In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 04-2131

IN RE: CRAIG D. HANSON,

Debtor-Appellant.

____________

Appeal from the United States District Court

for the Western District of Wisconsin.

No. 04 C 55—John C. Shabaz, Judge.

____________

ARGUED NOVEMBER 12, 2004—DECIDED FEBRUARY 2, 2005

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Before BAUER, MANION, and EVANS, Circuit Judges.

BAUER, Circuit Judge. Debtor-appellant Craig Hanson

filed for Chapter 13 bankruptcy relief in November 1992,

listing only his unsecured student loan debt of approximately $31,500 on his Chapter 13 schedules. After Hanson’s

Chapter 13 plan was confirmed without objection, Hanson

made monthly payments of $135 over 60 months on his

student loan, and the bankruptcy court entered an order

discharging his debt in September 1997. The discharge

order was erroneous because the Bankruptcy Code makes

student loan debt nondischargeable absent a showing of

undue hardship by the debtor, and Hanson had made no

such showing. Despite the error, the order went unchallenged until May 2003, when creditor Educational Credit

Management Corporation (“ECMC”) filed a motion for relief

from the discharge order in the bankruptcy court. The

bankruptcy court granted ECMC’s motion, and the district

court affirmed. We affirm.
2 No. 04-2131

I. Background

Between 1980 and 1987, Hanson borrowed money from

Great Lakes Higher Education Corporation (“Great Lakes”)

to finance his undergraduate and graduate education at the

University of Wisconsin-River Falls. Hanson defaulted on

the student loan debt in July 1989, and Great Lakes

obtained a default money judgment against him in December 1992 in the amount of $31,583.77. In November 1992,

Hanson filed a voluntary petition (the “Petition”) for

Chapter 13 relief. After receiving notice of the Petition,

Great Lakes moved to vacate the default judgment against

him, with the right to reopen if the bankruptcy was dismissed. The state court granted Great Lakes’ motion.

Great Lakes timely filed a proof of claim in the amount of

$35,531.08. Hanson’s Chapter 13 Plan (the “Plan”) proposed

to pay $135 monthly to Great Lakes over 60 months, which

was 19% of the claim. The Plan was confirmed without

objection. At no time did Hanson file an adversary proceeding to determine the dischargeability of his student loan.

Hanson completed payments under the Plan, and the

bankruptcy court entered a discharge order on September

11, 1997. The order provided, in relevant part:

1. Pursuant to 11 U.S.C. Section 1328(a), the debtor is

discharged from all debts provided for by the plan

or disallowed under 11 U.S.C. Section 502, except

any debt:

. . . . 

(c) for a student loan or educational benefit overpayment as specified in 11 U.S.C. Section

523(a)(8) in any case in which discharge is

granted prior to October 1, 1996.

Pursuant to the terms of the order, Hanson’s student loan

debt was discharged because the discharge was granted
No. 04-2131 3

1 Although Great Lakes was Hanson’s initial student loan

creditor, ECMC currently holds the student loan note and, for

the sake of simplicity, we will refer to ECMC as the creditor

throughout this opinion. 

after October 1, 1996. Unfortunately, the discharge order

reflected an October 1, 1996 sunset provision that already

had been repealed by Congress. The result of the error was

that Hanson’s student loan debt was discharged without

any showing of undue hardship, which is required by 11

U.S.C. § 523(a)(8) prior to the discharge of student loan

debt.

No objection to the error was raised until May 2003, when

ECMC, Great Lakes’ successor-in-interest, filed a motion for

relief from the order under Rule 60(b)(4) of the Federal

Rules of Civil Procedure. The bankruptcy court granted

ECMC’s motion on the ground that the discharge order was

void because it violated ECMC’s due process rights.1

 The

district court affirmed.

II. Discussion

A. Standard of Review

Although we generally review a lower court’s Rule 60(b)

decisions for abuse of discretion, Blaney v. West, 209 F.3d

1027, 1031 (7th Cir. 2000), we review challenges to Rule

60(b)(4) decisions de novo to the extent they turn on errors

of law. Federal Election Comm’n v. Al Salvi for Senate

Committee, 205 F.3d 1015, 1019 (7th Cir. 2000).
4 No. 04-2131

B. Discharge of Student Loans

Student loan debts are presumptively nondischargeable

in bankruptcy proceedings. 11 U.S.C. § 523(a)(8). Debtors

can overcome this presumption by making an affirmative

showing that excepting the student loan debt from discharge would impose an undue hardship on the debtor

or the debtor’s dependents. Id. The Bankruptcy Rules

require the debtor to file an “adversary proceeding” against

the holder of the student loan debt to make such a showing.

FED. R. BKRTCY. P. 4007(d), 7001(6); Tennessee Student

Assistance Corp. v. Hood, 124 S.Ct. 1905, 1913, 158 L. Ed.

2d 764 (2004). An adversary proceeding requires the service

of a summons and a complaint. FED. R. BKRTCY. P. 7001(6),

7003, 7004; Hood, 124 S.Ct. at 1913.

