Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_05-cv-05231/USCOURTS-cand-3_05-cv-05231-2/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

In re: CATHY COLEMAN,

 Debtor. 

EDUCATIONAL CREDIT MANAGEMENT

CORPORATION,

 Appellant,

 v.

CATHY COLEMAN,

 Appellee. 

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No. C-05-5231 SC

Bankruptcy No. 04-43327

Adversary Proceeding 

No. 05-4297

ORDER AFFIRMING THE

BANKRUPTCY COURT'S

DECISION 

 

I. INTRODUCTION

Appellee Cathy Coleman ("Debtor") filed this adversary

proceeding in the United States Bankruptcy Court for the Northern

District of California (“Bankruptcy Court”) against Appellant

Educational Credit Management Corporation ("ECMC"), the holder of

Debtor's student loan promissory notes, seeking a partial

discharge of her student loan debt ("Debt") under 11 U.S.C. 

§ 523(a)(8) on the ground that excepting her Debt from her

bankruptcy discharge would constitute an undue hardship. ECMC

then moved to dismiss the Complaint, alleging that the Bankruptcy

Court lacked jurisdiction. The Bankruptcy Court denied ECMC's

motion.

Presently before the Court is ECMC's appeal from the

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Bankruptcy Court's order denying the motion to dismiss.

For the reasons stated herein, the Court AFFIRMS the decision

of the Bankruptcy Court, to which forum the Court REMANDS the

action. 

II. BACKGROUND

In 2004, Debtor filed a voluntary bankruptcy petition with

the United States Bankruptcy Court for the Northern District of

California seeking relief under Chapter 13 of the Bankruptcy Code. 

See Excerpts of Record, Document 4 at 2 ("ER"). The Bankruptcy

Court confirmed Debtor's first amended plan for repayment to her

creditors and ECMC filed a timely proof of claim. See id. The

amended plan, which requires 58 monthly payments, will not, ECMC

contends, be completed until late spring or early summer 2009, if

at all. See Opening Brief of Appellant ECMC at 1 ("ECMC Brief"). 

Debtor made repayments totaling $1,000.00. See ER, Document 4 

at 2. 

In 2005, Debtor filed an adversary action, seeking partial

discharge of her Debt on the ground that excepting the Debt (some

$106,139.11) from her Chapter 13 discharge would constitute an

undue hardship. See id., Document 2 at 1; see also ECMC Brief 

at 1. 

ECMC filed a motion to dismiss Debtor's complaint, contending

there - and here on appeal - that the Bankruptcy Court lacks

subject matter jurisdiction because the issue of discharge will

not be ripe for review until Debtor completes her Chapter 13 plan

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1 In its motion to dismiss in the Bankruptcy Court, ECMC also

contended that even if the Bankruptcy Court had jurisdiction, it

should wait until Debtor receives a discharge because an early

determination would be speculative. See ER, Document 4 at 3. ECMC

does not raise this issue in this appeal. 

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payments and obtains a discharge.1 See ECMC Brief at 3.

From the record before this Court, it appears that the

Bankruptcy Court has not yet adjudicated the merits of Debtor’s

Complaint. 

III. STANDARD OF REVIEW

 In appeals from Bankruptcy Court decisions, District Courts

must review de novo the Bankruptcy Court's conclusions of law. 

See In re Lazar, 83 F.3d 306, 309 (9th Cir. 1996). The issue of

ripeness is a question of law. See Herrington v. County of

Sonoma, 857 F.2d 567, 568 (9th Cir. 1988), cert. denied, 489 U.S.

1090. 

IV. DISCUSSION

The sole issue before this Court is whether the Bankruptcy

Court has subject matter jurisdiction to consider Debtor's

Complaint for discharge.

ECMC contends that the Bankruptcy Court lacks subject matter

jurisdiction because the issues raised in the Complaint are not

ripe for adjudication because Debtor is not entitled to a

determination of undue hardship until she obtains a discharge,

that is, when she has completed her payments under the plan and a

discharge has been issued. See ECMC Brief at 3. 

 A review of bankruptcy law and procedure is appropriate. 

11 U.S.C. § 523(a)(8) is the "sole mechanism by which debtors may

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2 There is a three-part test for a bankruptcy discharge. See

In re Pena, 155 F.3d 1108, 1111 (9th Cir. 1998). First, the debtor

must establish that, based on current expenses, he cannot maintain

a minimal standard of living for himself or his dependents if he is

forced to repay the loans. See id. Second, the debtor must

establish that additional circumstances exist that this state of

affairs is likely to persist for a significant portion of the

repayment period. See id. Third, the debtor is required to have

made good faith efforts to repay the loans. See id. 

