Court Opinion

ID: 4325392
Source: CourtListenerOpinion
Date Created: 2018-10-29 15:08:52.498945+00
Date Added: 2024-06-11T14:19:43.375557
License: Public Domain

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D),                                          FILED
this Memorandum Decision shall not be                                      Oct 29 2018, 8:38 am

regarded as precedent or cited before any                                       CLERK
                                                                            Indiana Supreme Court
court except for the purpose of establishing                                   Court of Appeals
                                                                                 and Tax Court
the defense of res judicata, collateral
estoppel, or the law of the case.

ATTORNEYS FOR APPELLANT                                  ATTORNEY FOR APPELLEE
Seth Row                                                 T. Andrew Perkins
Daniel Bogatz                                            Rochester, Indiana
Cleveland, Ohio

                                           IN THE
    COURT OF APPEALS OF INDIANA

National Collegiate Student                              October 29, 2018
Loan Trust 2006-4,                                       Court of Appeals Case No.
Appellant-Plaintiff,                                     18A-CC-1061
                                                         Appeal from the
        v.                                               Fulton Superior Court
                                                         The Honorable
Debra Vance (Bock),                                      Wayne E. Steele, Judge
Appellee-Defendant.                                      Trial Court Cause No.
                                                         25D01-1601-CC-50

Altice, Judge.

Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018                    Page 1 of 14
[1]   Debra Vance, now known as Debra Bock,1 co-signed on a student loan for

      another individual, who never made payments on the loan. National Collegiate

      Student Loan Trust 2006-4 (Lender) filed a complaint against Vance to collect

      on the delinquent loan. Lender filed a motion for summary judgment, and

      Vance filed her own motion for summary judgment. Following a hearing, the

      trial court granted summary judgment in favor of Vance, and Lender now

      appeals, raising three issues that we consolidate and restate as: whether the trial

      court erred when it determined that Vance’s debt on the student loan had been

      discharged in her Chapter 7 bankruptcy.

[2]   We reverse and remand.

                                   Facts and Procedural History
[3]   On October 22, 2006, Vance co-signed a student loan promissory note with

      Charter One Bank, N.A. (Charter One) for an Astrive Education Loan for Sean

      P. Dehoney (Student) to attend Axia College. The principal amount of the loan

      including a prepaid finance charge was $19,398.91, which funds were disbursed

      to Student pursuant to the contract on November 9, 2006. In December 2006,

      the loan was assigned by Charter One to National Collegiate Funding, LLC

      through a 2006-4 Pool Supplement, and on that same date, National Collegiate

      Funding, LLC assigned the account to Lender through a Deposit and Sale

      1
        For the sake of simplicity and consistency, we will use the name Vance in this decision as that is the name
      that appears in the relevant loan documents.

      Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018                  Page 2 of 14
      Agreement, assigning all right, title, and interest. No payment was ever made

      on the student loan.

[4]   In June 2013, Vance filed a petition for bankruptcy under Chapter 7 of the

      Bankruptcy Code. According to Vance, she listed the student loan as a

      scheduled debt, but its dischargeability was not expressly litigated in the

      bankruptcy proceeding. In September 2013, Vance received a general discharge

      pursuant to 11 U.S.C. § 727 (Section 727), and the bankruptcy case was closed

      in June 2014.

[5]   In January 2016, Lender filed a Complaint in the Fulton Superior Court against

      Vance to collect on the student loan debt, stating that the total amount due at

      that time including accrued interest was $34,597.78. Lender attached to its

      Complaint the Loan Credit Agreement and the Note Disclosure Statement.