A number of student loan debtors have circumvented this

process by inserting undue hardship findings or student

loan or loan interest discharge provisions in their proposed

plans. See, e.g., In re Banks, 299 F.3d 296 (4th Cir. 2002); In

re Ruehle, 307 B.R. 28 (B.A.P. 6th Cir. 2004). Apparently,

the hope is that an unsuspecting bankruptcy court will

confirm the plan and that the lender will not recognize the

discharge by declaration ploy in time to object to confirmation or to file an appeal. The result is contrary to the

express language of the Bankruptcy Code and Rules: The

debtor obtains a discharge of his student loan debt without

filing an adversary proceeding to establish undue hardship.

Other student debtors have achieved the same

result—discharge of student loans absent a showing of

undue hardship—due to bankruptcy courts’ use of outdated

discharge forms that erroneously reflect a previously

repealed sunset provision connected to 11 U.S.C. §

523(a)(8). See, e.g., In re Tyler, 285 B.R. 635 (Bankr. W.D.

Tex. 2002).

Hanson falls into the latter category. His attorney did not

include an undue hardship finding or mention the discharge
No. 04-2131 5

of Hanson’s student loan debt in the proposed plan. Nevertheless, Hanson’s failure to file an adversary proceeding in

conjunction with his bankruptcy is puzzling. The only debt

listed was his presumptively nondischargeable student loan

debt and he did not initiate an adversary proceeding in an

effort to overcome the presumption. It may be that Hanson’s

attorney was unaware that student loan debt is

nondischargeable in the absence of a showing of undue

hardship at an adversary proceeding or, as the district court

surmised, that the Plan was proposed in the hope that

Congress would repeal § 523(a)(8) and render Hanson’s debt

dischargeable. Regardless of his intentions, Hanson received a windfall: The bankruptcy court discharged his

student loan debt without any showing of undue hardship.

We must decide whether Hanson gets to keep his windfall

due to the passage of time without any challenge from

ECMC or whether entry of the discharge order violated

ECMC’s due process rights so that the passage of time is

immaterial. FED. R. CIV. P. 60(b) (no time limit on relief

from judgment or order if judgment or order is void);

Robinson Eng’g Co. Pension Plan & Trust v. George, 223

F.3d 445, 448 (7th Cir. 2000) (“A judgment is void for the

purposes of Rule 60(b)(4) if the court that rendered it lacked

jurisdiction of the subject matter, or of the parties, or if it

acted in a manner inconsistent with due process of law.”).

At least three circuits have addressed this issue. The Tenth

Circuit started the line of case law in 1999 when it rejected

a student loan creditor’s collateral challenge to a discharge

provision contained in a confirmed Chapter 13 plan. In re

Anderson, 179 F.3d 1253, 1254 (10th Cir. 1999). Although

the debtor had inserted an undue hardship finding in her

proposed plan without filing an adversary proceeding, the

court faulted the creditor for failing to object to confirmation or timely appeal the discharge by declaration. Id. at

1258. The Ninth Circuit followed suit in In re Pardee, 193

F.3d 1083 (9th Cir. 1999). Then, the Fourth Circuit created
6 No. 04-2131

a circuit split by holding that due process entitles a student

loan creditor to the heightened notice provided for by the

Bankruptcy Code and Rules. Banks, 299 F.3d at 302-03. See

also Ruehle, 307 B.R. 28, 37 (B.A.P. 6th Cir. 2004) (following Banks and criticizing attorneys for inserting student

loan discharge by declaration provisions in the wake of

Anderson and Pardee).

In a recent student loan discharge by declaration case, the

Tenth Circuit retreated from its holding in Anderson and

opined that Anderson was wrongly decided and should be

reconsidered. Poland v. Educ. Credit Mgmt. Corp., 382 F.3d

1185 (10th Cir. 2004). The debtor in Poland proposed a plan

that purported to discharge her student loan debt if no

timely proof of claim was filed. Id. at 1187. The plan was

confirmed, the creditor filed its proof of claim one day late,

the untimely claim was disallowed, and the student loan

debt was discharged without a showing of undue hardship.

Id. The Tenth Circuit reversed, distinguishing Anderson

because the plan under consideration did not contain a

finding of undue hardship. Id. at 1188. Though the court did

not overrule Anderson, it recognized the decision’s problematic consequences and questionable rationale:

The panel is of the view that Anderson was wrongly

decided and should be reconsidered. The unfortunate

result of Anderson is that astute attorneys now insert

student loan discharge language (after today, complete

with a finding of undue hardship) hoping to achieve

preclusive effect, notwithstanding: (1) Bankruptcy Code

§ 523(a)(8) explicitly precludes the discharge

of a debtor’s student loan absent a showing of undue

hardship, (2) Bankruptcy Rules specifically require

a successful adversary proceeding, complete with individualized service of process, to establish undue

hardship and discharge a student loan, and (3) lack

of the required notice under the Bankruptcy Rules

proscribes preclusive effect.
No. 04-2131 7

Id. at 1189 n.2.

