FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

FRANCISCO J. ESPINOSA, 

No. 06-16421 Plaintiff-Appellant,

D.C. No.

v.  CV-04-00447-RCC

UNITED STUDENT AID FUNDS, INC., OPINION Defendant-Appellee. 

Appeal from the United States District Court

for the District of Arizona

Raner C. Collins, District Judge, Presiding

Argued and Submitted April 16, 2008

Submission Vacated June 24, 2008

Resubmitted August 29, 2008

San Francisco, California

Filed October 2, 2008

Before: Alex Kozinski, Chief Judge, A. Wallace Tashima

and N. Randy Smith, Circuit Judges.

Opinion by Chief Judge Kozinski

14019
COUNSEL

Michael J. Meehan, Munger Chadwick, Tucson, Arizona;

James L. Robinson, Jr., Robinson & Rylander, P.C., Tucson,

Arizona, for the plaintiff-appellant. 

Madeleine C. Wanslee, Gust Rosenfeld P.L.C., Phoenix, Arizona, for the defendant-appellee. 

OPINION

KOZINSKI, Chief Judge: 

In our earlier opinion in this case, Espinosa v. United Student Aid Funds, Inc., 530 F.3d 895 (9th Cir. 2008), we

remanded to the bankruptcy court for a determination under

Rule 60(a) whether exclusion of petitioner’s student debt from

its discharge order was the result of a clerical error. The bankruptcy court confirmed that:

the inclusion of paragraph 1(c) in the Discharge

Order [which exempted student loan obligations

from the general discharge] was inserted because of

a clerical mistake, because it was the clear intent of

the Court, as reflected in the Chapter 13 Plan, as

approved by the Court, that all student loan-related

obligations were to be discharged if the debtor successfully performed and completed the Plan. 

Order of August 20, 2008. We thus finally have presented to

us the question that the parties briefed and argued: Whether

a debtor may obtain discharge of a student loan by including

it in a Chapter 13 plan, if the creditor fails to object after

notice of the proposed plan. 

14022 ESPINOSA v. UNITED STUDENT AID FUNDS
Facts

Espinosa filed a Chapter 13 petition and proposed plan that

provided for repayment of $13,250 in student loans to United

Student Aid Funds, Inc. (Funds). Funds was notified and filed

a proof of claim in the amount of $17,832.15.1 The bankruptcy court eventually confirmed the plan, and the Chapter

13 Trustee mailed Funds a notice advising it that “[t]he

amount of the claim filed differs from the amount listed for

payment in the plan. Your claim will be paid as listed in the

plan.” The notice also contained the following warning:

If an interested party wishes to dispute the above

stated treatment of the claim, it is the responsibility

of the party to address the dispute. The claim will be

treated as indicated above unless the Trustee

receives within 30 days from this mailing, a written

request for different treatment. The request should

set forth the specific grounds for alternative treatment and should be filed with the Clerk of the Court,

with a copy mailed to the Trustee at [address

deleted]. [Emphasis added.] 

Funds did not object and Espinosa successfully completed the

plan. The bankruptcy court then granted him a discharge. 

Three years later, Funds began intercepting Espinosa’s

income tax refunds to satisfy the unpaid portion of the student

loan. Espinosa petitioned the bankruptcy court for an order

holding Funds in contempt for violating the discharge injunction. See 11 U.S.C. § 524(a)(2). Funds cross-moved for relief

from the bankruptcy court’s order confirming the plan, on the

ground that the order had been entered in violation of Funds’s

rights under the Bankruptcy Code and Rules. 

1The difference between these two amounts appears to be interest. See

n.4 infra. 

ESPINOSA v. UNITED STUDENT AID FUNDS 14023
This is the nub of Funds’s argument: To initiate bankruptcy

proceedings, a Chapter 13 debtor must notify creditors by

mail of the deadline for filing objections and the date of the

confirmation hearing. Fed. R. Bankr. P. 2002(b). Espinosa did

this. However, student loans may not be discharged under

Chapter 13 unless the debtor can show “undue hardship,” 11

U.S.C. § 523(a)(8), and such a showing can only be made in

an adversary proceeding. See Fed. R. Bankr. P. 7001(6). To

initiate an adversary, the debtor must file a complaint, id.

