ELECTRONIC CITATION: 2004 FED App. 0003P (6th Cir.)

File Name: 04b0003p.06

BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: STEPHANIE RUEHLE, )

)

Debtor. )

_____________________________________ )

)

STEPHANIE RUEHLE, )

)

Plaintiff-Appellant, )

)

 v. ) No. 03-8066

)

EDUCATIONAL CREDIT MANAGEMENT )

CORPORATION, )

)

Defendant-Appellee. )

_____________________________________ )

Appeal from the United States Bankruptcy Court

for the Northern District of Ohio, at Canton

No. 98-62381

Argued: February 4, 2004

Decided and Filed: March 17, 2004

Before: AUG, HOWARD, and LATTA, Bankruptcy Appellate Panel Judges.

____________________

COUNSEL

ARGUED: Donald M. Miller, Sr., Canton, Ohio, for Appellant. Daniel S. Fisher, St. Paul,

Minnesota, for Appellee. ON BRIEF: Donald M. Miller, Sr., Canton, Ohio, for Appellant.

Frederick S. Coombs III, HARRINGTON, HOPPE & MITCHELL, Youngstown, Ohio, for

Appellee.
1Hereinafter, references to the Federal Rules of Civil Procedure will be made as

“Civil Rule ____” and references to the Federal Rules of Bankruptcy Procedure will be

made as “Bankruptcy Rule ____.”

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____________________

OPINION

____________________

J. VINCENT AUG, JR., Chief Bankruptcy Appellate Panel Judge. The chapter 13

debtor, Stephanie Ruehle (the “Debtor”), appeals the bankruptcy court’s Memorandum of

Decision granting the Motion to Vacate Discharge as to Educational Credit Management

Corporation (the “Motion to Vacate”). The confirmation order was vacated pursuant to

Federal Rule of Civil Procedure 60(b)(4), made applicable in bankruptcy cases by Federal

Rule of Bankruptcy Procedure 9024.1 The bankruptcy court granted the Motion to Vacate

on the basis that Educational Credit Management Corporation (“ECMC”) was denied due

process of law by the Debtor’s discharge of her student loan through her plan rather than

by filing a separate adversary proceeding. We affirm the bankruptcy court’s well-reasoned

decision.

I. ISSUES ON APPEAL

The issue in this appeal is whether the bankruptcy court erred in vacating its order

confirming the Debtor’s chapter 13 plan. In our analysis, we must consider whether the

provisions of 11 U.S.C. § 1327(a) providing that a confirmed plan is binding on the debtor

and creditor are trumped by ECMC’s due process rights set forth in the Fifth Amendment

to the United States Constitution. 

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit (the “BAP”) has jurisdiction to

decide this appeal. The United States District Court for the Northern District of Ohio has

authorized appeals to the BAP. A "final order" of a bankruptcy court may be appealed by

right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it "ends the

litigation on the merits and leaves nothing for the court to do but execute the judgment."
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Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989)

(citations omitted). 

The Panel reviews the bankruptcy court’s conclusions of law de novo. See

Nicholson v. Isaacman (In re Isaacman), 26 F.3d 629 (6th Cir. 1994). “A de novo review

allows the reviewing panel to examine the interpretation and application of the relevant

statutes independent of the determination of the bankruptcy court.” Peerless Ins. Co. v.

Miller (In re Miller), 228 B.R. 399, 400 (B.A.P. 6th Cir. 1999) (citation omitted). 

“Whether a Chapter 13 plan provision required an adversary proceeding and

whether the confirmation process violated a creditor’s due process rights are both legal

questions we review de novo.” Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d

296, 300 (4th Cir. 2002).

