a student loan debt from discharge” since it was “utterly contrary to the fresh start” purposes envisioned by the Bankruptcy Code. Id. Debt- or reinforces this position with subsequent decisions consistent with Boylen: In re Wilcon, 135 B.R. 709, 711 (Bankr.D.Mass.1992) (for purposes of Section 523(a)(8), a loan is only “educational” with respect to the student for whose benefit the loan was made); In re Pelkowski, 135 B.R. 254, 256 (Bankr.W.D.Pa.1992) (Section 523(a)(8) is clearly directed at students rather than parent-debtors who co-sign notes for their children’s educational loans); In re Zobel, 80 B.R. 950, 952 (Bankr.N.D.Iowa 1986) (Section 523(a)(8) was intended to apply to student debtors only, not to non-student co-makers); In re Behr, 80 B.R. 124, 127 (Bankr.N.D.Iowa 1987) (the scope of Section 523(a)(8) does not include a Chapter 7 debtor father’s liability as a non-student comaker of a loan for his son). Debtor submits this line of authority is ample justification for the Court to discharge all liability incurred as a result of co-signing her former spouse’s educational loan applications.

In reply, PHEAA rejects the allegation that In re Boylen and its progeny represent the majority position regarding application of Section 523(a)(8) and, instead, contends this position has been universally rejected — noting that the Boylen court itself rejected this line of authority when it ruled in In re Dull, 144 B.R. 370, 372 (Bankr.N.D.Ohio 1992), that the language of Section 523(a)(8) was “all inclusive” and applicable to all educational loan debt whether or not the obligor is a student and whether or not benefits were received from the loans. PHEAA contends the Dull decision is representative of the current trend regarding the interpretation and application of Section 523(a)(8). In re Martin, 119 B.R. 259 (Bankr.E.D.Okla.1990); In re Hudak, 113 B.R. 923 (Bankr.W.D.Pa.1990); Matter of Selmonosky, 93 B.R. 785 (Bankr.N.D.Ga.1988); In re Feenstra, 51 B.R. 107 (Bankr.W.D.N.Y.1985). PHEAA adds that not only are these cases the current trend because they are more recent than those cited by Debtor, they also illustrate a more appropriate application of the plain meaning rule inasmuch as the statutory language describes the nature of the loan and not the status of the borrower, thus favoring an exception to discharge of any debt for an educational loan. In re Taylor, 95 B.R. 550, 551 (Bankr.E.D.Tenn.1989); In re Hammarstrom, 95 B.R. 160 (Bankr.N.D.Cal.1989); Matter of Barth, 86 B.R. 146, 148 (Bankr.W.D.Wis.1988). PHEAA also states the case law cited by Debtor is inconsistent with current trends in that two of the five cases relied on have been reversed, 2 two others were decided before *891 1988 and have since been rejected by other courts deciding this issue, and the final case, In re Boylen,

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
153 B.R. 888, 28 Collier Bankr. Cas. 2d 1338, 1993 Bankr. LEXIS 628, 1993 WL 154548, Counsel Stack Legal Research, https://law.counselstack.com/opinion/palmer-v-student-loan-finance-corp-in-re-palmer-sdb-1993.