7003, which must be served on the student loan creditor along

with a summons, id. 7004. Espinosa didn’t do this. Instead

Espinosa simply listed the student debt in his Chapter 13 plan,

which the bankruptcy court confirmed. Espinosa then made

the payments specified in the plan, and the bankruptcy court

eventually entered a discharge order. Funds based its motion

for relief from this order on Espinosa’s failure to initiate an

adversary and his consequent failure to obtain a judicial determination of undue hardship. 

The bankruptcy court rejected Funds’s argument. It held

that Funds had violated the discharge injunction and ordered

Funds to cease all collection activity against Espinosa. It also

denied Funds’s motion for relief from the confirmed plan,

holding that the plan became final when it was confirmed and

that Funds should have objected to any procedural defect

before confirmation. Funds appealed to the district court,

which reversed. According to the district court, Funds was

denied due process because it wasn’t served with a complaint

and summons. Espinosa appeals.

Analysis

Funds makes both a statutory and a constitutional argument

for setting aside the confirmed bankruptcy plan. These arguments turn on the fact that Espinosa didn’t obtain a judicial

determination of undue hardship. 

[1] 1. Statutory Argument. Funds argues that the bankruptcy court should have set aside Espinosa’s discharge

14024 ESPINOSA v. UNITED STUDENT AID FUNDS
because Espinosa didn’t comply with the additional procedures required by the Bankruptcy Code and Rules to discharge student debt. Great Lakes Higher Educ. Corp. v.

Pardee (In re Pardee), 193 F.3d 1083, 1086 (9th Cir. 1999),

which is on all fours with our case, forecloses this argument.

As here, the student loan debtor in Pardee didn’t employ

these additional procedures, and the creditor there didn’t file

any objections to the proposed Chapter 13 plan, which provided that the student loan debt would be discharged. Id. at

1084. The bankruptcy court confirmed the plan, and eventually discharged the student loan debt. Id. The creditor subsequently argued that the confirmed plan wasn’t final under 11

U.S.C. § 1327(a), because the creditor wasn’t given the benefit of the additional procedures applicable to the discharge of

student loans. Pardee, 193 F.3d at 1086. We firmly rejected

this argument, following the Tenth Circuit’s lead in Andersen

v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253 (10th

Cir. 1999). In essence, Pardee held that a discharge is a final

judgment and cannot be set aside or ignored because a party

suddenly claims, years later, that the trial court committed an

error. 

Two circuits have disagreed with Pardee, and accepted

Funds’s statutory argument. See Educ. Credit Mgmt. Corp. v.

Mersmann (In re Mersmann), 505 F.3d 1033, 1047-49 (10th

Cir. 2007) (en banc) (overruling Andersen); Whelton v. Educ.

Credit Mgmt. Corp., 432 F.3d 150, 154 (2d Cir. 2005). These

opinions divine some sort of conflict between the Bankruptcy

Code’s finality provision, 11 U.S.C. § 1327(a), and those provisions of the Code and Rules that call for an adversary proceeding before a student loan debt may be discharged. We see

no such conflict; both provisions can operate fully, within

their proper spheres. 

The provision giving student loan creditors a right to special procedures comes into play when the case is pending

before the bankruptcy court. If a debtor proposes to discharge

a student loan debt without invoking the special procedures

ESPINOSA v. UNITED STUDENT AID FUNDS 14025
applicable to such debts, the creditor can object to the plan

until the debtor shows undue hardship in an adversary proceeding. 

But there are many reasons a student loan creditor might

not object to such a Chapter 13 plan. The creditor might, for

example, believe that the debtor would be able to make a convincing showing of undue hardship, and thus see no point in

wasting the debtor’s money, and its own, litigating the issue.

Or, the creditor may decide that a Chapter 13 plan presents its

best chance of collecting most of the debt, rather than spending years trying to squeeze blood out of a turnip. Or, the creditor may hope that the debtor will make some payments on the

plan but ultimately fail to complete it, in which case the creditor will have collected a portion of the debt and still be free

to collect the rest later.2 Or, the creditor may overlook the

notice or fail to understand its legal implications. 