III. FACTS

The Debtor filed her chapter 13 petition and plan on July 28, 1998. She states in

her brief that her chapter 13 petition included one secured debt for an automobile and her

unsecured student loan in the amount of $17,000 owed at that time to Bank One/Great

Lakes Higher Education Corporation. The Debtor had previously discharged all of her

unsecured debt, other than the student loan, in a chapter 7 case that closed a mere two

months before she filed her chapter 13 petition. The Debtor’s chapter 13 plan included the

following provision discharging the Debtor’s student loan:

(16) All timely filed and allowed unsecured claims, including

the claim of Bank One/Great Lakes Higher Education, which

are government guaranteed education loans, shall be paid five

percent (5%) of each claim, and the balance of each claim

shall be discharged. Pursuant to 11 U.S.C. Section 523(a)(8),

excepting the aforementioned education loans from discharge

will impose an undue hardship on the debtor and the debtor’s

dependents. Confirmation of debtor’s plan shall constitute a

finding to that effect and that said debt is dischargeable. 

As noted by the bankruptcy court, this or similar plan language has become known as a

“discharge by declaration” provision. 

No objections were filed to the Debtor’s plan and it was confirmed on October 16,

1998. Subsequent to confirmation of her plan, the Debtor’s student loan was assigned to
2Part VII of the Bankruptcy Rules deals specifically with adversary proceedings.

Bankruptcy Rule 7001(6) provides that “a proceeding to determine the dischargeability of

a debt” is an adversary proceeding. Bankruptcy Rule 4007 is titled “Determination of

Dischargeability of a Debt” and sets out the parties who may file and the time frame for

filing the complaint. Bankruptcy Rule 4007(e) provides that the complaint is “governed by

Part VII of the rules” referring back to the adversary procedures. 

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ECMC. An order discharging the Debtor was entered on April 27, 2001, and the case was

closed on May 1, 2001. 

On December 19, 2002, ECMC filed a motion to reopen the case which was granted

on December 23, 2002. Thereafter, on January 27, 2003, ECMC filed its Motion to Vacate

the Debtor’s discharge as to the student loan. In bringing its Motion to Vacate, ECMC

relied on Civil Rule 60(b)(4) and (6).

On July 17, 2003, the bankruptcy court granted the Motion to Vacate based on its

finding that ECMC had been denied due process of law and that the order granting

confirmation of the Debtor’s plan was void pursuant to Civil Rule 60(b)(4). The bankruptcy

court found that Civil Rule 60(b)(6) was not applicable to the present case. The Debtor

filed her timely appeal. 

IV. DISCUSSION

Section 523(a)(8) of the Bankruptcy Code provides:

A discharge under section 727, 1141, 1228(a), or

1328(b) of this title does not discharge an individual debtor

from any debt . . . for an educational benefit overpayment or

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 nonprofit institution, or for an obligation

to repay funds received as an educational benefit, scholarship,

or stipend, unless excepting such debt from discharge under

this paragraph will impose an undue hardship on the debtor

and the debtor’s dependents.

Pursuant to Bankruptcy Rules 4007 and 7001(6) an action to determine dischargeability

of a debt must be brought as an adversary proceeding.2 In this case, the Debtor attempted

to circumvent the requirements of Bankruptcy Rules 4007 and 7001(6) by discharging her

student loan through the above-quoted language in her chapter 13 plan. She further

circumvented the requirement that the debtor bear the burden of proving that repayment
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of the debt would constitute an undue hardship. Dolph v. Penn. Higher Educ. Assistance

Agency (In re Dolph), 215 B.R. 832, 836 (B.A.P. 6th Cir. 1998). 

Section 1325(a)(1) provides that the bankruptcy court “shall confirm a plan if . . . the

plan complies with the provisions of this chapter and with the other applicable provisions

of this title.” The Seventh Circuit has stated that “[a] bankruptcy court lacks the authority

to confirm any plan unless it ‘complies with the provisions of this chapter and with the other

applicable provisions of this title.’” In re Escobedo, 28 F.3d 34, 35 (7th Cir. 1994) (citing

§ 1325(a)(1)). It is uncontested that the provisions of the Debtor’s confirmed chapter 13

plan did not comply with the provisions of the Bankruptcy Code and Bankruptcy Rules in

that the Debtor failed to file an adversary proceeding to seek to discharge her student loan.

