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In re Adamo

decided: April 16, 1980.

IN RE: PAUL R. ADAMO, BARBARA ANN BARRINGTON, RAYMOND A. BRIMACOMB, MICHAEL S. DEMPSEY, PAUL M. GAGNON, ELOISE HYMES, PAMELA R. JURICH, LEOMIA LINTON, KENNETH W. LOCEY, JR., DEBORAH PETERS MANCUSO, DIANE K. MAYO, DENISE K. MUNNINGS, KAREN NIELSEN, CHANDOS C. WILLIAMS, JOAN L. WILLIAMS, RAYMOND T. WRIGHT, JR., MARCIA LEE CHRISTOPHER, PHILLIP LEE NORTON, DONALD J. SALAMONE, KAREN STANLEY, WILLIAM M. EDWARDS, NEW YORK STATE HIGHER EDUCATION SERVICES CORPORATION, APPELLANT,
v.
ABOVE NAMED, APPELLEES.



Appeal from a judgment of the United States District Court for the Western District of New York, Burke, J., affirming the discharge by the Bankruptcy Court of certain student loan obligations in proceedings brought on by twenty-one voluntary petitions in bankruptcy. Reversed.

Before Lumbard and Mansfield, Circuit Judges, and Bartels, District Judge.*fn*

Author: Bartels

This is an appeal from a judgment of the United States District Court for the Western District of New York, Burke, J., affirming the discharge by the Bankruptcy Court of certain student loan obligations in proceedings brought on by twenty-one voluntary petitions in bankruptcy.*fn1 The sole question for review is the effect of the repeal by Congress of Section 439A of the Higher Education Act of 1965, as amended, 20 U.S.C. § 1087-3, pertaining to dischargeability of student loans, on petitions in bankruptcy commenced but not disposed of prior to the date of such repeal.

The pertinent facts are undisputed. Each of the loans here involved is either owed to or guaranteed by appellant New York State Higher Education Services Corporation ("NYSHESC"), and each was reinsured to appellant by the United States Office of Education by agreements entered into pursuant to the Higher Education Act of 1965, as amended, 20 U.S.C. §§ 1071 et seq. At the time the twenty-one voluntary petitions in bankruptcy were filed, § 1087-3 of Title 20 provided, in part, as follows:

(a) A debt which is a loan insured or guaranteed under the authority of this part may be released by a discharge in bankruptcy under the Bankruptcy Act only if such discharge is granted after the five-year period . . . beginning on the date of commencement of the repayment period of such loan, except that prior to the expiration of that five-year period, such loan may be released only if 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.

(b) Subsection (a) of this section shall be effective with respect to any proceedings begun under the Bankruptcy Act on or after September 30, 1977.

This provision was subsequently repealed effective November 6, 1978, however, by Section 317 of the Bankruptcy Reform Act of 1978 ("BRA"), Pub.L.95-598,*fn2 and was replaced by an analogous section, 11 U.S.C. § 523(a)(8). Broader in scope than 20 U.S.C. § 1087-3, section 523(a)(8), as amended by Pub.L.96-56, provides:

(a) A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt

(8) for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or a nonprofit institution of higher education, unless

(A) such loan first became due before five years . . . before the date of the filing of the petition; or

(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents; . . .

Under section 402(a) of the BRA, this replacement provision did not become effective until October 1, 1979, approximately eleven months after the effective date of the repeal of its predecessor, 20 U.S.C. § 1087-3.*fn3 According to appellant, this interruption in the rule of nondischargeability of student loans constitutes a loophole through which certain student loan debtors now attempt to escape their repayment obligations.

The Bankruptcy Court disposed of all of the twenty-one petitions by two identical memorandum decisions and orders dated March 16 and April 5, 1979, respectively, holding that because the petitions were considered and resolved after the repeal of 20 U.S.C. § 1087-3 but before the effective date of 11 U.S.C. § 523(a)(8), the Bankruptcy Court no longer had jurisdiction "to determine that the subject bankrupts are not entitled to a discharge, since the law which exists at the time of this decision has no provision for the denial of the discharge of student loans." Accordingly, Bankruptcy Judge Hayes ordered that the student loan debts in question be discharged. His decision was affirmed by the district court in a brief order on September 27, 1979, and this appeal followed.

The question presented by this appeal has been considered previously on numerous occasions by many different bankruptcy courts, and at least ten of these have concluded, along with Judge Hayes in this case, that discharge should be ordered. See In re Utterback; Wisconsin Higher Education Aids Board v. Utterback, 1 Bankr. 199, 5 B.C.D. 1046 (N.D.Tex.1979); In re Sawaya; Massachusetts Higher Education Assistance Corporation v. Sawaya, 2 Bankr. 37, 5 B.C.D. 1072 (D.Mass.1979); In re King, Jr.; State of Ohio v. King, Jr., 5 B.C.D. 417 (S.D.Ohio 1979); In re Johnson; Pennsylvania Higher Education Assistance Agency v. Johnson, 5 B.C.D. 532 (E.D.Pa.1979); In re Jones; University of Cincinnati v. Jones, No. B-1-1804 (S.D.Ohio 1979); In re Matthews; Matthews v. Connecticut Student Loan Foundation, (1979) Bankr.L.Rep. (C.C.H.) P 67,049 (D.Conn.1979); In re Adams; Connecticut Student Loan Foundation v. Adams, No. H-78-647 (D.Conn.1979); In re Christopher; New York State Higher Education Services Corporation v. Christopher, et al., 5 B.C.D. 214 (W.D.N.Y.1979); In re Espronceda; Coordinating Board, Texas College and University System v. Espronceda, 5 B.C.D. 267 (S.D.Tex.1979); see also In re Amadori; New York State Higher Education Services Corporation v. Amadori, et al., 5 B.C.D. 187 (W.D.N.Y.1979). On the other hand, an equal number of courts have concluded that the repeal of 20 U.S.C. § 1087-3 was of no effect with regard to cases commenced prior to the effective date of the BRA, October 1, 1979, and have denied the petitions for discharge in bankruptcy of otherwise nondischargeable student loan debts on that basis. See In re Henry; New York State Higher Education Services Corporation v. Henry, 1 Bankr. 295, 5 B.C.D. 1014 (S.D.N.Y.1979); In re Erickson; Wisconsin Higher Educational Aids Board v. Erickson, 5 B.C.D. 734 (E.D.Wis.1979); In re Weinstein; Pennsylvania Higher Education Assistance Agency v. Weinstein, 5 B.C.D. 503 (E.D.Pa.1979); In re Kohn; New York State Higher Education Services Corporation v. Kohn, 5 B.C.D. 419 (S.D.N.Y.1979); In re Edson; Wisconsin ...


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