[2] Regardless, when the creditor is served with notice of

the proposed plan, it has a full and fair opportunity to insist

on the special procedures available to student loan creditors

by objecting to the plan on the ground that there has been no

undue hardship finding. Rights may, of course, be waived or

forfeited, if not raised in a timely fashion. This doesn’t mean

that these rights are ignored, or that a judgment that is entered

after a party fails to assert them conflicts with the statutory

scheme or is somehow invalid. 

2This is not an idle hope; an estimated two-thirds of Chapter 13 plans

ultimately fail. Scott F. Norberg & Andrew J. Velky, Debtor Discharge

and Creditor Repayment in Chapter 13, 39 Creighton L. Rev. 473, 509

n.74 (2006) (“[D]ata . . . show a continuation of the [Chapter 13 plan]

failure rate at about two-thirds.”) (citing Lynn M. LoPucki, Common

Sense Consumer Bankruptcy, 71 Am. Bankr. L.J. 461, 474-75 (1997));

National Bankruptcy Review Commission, Bankruptcy: The Next Twenty

Years 233 (1997), available at http://govinfo.library.unt.edu/nbrc/report/

08consum.pdf (“For more than a decade, two-thirds of all Chapter 13

plans have failed before the debtor completes payments, and sometimes

before unsecured creditors have received anything at all.”). 

14026 ESPINOSA v. UNITED STUDENT AID FUNDS
[3] The Bankruptcy Code’s finality provision comes into

play much later in the process, after the bankruptcy proceedings come to an end. A bankruptcy discharge order is a final

judgment and, even without the special protection of section

1327(a), a final judgment cannot be ignored or set aside just

because it was the result of an error. Errors committed during

the course of litigation must be corrected by way of a timely

appeal. We have therefore “recognized the finality of confirmation orders even if the confirmed bankruptcy plan contains

illegal provisions.” Pardee, 193 F.3d at 1086 (citing Trulis v.

Barton, 107 F.3d 685 (9th Cir. 1995), Lawrence Tractor Co.

v. Gregory (In re Gregory), 705 F.2d 1118 (9th Cir. 1983),

and numerous other cases from across the country). Were the

rule otherwise, no judgment would ever be conclusive, as a

party aggrieved by it could endlessly re-litigate errors supposedly committed by the trial court. 

[4] After a judgment (including a discharge) is finalized,

and the time for appeal has run, the judgment can only be

reconsidered in the limited circumstances provided by Rule

60(b). Mersmann and Whelton pay scant attention to 60(b) or

the caselaw thereunder, which strictly cabins the circumstances under which a judgment can be reopened after it

becomes final. See, e.g., Gaydos v. Guidant Corp. (In re Guidant Corp. Implantable Defibrillators Products Liability

Litig.), 496 F.3d 863, 866 (8th Cir. 2007) (“Rule 60(b) authorizes relief in only the most exceptional of cases.”); United

States v. Hartwell, 448 F.3d 707, 722 (4th Cir. 2004)

(“[W]hen deciding whether an order is ‘void’ under . . . Rule

60(b)(4) for lack of subject matter jurisdiction, courts must

look for the rare instance of a clear usurpation of power.”);

Kramer v. Gates, 481 F.3d 788, 792 (D.C. Cir. 2007) (“Rule

60(b)(6) should be only sparingly used and may not be

employed simply to rescue a litigant from strategic choices

that later turn out to be improvident.”) (internal quotation

marks omitted). Instead, both circuits elide the requirements

ESPINOSA v. UNITED STUDENT AID FUNDS 14027
of 60(b) by treating this as a question of res judicata. Whelton,

432 F.3d at 155; Mersmann, 505 F.3d at 1049-50.3

[5] This analysis is wrong on two counts. First, what we

have here is not a question of res judicata—giving the judgment in the bankruptcy case preclusive effect in another case.