Further, the Debtor’s plan did not comply with § 1322(b) setting forth the permitted contents

of a chapter 13 plan. Paragraphs (1) through (9) of § 1322(b) include specific matters that

may be included in the plan, none of which relate to discharging a student loan. Paragraph

(10), the catch-all provision, specifies that the plan may “include any other appropriate

provision not inconsistent with this title.” 11 U.S.C. § 1322(b) (emphasis added). There

is no authority in the Bankruptcy Code or Bankruptcy Rules for including a discharge by

declaration provision in the Debtor’s plan. The provision “is an interloper in the plan; it can

have no legal status.” Educ. Credit Mgmt. Corp. v. Whelton (In re Whelton), 299 B.R. 306,

312 (Bankr. D. Vt. 2003) (analyzing § 1322 regarding contents of a plan and § 1328(a)(2)

specifically excepting student loan debts from the discharge of all debts provided for by the

plan). However, since the Debtor’s plan was confirmed, we now have to decide whether

the discharge by declaration provision is enforceable. Id.

Bankruptcy Code § 1327(a) provides:

The provisions of a confirmed plan bind the debtor and

each creditor, whether or not the claim of such creditor is

provided for by the plan, and whether or not such creditor has

objected to, has accepted, or has rejected the plan.

Civil Rule 60(b) provides that the court may relieve a party from a final judgment,

order, or proceeding under certain circumstances. The pertinent circumstance here is

where “the judgment is void.” Fed. R. Civ. P. 60(b)(4).

Motions under [Civil Rule 60(b)] subsections (4), (5) and (6)

may be made within a “reasonable time,” which we have

determined is dependent upon the facts in a case, including

length and circumstances of delay in filing, prejudice to
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opposing party by reason of the delay, and circumstances

warranting equitable relief. 

Eglinton v. Loyer (In re G.A.D., Inc.), 340 F.3d 331, 334 (6th Cir. 2003). “A Rule 60(b)(4)

motion leaves no margin for the court’s discretion as the judgment is either void or not.”

Pearson v. Dept. of Educ. (In re Pearson), 279 B.R. 612, 615 (Bankr. M.D. Ga. 2002)

(citing Burke v. Smith, 252 F.3d 1260, 1263 (11th Cir. 2001)).

Under Rule 60(b)(4), if the rendering court lacked subject

matter jurisdiction, the underlying judgment is void, and it is per

se an abuse of discretion to deny a movant’s motion to vacate.

Eglinton, 340 F.3d at 335-36. Likewise, the judgment is void if the court lacked jurisdiction

over the affected party because of a lack of notice resulting in a violation of due process

and it would be a “per se abuse of discretion to deny the movant’s motion to vacate.” Id.;

see e.g., Pearson, 279 B.R. at 615 (judgment is void under Rule 60(b)(4) if the court lacked

jurisdiction of either the parties or the subject matter).

The Supreme Court of the United States has explained the requirements of due

process as follows:

An elementary and fundamental requirement of due process

in any proceeding which is to be accorded finality is notice

reasonably calculated, under all the circumstances, to apprise

interested parties of the pendency of the action and afford

them an opportunity to present their objections. The notice

must be of such nature as reasonably to convey the required

information, and it must afford a reasonable time for those

interested to make their appearance. 

Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313, 70 S. Ct. 652, 656

(1950) (citations omitted); see also In re Chess, 268 B.R. 150, 155 (Bankr. W.D. Tenn.

2001) (“Lack of notice and sufficient service of process leading ultimately to lack of due

process properly renders a judgment void.”); In re Harris, 293 B.R. 438, 441 (Bankr. N.D.

Ohio 2003) (“provisions of a confirmed Chapter 13 plan are not binding on creditors to the

extent that the confirmation order violates a creditor’s due process rights”) (citations

omitted). The bankruptcy court in Harris further stated

For purposes of § 1327(a), due process requires that

notice be given to the creditor that is reasonably calculated,

under all of the circumstances, to appraise [sic] the creditor

that its rights as a creditor may be placed in jeopardy.
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Id. The Debtor in the case before the Panel cannot argue that the “notice” placed in her

plan, where it was not supposed to be in the first place, was notice reasonably calculated

to inform ECMC that it was about to lose valuable rights. The Supreme Court has held that

“a creditor’s knowledge that a reorganization proceeding has been instituted does not

make it the creditor’s duty to inquire about possible court orders limiting the time for filing

a claim.” In re Rideout, 86 B.R. 523, 527 (Bankr. N.D. Ohio 1988) (citing City of N.Y. v.