We embrace the analysis and holding of the Fourth

Circuit in Banks and the Tenth Circuit in Poland, and we

respectfully disagree with the Ninth Circuit’s decision in

Pardee. The decisions in Banks and Poland have greater

persuasive force because they are consistent with Congress’

unmistakable intent to make student loan debt

nondischargeable absent a showing of undue hardship.

Moreover, cases like Anderson and Pardee permit debtors to

flout both substantive and procedural provisions of the

Bankruptcy Code and Rules through a meaningless incantation of undue hardship in their proposed

plans. Although we recognize the strong policy favoring

finality of confirmation orders, due process entitles creditors

to the heightened notice provided for by the Bankruptcy

Code and Rules, and the dictates of due process trump

policy arguments about finality. See Mullane v. Central

Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652,

94 L. Ed. 865 (1950) (“An elementary and fundamental

requirement of due process in any proceeding which is to be

afforded 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 instant case is arguably distinguishable from the

cases discussed above because Hanson benefitted from the

bankruptcy court’s error rather than a discharge by declaration provision. However, the focus of our inquiry is on the

process afforded to ECMC, and ECMC received as little

process in this case as the creditors in Banks and Poland.

Hanson’s failure to serve ECMC with a summons and an

adversary proceeding complaint effectively denied ECMC

the opportunity of presenting an objection prior to the

adjudication of its rights. See Mullane, 339 U.S. at 313-14

(“[The] opportunity to be heard . . . must precede the

deprivation of property at issue.”).
8 No. 04-2131

Hanson criticizes ECMC for sitting on its rights and

failing to timely challenge the discharge order. However,

student loan creditors justifiably rely on the explicit

notice provisions of the Bankruptcy Code and Rules and

have no reason to act until the service of a summons for

an adversary proceeding apprises them that their property rights may be affected. As noted by the Supreme Court

in Mullane, due process requires “notice and the opportunity for hearing appropriate to the nature of the case” prior

to deprivation of property rights, and the creditor in this

case was denied the pre-deprivation notice and hearing that

are required in bankruptcies involving student loans.

Mullane, 339 U.S. at 313.

The recent Supreme Court decision in Hood does not

compel a different result. Hood, 124 S.Ct. 1905. The Court

granted certiorari in Hood to determine whether the

Bankruptcy Clause of the Constitution, which gives Congress the power to establish national bankruptcy

laws, empowers Congress to abrogate Eleventh Amendment

state sovereign immunity from private suits in the context

of bankruptcy discharge matters. Id. at 1908. The jurisdictional issue arose in Hood after the petitioner, a state entity

that guarantees student loans, filed a motion to dismiss an

adversary proceeding on the basis of Eleventh Amendment

sovereign immunity. Id. at 1909. The Court held that an

undue hardship determination was not a suit against the

State for purposes of the Eleventh Amendment because the

proceeding was an in rem proceeding with jurisdiction

predicated on the res of the bankruptcy estate. Id. at 1912-

13. Consequently, the Court did not reach the constitutional

question upon which certiorari was granted. Id. In explaining its conclusion, the Court acknowledged that service of

process ordinarily is an indignity to the sovereignty of the

state, but declined to give that requirement dispositive

weight, noting that the service of a summons was indistin-
No. 04-2131 9

guishable in practical effect from proceeding by motion. Id.

at 1914. The Court also noted that § 523(a)(8) does not

require a summons and that a debtor could proceed by

motion in the absence of Bankruptcy Rule 7001(6). Id.

Notably, Hood did not involve a due process challenge or

noncompliance with the Bankruptcy Code or Rules. Moreover, the characterization of a proceeding as an in rem

proceeding does not extinguish a creditor’s due process

rights. See Mullane, 339 U.S. at 312; Ehorn v. Sunken

Vessel, 294 F.3d 856, 859 (7th Cir. 2002). In addition, the

Hood Court’s suggestion, in an entirely different context,

that a debtor could proceed by motion in the absence of the

Bankruptcy Rules does not authorize debtors to ignore the

requirements of the Rules. Consequently, Hood is not on

point, and Hanson’s reliance on it is misplaced.

We wish to emphasize that our holding is a narrow one.

We do not hold that the due process clause requires the

service of a summons and adversary proceeding prior to the

discharge of student loan debt. Rather, “we merely confirm

that where the Bankruptcy Code and Bankruptcy Rules

require a heightened degree of notice, due process entitles

a party to receive such notice before an order binding the

party will be afforded preclusive effect.” Banks, 299 F.3d at

302. Due to the lack of compliance with the Bankruptcy

Code and Rules, the bankruptcy discharge order was void

and ECMC was properly granted relief pursuant to Rule

60(b)(4). In re Escobedo, 28 F.3d 34, 35 (7th Cir. 1994)

(failure to comply with Bankruptcy Code renders plan

nugatory).
10 No. 04-2131

III. Conclusion

For the foregoing reasons, we AFFIRM the decision of the

bankruptcy court.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—2-2-05