The debtor here—like those in Mersmann and Whelton—

sought to reopen the original case in order to enforce the discharge injunction, which came into force by operation of law

upon entry of the discharge. A discharge injunction does not

operate by way of res judicata; it is, rather, an equitable remedy precluding the creditor, on pain of contempt, from taking

any actions to enforce the discharged debt. See 2 Collier

Bankruptcy Manual (3d rev. ed.) ¶ 524.02[2][c] (“Civil contempt is the normal sanction for violations of the discharge

3Mersmann also has what it calls a statutory argument, 505 F.3d at

1047-49, but this passage in the opinion proves nothing more than that the

order confirming the plan and the subsequent discharge probably were

erroneous and might have been successfully appealed. The court doesn’t

explain what difference this makes when dealing with a judgment that

long ago became final. Even an incorrect judgment is binding, unless and

until it is re-opened and modified. This portion of the Mersmann opinion

thus carries no independent force because it proves something that is both

obvious and beside the point. 

Whelton appears to have been misled by a stray remark in one of our

opinions, Enewally v. Washington Mutual Bank (In re Enewally), 368 F.3d

1165, 1173 (9th Cir. 2004), to the effect that “the confirmed plan has no

preclusive effect on issues that must be brought by an adversary proceeding.” This statement was correct in the circumstances presented in Enewally, where “the bankruptcy court specifically reserved the question at

issue [during plan confirmation] because it had been raised via an adversary proceeding.” Id. It is true, of course, that a plan can have no preclusive effect on matters that have been specifically reserved for resolution

by way of an ongoing adversary proceeding. We had no occasion in Enewally to consider the situation where there is no adversary and the case is

resolved entirely by confirmation of the plan. Anything Enewally has to

say as to matters not presented in that case is, in any event, dicta and thus

not binding on us. Reading Enewally broadly to speak to that hypothetical

situation would also bring it into conflict with Pardee, which addresses

precisely this issue. 

14028 ESPINOSA v. UNITED STUDENT AID FUNDS
injunction.”) (footnote omitted); id. ¶ 524.02[2] (discharge

“provides for a broad injunction against not only legal proceedings, but also any other acts to collect a discharged debt

as a personal liability of the debtor”). This includes garnishments, attachments, self-help and all other means of collection

—not merely the filing of another lawsuit. 11 U.S.C.

§ 524(a)(2); 2 Collier Bankruptcy Manual (3d rev. ed.)

¶ 524.02[2]. A discharge judgment could also have res judicata effect, if the creditor were to try to enforce the debt by

bringing a post-discharge lawsuit, but the discharge injunction

prevents him from even commencing the second suit where

the res judicata issue could be litigated. There was no second

lawsuit in our case, nor (insofar as we can tell) in Mersmann

and Whelton. Res judicata thus has no application to a case

like ours, or those considered by the Second and Tenth Circuits. 

Even if res judicata were the relevant doctrine, neither

Mersmann nor Whelton offer any persuasive reasons why the

discharge order here should be denied full preclusive effect.

Both cases seem to go off on the theory that the student loan

debt couldn’t be discharged by the Chapter 13 plan because

the creditor was not served with a complaint and summons,

as required for the commencement of an adversary proceeding. Whelton, 432 F.3d at 155; Mersmann, 505 F.2d at

1049-50. But the creditor in our case (as in those other cases)

did get proper notice of the proposed Chapter 13 plan, and so

knew perfectly well that if the plan were approved and satisfied, the debtor would be granted a discharge of the student

debt listed in the plan.4 Had the creditor wanted to insist on

4

In our case, the creditor was served with the “Notice of Commencement of Case Under Chapter 13 of the Bankruptcy Code, Meeting of Creditors, and Fixing of Dates.” Attached to this notice was a copy of the

proposed Chapter 13 plan, which carried the following prominent warning: “WARNING IF YOU ARE A CREDITOR YOUR RIGHTS MAY

BE IMPAIRED BY THIS PLAN.” There follows a detailed description of

debtor’s assets and liabilities, a payment schedule and a great deal of other

ESPINOSA v. UNITED STUDENT AID FUNDS 14029
an adversary, it could have objected to the Chapter 13 plan on

the ground that there was no judicial finding of undue hardship. Had Funds so objected, the bankruptcy court would have

been required to disapprove the plan and Espinosa would

have been put to the hard choice of commencing an adversary

or abandoning Chapter 13. But Funds didn’t object to the plan

and didn’t appeal the order confirming the plan, as it well

could have. See In re Gregory, 705 F.2d at 1121. Instead, it

accepted the payments made by the debtor during the plan’s

life and then acted as if the whole thing never happened. See

p.14024 supra. 