New York, N.H. & H.R. R.R. Co., 344 U.S. 293, 73 S. Ct. 299 (1953)). Similarly, in this

case, it was not ECMC’s duty to inquire about possible actions instituted by the Debtor that

might affect ECMC’s student loan where the Debtor failed to properly institute those actions

by the methods set forth in the Bankruptcy Code and Bankruptcy Rules. ECMC had a right

to expect that it would receive a summons and complaint if its rights were in jeopardy.

Whelton, 299 B.R. at 318. But see Andersen v. Higher Educ. Assistance Found. (In re

Andersen), 179 F.3d 1253 (10th Cir. 1999) and Great Lakes Higher Educ. Corp. v. Pardee

(In re Pardee), 193 F.3d 1083 (9th Cir. 1999) (both cases place the burden on the student

loan creditor to review the plan to protect its rights prior to confirmation).

There is no doubt that ECMC has contrary precedent to overcome. The abovenoted cases of Andersen and Pardee represent the current majority view that a confirmed

plan containing a discharge by declaration provision is binding on the parties. The facts

in Andersen and Pardee are similar to those in the case before the Panel. In both cases,

the Tenth and Ninth Circuits, respectively, found that language in the respective debtor’s

confirmed plan providing for the discharge of student loans was res judicata and was

binding on the student loan lenders even though no adversary proceeding had been filed

and no summons issued. The circuits also relied on the policy of finality of judgments.

Both of the circuits emphasized the duty of the student loan lenders to protect their own

rights by objecting to such plan provisions. However, neither circuit looked into the deeper

concept of whether the lenders had received notice reasonably calculated to apprise the

lenders of the fact that their rights were in jeopardy and neither circuit considered whether

the lender’s due process rights had in fact been violated. Andersen has been

characterized by numerous courts as a “res judicata” case. In re Lemons, 285 B.R. 327,

331 (Bankr. W.D. Okla. 2002). Pardee can also be so characterized and both cases can

be distinguished from the case before the Panel on that basis. “Even if a discharge-bydeclaration provision in a confirmation order was found to be eligible for res judicata effect,
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it would still need to pass muster under due process analysis in order for it to be

enforceable.” Whelton, 299 B.R. at 317 (citing Banks, 271 B.R. at 254 (“[A]n order may

not operate as res judicata should it result in the denial of a creditor’s due process

rights.”)).

Andersen and Pardee do not represent binding authority on the courts in the Sixth

Circuit. Further, we do not find these cases persuasive but find the reasoning of the Fourth

Circuit in Banks to be the better-reasoned view. Therefore, we choose to follow the

growing trend finding that the student loan lender has been denied due process where a

debtor attempts to discharge a student loan through a discharge by declaration provision.

In the wake of Anderson and Pardee, the practice of using discharge by declaration

provisions became very popular. Banks, 299 F.3d at 301 (“The number of Debtors seeking

to improperly discharge nondischargeable debt increased significantly following the

decisions of our sister Circuits in In re Andersen and In re Pardee.”). As indicated in the

following discussion, bankruptcy courts and the Fourth Circuit have taken action to send

a clear indication of their disapproval of these provisions.

In Banks, the Fourth Circuit was faced with a situation similar to the one before the

Panel. The debtor, Banks, included language in his chapter 13 plan providing for the

nonaccrual and discharge of post-petition interest on the debtor’s student loan and that

upon discharge, the debtor would be liable only for the unpaid principal balance on his

student loan. No objections were filed to the plan nor appeal taken of the confirmation

order. Almost five years after the debtor received his discharge, the student loan creditor,

ECMC, attempted to collect principal and post-petition interest on the student loan. Banks

reopened his chapter 13 case and filed an adversary proceeding relying on the res judicata

effect of the confirmation order and asking the bankruptcy court to determine that the postpetition interest on his student loans had been discharged.

