Opinion ID: 556382
Heading Depth: 2
Heading Rank: 2

Heading: Dischargeability of HEAL Loans

Text: 6 Wood insists that his HEAL loan was discharged in bankruptcy. The dischargeability of a HEAL loan is governed by 42 U.S.C. Sec. 294f(g). Under section 294f(g), a HEAL loan is not dischargeable in bankruptcy unless: 1) five years have passed from the date that repayment begins; 2) the bankruptcy court finds that nondischarge would be unconscionable; and 3) the Secretary has waived certain rights. See In re Johnson, 787 F.2d 1179, 1181 (7th Cir.1986). All three of the conditions must be satisfied in order for the HEAL loan to be discharged. In re Quinn, 102 B.R. 865, 867 (Bankr.M.D.Fla.1989); In re Green, 82 B.R. 955, 957 (Bankr.N.D.Ill.1988). 7 The dispute in this case centers around the burden of initiating the inquiry into the second of the conditions, unconscionability. This issue is one of first impression in this circuit. Wood argues that under Rule 4007 of the Federal Rules of Bankruptcy the government was required to file an objection to the discharge within 60 days of notice of the bankruptcy proceedings. He contends that the government waived its right to have the bankruptcy court determine whether the nondischarge of his HEAL loan would be unconscionable by not objecting to the discharge of the HEAL loan. Wood notes that the government has usually filed an objection to the discharge of these loans. E.g., Johnson, 787 F.2d 1179; Green, 82 B.R. 955; In re Cleveland, 64 B.R. 810 (Bankr.S.D.Cal.1986). 8 The government, on the other hand, contends that it was not necessary to state an objection, despite its practice in other cases, because the HEAL loan is not dischargeable without the specific finding of unconscionability. While Rule 4007(c) gives a creditor 60 days to file a complaint to determine the dischargeability of a debt pursuant to Sec. 523(c), the government notes that Rule 4007(b) allows a complaint other than under Sec. 523(c) to be filed at any time. In re Williams, 96 B.R. 149, 151 (Bankr.N.D.Ill.1989). Moreover, a debtor, through the medium of a [bankruptcy] [p]lan, can[not] override the terms of 42 U.S.C. Sec. 294f(g). In re Gronski, 65 B.R. 932, 936 (Bankr.E.D.Pa.1986). 9 Another district court was faced with a similar case. There the debtor argued that the creditor must file a complaint to determine the dischargeability of a student loan in bankruptcy under 11 U.S.C. Sec. 523(a)(8). Buford v. Higher Educ. Assistance Foundation, 85 B.R. 579, 581 (D.Kan.1988). Under section 523(a)(8), an educational loan is not dischargeable in bankruptcy unless it became due five years before the filing of the petition or unless it would impose undue hardship on the debtor. The legislative history of section 523(a)(8) indicates that the statute was meant to be self-executing so that the creditor would not be required to file a complaint to determine the dischargeability of a student loan. Id. at 581 (citing S.REP. NO. 989, 95th Cong., 2d Sess. 79, reprinted in 1978 U.S.CODE CONG. & ADMIN.NEWS 5787, 5865). The district court noted that Congress had created a presumption that student loans are nondischargeable in bankruptcy, and therefore the burden of challenging that presumption falls on the debtor. Id. 10 Section 523(a)(8) and section 294f(g) are comparable. Section 294f(g) was reenacted in 1981. Johnson, 787 F.2d at 1182. The reenactment made the discharge of HEAL loans more difficult than the original enactment. Id. Additionally, the requirements of section 294f(g) are more stringent than those in section 523(a)(8). The debtor must show undue hardship under section 523(a)(8), whereas section 294f(g) requires the higher standard of unconscionability. In re Hines, 63 B.R. 731, 736 (Bankr.D.S.D.1986). The language of section 294f(g) details the findings that are necessary to negate the presumption of nondischargeability of the HEAL loans, just as section 523(a)(8) does with other educational loans. The reasoning that section 523(a)(8) is self-executing regarding general educational loans similarly applies to section 294f(g) regarding HEAL loans. Congress explicitly decided which factors must be determined before a HEAL loan could be discharged in bankruptcy. It created no exception to its mandate other than those listed in the statute. Congress, presumably aware of the fact that the earlier statute, section 523(a)(8), was self-executing, did not expressly place the burden of raising the dischargeability of the HEAL loan on the creditor. 11 Finally, this court has stated that when any debtor is seeking to discharge [a] HEAL loan, he or she must meet the three requirements specified in section 294f(g). Johnson, 787 F.2d at 1182. This statement also indicates that this court's interpretation of the burden of initiating an inquiry into the dischargeability of a HEAL loan under section 294f(g) falls upon the debtor, not the creditor. 12 Accordingly, we hold that 42 U.S.C. Sec. 294f(g) is self-executing and that the burden is on the debtor to request a determination of dischargeability of a HEAL loan. The decision of the district court is AFFIRMED.