It makes a mockery of the English language and common

sense to say that Funds wasn’t given notice, or was somehow

ambushed or taken advantage of. The only thing the creditor

pertinent information. One section of the plan is titled “Education

Loan(s)” and lists all of Funds’s loans, for a total of $13,250. The plan

specifies that this amount should be paid in full, followed by a paragraph

stating as follows: 

The amounts claimed by the United Student Loan Aid Funds,

Inc., et. al. for capitalized interest, penalties, and fees shall not be

paid for the reasons that the same are penalties and not provided

for in the loan agreement between the Debtor and the lender. 

The subsequent paragraph provides as follows: “Any amounts or claims

for student loans unpaid by this Plan shall be discharged.” Paragraph 6 of

the plan is titled “OBJECTIONS” and provides as follows: “Objections,

by any creditor, must be filed seven (7) days prior to the hearing on Confirmation of Plan along with a copy to the Trustee and Debtor’s counsel.”

Paragraph 7 is titled “PROOF OF CLAIM” and states as follows: 

As a creditor you must file your proof of claim in order to get

paid the amounts provided for in this plan. If you do not file your

proof of claim by the deadline date you will not receive anything

even if the Plan provides for payment. The deadline for filing

proofs of claim is set forth in the Notice Of Commencement [Of]

Case Under Chapter 13 Of The Bankruptcy Code, Meeting of

Creditors, And Fixing of Dates which you have received from the

Clerk of the United States Bankruptcy Court. 

As noted, Funds filed a proof of claim, but no objection to the plan. 

14030 ESPINOSA v. UNITED STUDENT AID FUNDS
was not told is that it could insist on an adversary proceeding

and a judicial determination of undue hardship. But that’s less

a matter of notice and more of a tutorial as to what rights the

creditor has under the Bankruptcy Code—a long-form

Miranda warning for bankers. If that were the standard for

adequate notice, every notification under the Bankruptcy

Code would have to be accompanied by Collier’s Treatise,

lest the creditor overlook some rights it might have under the

Code. 

Mersmann recognizes this problem when it states (without

citation) that this kind of notice is somehow different from

ordinary notices because it “goes to the heart of the creditor’s

notice of the bankruptcy plan itself.” 505 F.3d at 1050. But

it’s not clear why letting the creditor know, in plain terms,

that its rights will be impaired by the proposed plan—and

then leaving it up to the creditor and his lawyers to figure out

what objections or remedies are available—doesn’t satisfy the

Tenth Circuit’s “heart of the . . . notice” standard. After all,

we aren’t talking here about destitute widows and orphans, or

people who don’t speak English or can’t afford a lawyer. The

creditors in such cases are huge enterprises whose business it

is to administer the very kinds of debts here in question. If

this kind of notice to sophisticated parties who have ample

resources to protect their rights is inadequate for purposes of

res judicata, then the concept of notice has no meaning and

res judicata is a fairy tale. 

While we are bound by Pardee, we have taken a close look

at the contrary holdings of our sister circuits in order to determine whether we have strayed off course, in which case we

would call for rehearing en banc to correct our caselaw. But

we don’t find the reasoning of the two other circuits persuasive. Seeing no reason to change course, we continue to follow Pardee. 

2. Funds also argues that the discharge order is void

because Funds was denied due process, as it was never served

ESPINOSA v. UNITED STUDENT AID FUNDS 14031
with a complaint and summons as required by Fed. R. Bankr.

P. 7004. Three circuits have held, like the district court below,

that a student loan debtor’s failure to commence an adversary

proceeding by serving the student loan creditor with a complaint and summons, denies the creditor due process. Ruehle

v. Educ. Credit Mgmt. Corp. (In re Ruehle), 412 F.3d 679,

682-83 (6th Cir. 2005); In re Hanson, 397 F.3d 482, 486 (7th

Cir. 2005); Banks v. Sallie Mae Servicing Corp. (In re Banks),

299 F.3d 296, 302-03 (4th Cir. 2002). Because we did not

consider this argument in Pardee or any other case, circuit

law does not preclude us from addressing it. 