The bankruptcy court in Banks relied on Andersen and Pardee and held that the

confirmation order was res judicata and barred ECMC from collecting the post-petition

interest. On appeal, the district court reversed the bankruptcy court. The district court,

finding that ECMC had not received proper notice due to Banks’ failure to file an adversary

proceeding, stated:

“While the Court recognizes that sophisticated lenders such as

ECMC, Great Lakes, and Sallie Mae should not turn a blind
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eye to the confirmation process, . . . neither should they fall

victim to a Chapter 13 plan that flouts both bankruptcy law and

the constitution.”

Banks, 299 F.3d 296, 299-300 (quoting Sallie Mae Servicing v. Banks, 271 B.R. 249, 255-

56 (W.D. Va. 2001)); see also Cen-Pen Corp. v. Hanson, 58 F.3d 89 (4th Cir. 1995)

(finding provisions of confirmed plan are not res judicata so as to deprive secured creditor

of its security interest where debtor failed to file an adversary proceeding as required by

Bankruptcy Rule 7001(2)). 

The following cases are further examples of the rising judicial concern regarding the

increased use of discharge by declaration provisions and the sound reasons why this

practice should be strongly discouraged. In each case, the debtors, subsequent to the

decision in Andersen and/or Pardee, included in their chapter 13 plans illegal provisions

attempting to discharge their student loans through the confirmation process rather than

through an adversary proceeding.

In In re Mammel, 221 B.R. 238 (Bankr. N.D. Iowa 1998), the debtor specifically

relied on Andersen and Pardee in asserting that his plan should be confirmed since there

was no objection filed by the student loan creditor. However, the trustee filed an objection

to the debtor’s plan. Interestingly the trustee was willing to withdraw the objection but the

court, obviously concerned about the larger due process issue, required briefs and ruled

that the plan was not confirmable as presented. The court stated:

Ultimately, this type of provision [discharge by

declaration] trivializes the entire process and reduces it to a

game of chance. If Debtor can obtain confirmation before the

creditors, the Court, or the Trustee identify such a provision,

the objectionable plan provision is elevated to a status beyond

challenge. It is the opinion of this Court that this type of plan

provision should be discouraged rather than encouragedunder

the guise of creativity.

Mammel, 221 B.R. at 243.

In re Hensley, 249 B.R. 318 (Bankr. W.D. Okla. 2000) involved a situation where the

bankruptcy court was faced with multiple confirmed chapter 13 plans which all included a

discharge by declaration provision. The student loan lenders in each case had filed a

motion to dismiss the debtor’s chapter 13 plan. The court made clear its view 

that the intentional inclusion of language in a chapter 13 plan

or confirmation order providing for the discharge of a debtors
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student loan indebtedness, or of any other provision prohibited

by the Bankruptcy Code or Rules, is both unethical and

sanctionable conduct. 

Id. at 320. The court went on to chastise counsel for attempting this type of

“gamesmanship” and indicated that it “has no place in the practice of bankruptcy law, and

will not be tolerated by this Court.” Id. at 320-21. 

In Rideout, the bankruptcy court was also faced with a situation similar to that

presented in the case before the Panel. The chapter 11 debtors failed to provide proper

notice of the deadline for filing ballots objecting to their proposed plan and failed to provide

notice of the hearing on confirmation of the plan. Subsequent to the plan being confirmed,

the Hahns, creditors of the Rideouts, filed a motion pursuant to Civil Rule 60(b)(4)

requesting that the bankruptcy court vacate the order confirming the plan. The Rideouts

objected stating that the time for revoking the plan under 11 U.S.C. § 1144 had passed.