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seek discharge of student debt." Saxman v. Educational Credit

Management Corporation (In re Saxman), 325 F.3d 1168, 1173-1174

(9th Cir. 2003). 

After a debtor has filed a complaint seeking a discharge

under section 523(a)(8), a bankruptcy court looks to 11 U.S.C. 

§§ 1328(a) and (b) for its authority to issue a discharge. 

Section 1328(a) applies “after completion by the debtor of all

payments under the plan.” Section 1328(b), on the other hand,

states broadly that at "any time after the confirmation of the

plan and after notice and a hearing, the court may grant a

discharge to a debtor that has not completed payments under the

plan only if" the bankruptcy court finds by a preponderance of the

evidence that debtor meets certain criteria.2 

In the instant case, because Debtor has not completed

payments, the Bankruptcy Court cannot discharge her debt under 

section 1328(a). Yet, the Bankruptcy Court, if Debtor’s case

meets the appropriate criteria, could grant a discharge under

section 1328(b) because, as required by the statute, Debtor’s plan

has been confirmed. Therefore, Bankruptcy Court has jurisdiction

to hear a Complaint. Thus, it appears that the Bankruptcy Court

properly denied ECMC’s motion to dismiss. 

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3

 Furthermore, the Heincy court points out that if a debtor

has not completed payments under a confirmed plan, he can apply for

a discharge under section 1328(b), which is the situation in the

instant case. 

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ECMC cites In re Heincy, 858 F.2d 548 (9th Cir. 1988) as

authority in support of its contention to the contrary. In In re

Heincy, the Ninth Circuit ruled that discharge in that case was

not ripe for resolution until the court knows whether the

Heincys have successfully completed payments under the plan. 

See In re Carroll, 61 B.R. 178, 179 (D. Ore. 1986). If the

Heincys ultimately complete payments under the plan, their

discharge would be controlled by 11 U.S.C. § 1328(a). If

they do not, their discharge would be controlled by 

§ 1328(b). Under the latter section, the restitution order

would not be dischargeable. 

Id. at 550. 

If anything, this case supports the Court’s position. In In

re Heincy, because section 1328(a) was the only avenue for

discharge - the debt being non-dischargeable under section 1328(b)

because it was for criminal restitution - the bankruptcy court

could only grant a discharge under section 1328(a)'s restrictions,

viz., after payments under a confirmed plan were completed.3 In

the instant case, because section 1328(b) is the relevant statute,

the Bankruptcy Court need not adhere to section 1328(a)’s

restrictions. 

In re Heincy is also not on point because of its reliance on

In re Carroll, 61 B.R. 178, 179 (D. Ore. 1986). In In re Carroll,

the court ruled that a plaintiff-creditor's "complaint to deny

discharge" in a Chapter 13 bankruptcy proceeding was "premature": 

In the event the debtor completes the plan, he will be

entitled to a discharge of all debts except support and longterm debt. 11 U.S.C. § 1328(a). If the debtor does not

complete the payments, he may seek a 'hardship' discharge

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under § 1328(b). In that event, the creditor will be given

an opportunity to object to the dischargeability of the debt

in question at that time. Id. 

61 B.R. at 179. In re Carroll is not factually similar to the

instant case because it deals with a plaintiff-creditor’s

complaint to deny a non-existent request for a discharge, which

certainly would not be ripe for review until the debtor requested

a discharge. In contrast, the instant case arises from a

complaint for discharge brought by a debtor, not by a plaintiffcreditor.

V. CONCLUSION

The Court finds that under section 1328(b), the Bankruptcy

Court has jurisdiction over the issues raised in the Complaint. 

Though the Court finds that the Bankruptcy Court has

jurisdiction over the Complaint, the Court offers no opinion

whether a discharge is appropriate under the facts of this case. 

The Court, however, reminds Debtor that she faces an uphill

battle. She must prove that she cannot maintain a minimal

standard of living if she is forced to repay the loan, that this

situation will persist for the time the loan is due to be repaid,

and that she has made good faith efforts to repay the loan.

The Court AFFIRMS the decision of the Bankruptcy Court and

REMANDS the action to the United States Bankruptcy Court for the

Northern District of California. 

IT IS SO ORDERED.

Dated: July 7, 2006

 UNITED STATES DISTRICT JUDGE 

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