We begin our analysis with Rule 60(b), the gateway for setting aside any final judgment. Because the judgment is more

than a year old, the first three subsections of 60(b) cannot be

relied on, Fed. R. Civ. P. 60(c)(1), and are inapplicable in any

event. Subsection 5, dealing with satisfied judgments, is similarly inapplicable. Subsections 4 and 6, however, are possibilities: If the opposing party is given no notice at all of the

lawsuit, or notice is so inadequate as to violate due process,

any judgment entered against that party would be void (subsection 4), and such constitutionally deficient service would

certainly be a just reason for relief from the judgment (subsection 6). See, e.g., Owens-Corning Fiberglass Corp. v. Ctr.

Wholesale, Inc. (In re Ctr. Wholesale, Inc.), 759 F.2d 1440,

1448-51 (9th Cir. 1985); Baldwin v. Credit Based Asset Servicing and Securitization, 516 F.3d 734, 737-38 (8th Cir.

2008). 

[6] The standard for what amounts to constitutionally adequate notice, however, is fairly low; it’s “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 objection.” Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950). In re Gregory rejected an argument that Chapter 13 notice of a proposed

plan is constitutionally defective because it does not apprise

14032 ESPINOSA v. UNITED STUDENT AID FUNDS
each creditor of how its own claim will be disposed of by the

plan:

When the holder of a large, unsecured claim such as

Lawrence receives any notice from the bankruptcy

court that its debtor has initiated bankruptcy proceedings, it is under constructive or inquiry notice

that its claim may be affected, and it ignores the proceedings to which the notice refers at its peril.

“Whatever is notice enough to excite attention and

put the party on his guard and call for inquiry, is

notice of everything to which such inquiry may have

led. When a person has sufficient information to lead

him to a fact, he shall be deemed to be conversant of

it.” D.C. Transit Systems, Inc. v. United States, 531

F.Supp. 808, 812 (D.D.C. 1982). (citations omitted.)

The notice included the names of the bankruptcy

judge, the trustee, and Gregory’s attorney, and presumably any of them could have helped Lawrence

obtain a copy of the plan or informed it as to the

plan’s proposal concerning its claim. If Lawrence

had made any inquiry following receipt of the notice,

it would have discovered that it needed to act to protect its interest.

705 F.2d at 1123 (emphasis added). 

[7] The reasoning of In re Gregory is controlling here, not

only because it is law of the circuit, but because it’s entirely

consistent with Mullane and the more than a half century of

due process caselaw that follows it. If a party is adequately

notified of a pending lawsuit, it is deemed to know the consequences of responding or failing to respond, even if gaining

actual knowledge requires inquiry into court files, hiring a

lawyer or conducting legal research. Indeed, it would be virtually impossible to operate a legal system if due process

required more notice than that. 

ESPINOSA v. UNITED STUDENT AID FUNDS 14033
[8] As noted, Funds here did receive actual notice of

Espinosa’s bankruptcy case; we know this both from documents in the record, which show receipt, and from the fact

that Funds presented a proof of claim. The notices Funds did

receive also warned of the consequences of failing to object—

which is more than due process requires. A creditor receiving

such notice would have known that its debt could be

adversely affected by the proposed plan, and that it needed to

file an objection if it wished to avoid that result.5 Funds raised

no such objection, nor did it appeal the order confirming the

plan. We cannot say that Funds was taken by surprise or was

denied due process. Quite the contrary: Funds appears to have

been a willing participant, perfectly happy to receive the benefits of the Chapter 13 plan, but unwilling to suffer the consequences of its failure to file an objection. 

The three circuits that have held that the creditor is denied

due process in circumstances such as these appear to have a

different understanding of what due process requires. As best

we can follow their reasoning, it is that a creditor who is entitled to heightened notice by statute is also entitled to such

heightened notice as a matter of due process. This footnote

from In re Banks, the first circuit case to adopt this novel

approach, tries to explain this rationale: “We do not today

hold that the Constitution in itself requires a summons and

service of process to discharge student loan debt. We merely

confirm that where the Bankruptcy Code and 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.” 299 F.3d at 303 n.4. Accord In re

Hanson, 397 F.3d at 486 (“student loan creditors justifiably

5Even after the bankruptcy court confirmed the plan, Funds had an

opportunity to dispute it. The notice attached to the proposed plan specifically advised that the “amount of the claim [Funds] filed differs from the

amount listed for payment in [Espinosa’s] plan,” and warned Funds that

its “claim will be paid as listed in the plan” unless the Chapter 13 Trustee

received notice within 30 days from Funds that it “wishes to dispute the

above stated treatment of the claim.” Funds did not object. 