The bankruptcy court in Rideout determined that it did not have jurisdiction over the

Hahns due to the lack of notice. It therefore determined that the order confirming the

Rideouts’ plan was void because it deprived the creditor of property rights without notice

and an opportunity to be heard. Rideout, 86 B.R. at 530. The court stated:

[T]here is no indication in the legislative history, or in the case

law, that the purpose of § 1144 is to preserve a Plan which is

void. Instead, it appears Congress intended § 1144 to prevent

the Revocation of a Plan based upon a mistake of law or fact.

The policy considerations underlying § 1144 do not apply with

equal force to the Vacating of a Confirmed Plan because of a

lack of notice. Consequently, this Court does not read § 1144

as superseding its power to Vacate the Confirmed Plan under

Federal Rule of Civil Procedure 60(b)(4). 

It should be noted that throughout this Opinion the Court

has used the term “Vacate”, rather than “Revoke”. The

Revocation section, § 1144, is primarily used for permanent

Revocation of the Plan, and the Discharge, because of fraud.

In the present case, the Court’s action is Vacating the “Order

Confirming Plan”, and will only result in the Hearing on

Confirmation being reset, with the Court ensuring that the

Creditors are given notice of that Hearing. Because the Court

is not permanently revoking the Plan, this matter is

distinguishable from many of the cases cited by the Rideouts.

Rideout, 86 B.R. at 530. Similarly, in this case, the Debtor argues that the bankruptcy

court could not revoke its confirmation order pursuant to § 1328(e) because the time for
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filing a motion for revocation has passed. However, the bankruptcy court did not revoke

the Debtor’s plan. As noted above, the order confirming the plan is being vacated pursuant

to an entirely different procedure. There are no time limits on vacating an order that is

void. The Debtor took her chances in trying to discharge a nondischargeable debt by a

process that is inconsistent with the Bankruptcy Code and Bankruptcy Rules. She will not

now be permitted to argue that she relied on the confirmation order that she knew

contained provisions that were inconsistent with the Bankruptcy Code and Bankruptcy

Rules. She must now suffer the consequences of her ill advised actions. In its order, the

bankruptcy court vacated the confirmation order only as it related to the Debtor’s student

loan. The Debtor here still has the option of taking procedures she should have taken

several years ago to determine if she is in fact entitled to a discharge of her student loan

pursuant to § 523(a)(8). As indicated by the bankruptcy court in Whelton:

Moreover, to enforce the discharge obtained through a

declaration in a plan not only deprives the affected creditor of

due process, it erodes the bedrock integrity of the bankruptcy

system. The inclusion of such a provision in a plan, where it

has no legitimacy, constitutes what I have categorized as

“practice by ambush.” Sneaking a provision in a plan, hoping

no one will notice it, and then reaping the benefits of its

inclusion violates the fundamental principles of due process

and of fair play, and threatens the heart of our legal,

adversarial system. Enforcement of the discharge here would

be tantamount to condoning a surreptitious strategy that

should, in fact, be discouraged with vigor. 

Whelton, 299 B.R. at 317-18. 

In this case, counsel for the Debtor stated that, like the above cases, the instant

case was also filed in the wake of Andersen and Pardee and that those cases justified

counsel’s belief that the discharge by declaration provision was an appropriate method to

discharge the Debtor’s student loan. The Debtor’s reliance on Andersen and Pardee is

misplaced in that both of those cases clearly indicate that discharge by declaration

provisions violate the Bankruptcy Code and Bankruptcy Rules. Andersen, 179 F.3d at

1259 (discharge by declaration provision did not comply with the Code); Pardee, 193 F.3d

at 1086 (discharge by declaration provision is inconsistent with the Code). To counsel’s

credit, he stated at oral argument that he no longer advises clients to use discharge by
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declaration provisions in their plans. Our decision today will put to rest any question as to

whether the use of such provisions is appropriate or enforceable in the Sixth Circuit. 

V. CONCLUSION

We choose to follow the Fourth Circuit rather than the Ninth and Tenth Circuits and

AFFIRM the decision of the bankruptcy court to vacate its order confirming the Debtor’s

chapter 13 plan on the basis that ECMC was denied due process by the Debtor’s

attempted discharge of her student loan through her plan.