14034 ESPINOSA v. UNITED STUDENT AID FUNDS
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.”); In re Ruehle, 412 F.3d at

683. The Seventh Circuit in Hanson goes so far as to say that

“Hanson’s failure to serve [the creditor] with a summons and

an adversary proceeding complaint effectively denied [the

creditor] the opportunity of presenting an objection prior to

the adjudication of its rights.” 397 F.3d at 486 (citing Mullane, 339 U.S. at 313-14). 

We do not find this reasoning persuasive and thus have no

occasion to call for rehearing en banc to consider overruling

In re Gregory. To begin with, we find it both wrong and dangerous to hold that the standard for what amounts to constitutionally adequate notice can be changed by legislation. The

constitutional standard, as we understand it, requires that a

party affected by the litigation obtain sufficient notice so that

it is able to take steps to defend its interests. Congress can, of

course, give rights to additional notice, but we find it difficult

to see how this can affect the floor provided by due process—

either to increase or diminish it. 

[9] Even if Congress could affect the constitutional standard, it didn’t do so here: Congress made it quite clear that a

creditor need only get ordinary notice of a Chapter 13 plan to

be bound by its terms. That Congress provided heightened

notice requirements for an adversary proceeding, which didn’t

take place here, is of no consequence. Had there been an

adversary proceeding, and had the creditor not been served

with a complaint and summons, the creditor may then have

been free to ignore the adversary until it was properly served.

But here (and in the similar cases from other courts) there was

no adversary proceeding; the creditor’s rights were cut off by

the Chapter 13 plan, precisely as specified in the notice the

creditor did receive. We reject the idea that a creditor who is

in the business of administering student loans has a constitutional right to ignore a properly served notice that clearly

ESPINOSA v. UNITED STUDENT AID FUNDS 14035
specifies that its debt will be discharged on successful completion of the plan.6

In short, we find the due process argument even less persuasive than the statutory argument, despite the eagerness of

some of our sister circuits and other courts to adopt it. What

appears to be going on is that courts are re-casting what may

be a simple statutory violation as a denial of due process so

that they can set aside judgments with which they’re unhappy.

This approach is not consistent with the theory of objective

judging, which calls for us to apply the law fairly to the facts

and let the chips fall where they may. We see no reason to

reconsider the approach we adopted in In re Gregory, which

6Our Bankruptcy Appellate Panel’s opinion in In re Repp suffers from

the same defect in reasoning. The opinion there bemoans “an unfair Catch22” and even a “double Catch-22” that the student loan creditor supposedly confronts. Educ. Credit Mgmt. Corp. v. Repp (In re Repp), 307 B.R.

144, 153 (9th Cir. BAP 2004). We don’t see any Catch-22: A creditor who

wants to force the debtor to follow the statutory procedure for discharging

student debt need only object to the proposed plan on the ground that there

has not been a proper undue hardship finding. The debtor must then procure such a finding by bringing an adversary proceeding and serving the

creditor with a complaint and summons. As Judge Ryan points out in his

well-reasoned dissent, the creditor in Repp (like the one in our case) was

not subjected to any kind of unfairness: 

It should be pointed out that ECMC was a creditor, had filed a

claim, and knew or should have known that its rights could be

affected by the plan. It cannot stick its head in the sand, ignore

the plan terms, and later claim foul play because it is adversely

impacted by the plan. Due process does not place substance over

form. Here, the substance is that ECMC had actual knowledge of

the plan terms and chose to default. It cannot now seek a second

bite of the apple by way of a due process argument. 

Id. at 156. The Repp majority would have done well to adopt the view of

its dissenting colleague and follow circuit law as announced by Pardee

and In re Gregory. In re Repp and cases following it are overruled. See,

e.g., Sallie Mae Servicing Corp. v. Ransom (In re Ransom), 336 B.R. 790,

797-98 (9th Cir. BAP 2005); County of Ventura Tax Collector v.

Brawders (In re Brawders), 325 B.R. 405, 414 (9th Cir. BAP 2005). 

14036 ESPINOSA v. UNITED STUDENT AID FUNDS
we believe is fully consistent with the Supreme Court’s teachings in Mullane, and with fairness and justice as well. 

Conclusion

It is apparent that a number of courts in our circuit, including the district court below, are uncomfortable with the practice of some Chapter 13 debtors to seek to discharge their

student debts by working them into their Chapter 13 plans.

Some bankruptcy judges have announced that they won’t confirm plans that seek to discharge student loan debts without an

adversary proceeding, even when the creditor fails to object

to the plan. See, e.g., Patton v. U.S. Dep’t of Educ. (In re Patton), 261 B.R. 44, 48 (Bankr. E.D. Wash. 2001); In re Webber, 251 B.R. 554, 557-58 (Bankr. D. Ariz. 2000). In fact, one

of these opinions has suggested that inclusion of a “nondischargeable” debt in a Chapter 13 plan “may be the subject

of sanctions.” In re Patton, 261 B.R. at 48. 

[10] For reasons explained above, we view matters quite

differently. Our long-standing circuit law holds that student

loan debts can be discharged by way of a Chapter 13 plan if

the creditor does not object, after receiving notice of the proposed plan, Pardee, 193 F.3d at 1086, and that such notice is

not constitutionally inadequate. In re Gregory, 705 F.2d at

1123. We find it highly unlikely that a creditor whose business it is to administer student loans will be misled by the customary bankruptcy procedures or somehow be bamboozled

into giving up its rights by crafty student debtors. If the creditor fails to object, it is doubtless the result of a careful calculation that this course is the one most likely to yield repayment

of at least a portion of the debt. In such circumstances, bankruptcy courts have no business standing in the way. Cases

such as In re Webber and In re Patton are, to that extent,

overruled. 

[11] The district court’s judgment reversing the bankruptcy

court is reversed. The case is remanded to the bankruptcy

ESPINOSA v. UNITED STUDENT AID FUNDS 14037
court for reinstatement of the order enforcing the discharge

injunction and for a determination whether the creditor acted

willfully in violating the injunction under the standard we

announced in Zilog, Inc. v. Corning (In Re Zilog, Inc.), 450

F.3d 996 (9th Cir. 2006).7

REVERSED and REMANDED.

7As we held in Zilog: 

A party who knowingly violates the discharge injunction can be

held in contempt under section 105(a) of the bankruptcy code.

See In re Bennett, 298 F.3d at 1069; Walls v. Wells Fargo Bank,

N.A., 276 F.3d 502, 507 (9th Cir. 2002) (holding that civil contempt is an appropriate remedy for a willful violation of section

524’s discharge injunction). In Bennett, we noted that the party

seeking contempt sanctions has the burden of proving, by clear

and convincing evidence, that the sanctions are justified. We

cited with approval the standard adopted by the Eleventh Circuit

for violation of the discharge injunction: “[T]he movant must

prove that the creditor (1) knew the discharge injunction was

applicable and (2) intended the actions which violated the injunction.” 

450 F.3d at 1007 (citing Renwick v. Bennett (In re Bennett), 298 F.3d

1059, 1069 (9th Cir. 2002) (citing Hardy v. United States (In re Hardy),

97 F.3d 1384, 1390 (11th Cir. 1996)). That the creditor may have believed

that the discharge was inappropriately entered, or that it could be set aside

under Rule 60(b), is of no consequence. A creditor is not free to violate

the discharge injunction because it has doubts as to the validity of the discharge. If the creditor believes the discharge is defective, it may petition

the bankruptcy court to reopen and set aside the judgment under Rule

60(b), but it may not commence collection proceedings unless and until

the court grants such relief. If the bankruptcy court finds that the creditor

here willfully violated the injunction, it shall, at the very least, impose

sanctions to the extent necessary to make Espinosa whole. See 2 Collier

Bankruptcy Manual (3d rev. ed.) ¶ 524.02[2][c] (“In cases in which the

discharge injunction was violated willfully, courts have awarded debtors

actual damages, punitive damages and attorney’s fees.”) (footnote omitted). 

14038 ESPINOSA v. UNITED STUDENT AID FUNDS