      Vance by counsel filed an Answer, asserting as an affirmative defense

      that,“[w]hile the Complaint appears to reference a student loan, which under

      certain circumstances would be excepted from a discharge in a Chapter 7 case,

      the type of student loan contained in the Complaint is not the type of student

      loan excepted from a discharge in a Chapter 7 Bankruptcy case,” and “[a]ny

      claim . . . contained in the Complaint is barred from collection and was

      discharged in the Defendant’s bankruptcy case pursuant to the discharge

      order.” Appellant’s Appendix Vol. 2 at 19. Vance attached to her Answer the

      Discharge of Debtor (Discharge) dated September 16, 2013. The Discharge

      directed the debtor to “SEE THE BACK OF THIS ORDER FOR

      IMPORTANT INFORMATION,” and, on the reverse side was an

      Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 3 of 14
      “EXPLANATION OF BANKRUPTCY DISCHARGE IN A CHAPTER 7

      CASE.” Id. at 21. It stated, “Most, but not all, types of debts are discharged if

      the debt existed on the date the bankruptcy case was filed.” Id. It continued:

              Debts That are Not Discharged

              Some of the common types of debts which are not discharged in
              a chapter 7 bankruptcy are:

              d. Debts for most student loans[.]

      Id. (emphasis in original).

[6]   In March 2017, Lender filed its Motion for Summary Judgment, arguing that

      Lender and Vance entered into a credit agreement, Vance failed to make

      required payments and is in default, no genuine issues of material fact existed,

      and Lender was entitled to judgment as matter of law. In its designation of

      evidence, Lender designated, in addition to the Complaint and Answer, the

      Affidavit of Dudley Turner, who was employed by Transworld Systems Inc.

      (TSI), the company that was “the Subservicer for [Lender] pertaining to the

      education loan” at issue. Id. at 38. According to Dudley’s Affidavit, TSI

      maintained loan account records and documentation concerning the subject

      student loan. The Affidavit included seven attachments, one of which was the

      Credit Agreement that contained the following pertinent provision:

              12. I understand and agree that this loan is an education loan
              and certify that it will be used only for costs of attendance at
              the School. I acknowledge that the requested loan is subject to

      Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 4 of 14
              the limitations on dischargeability in bankruptcy contained in
              Section 523(a)(8) of the United States Bankruptcy Code
              because either or both of the following apply: (a) this loan was
              made pursuant to a program funded in whole or in part by The
              Education Resources Institute, Inc. (“TERI”), a non-profit
              institution, or (b) this is a qualified education loan as defined
              in the Internal Revenue Code. This means that if, in the event
              of bankruptcy, my other debts are discharged, I will probably
              still have to pay this loan in full.

      Id. at 45 (emphasis in original).

[7]   In April 2017, Vance filed her Response to Lender’s motion for summary

      judgment and, separately, filed her own Motion for Summary Judgment.

      Vance asserted that “either there are genuine issues of material fact in this case”

      and Lender’s motion should be denied, “OR, in the alternative, that there are

      no genuine issues of material fact, and that [Vance] is entitled to judgment as a

      matter of law[.]” Id. at 89. In her Response, Vance initially argued, “clearly a

      genuine issue of material fact” existed as to whether the debt was discharged in

      her bankruptcy case, specifically, “whether the education loan that is the subject

      of [Lender]’s Complaint is the type of debt which is excepted from a discharge

      or not.” Appellant’s Appendix Vol. 2 at 90. Vance recognized that, under the

      Bankruptcy Code, certain student loans are not generally dischargeable but

      argued that the student loan in this case “was not a government loan, but a

      private loan” and, further, that the subject loan was not a “qualified education

      loan” as that term is defined by the Internal Revenue Service; therefore, she

      argued, “the type of loan in this case is not the type of loan excepted from

      Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 5 of 14
      discharge in a bankruptcy case.” Id. at 92. Vance asserted in her Response that

      Lender “presented no evidence” that the loan qualified “for an exception to

      [her] bankruptcy discharge” and thus Lender “failed to satisfy its burden of

      proof.” Id. at 93.

[8]   Alternatively, Vance asserted in her Response that she was entitled to summary

      judgment because the debt was listed on her bankruptcy schedules, and “even if

      this debt was not listed on her schedules, her case was a ‘no asset’ case which . .

      . did not require debts to be listed on the . . . schedules for them to be

      discharged,” and, in any event, she “provided proof” that the bankruptcy

      provision indicating that certain student loans are not discharged in bankruptcy

      “does not apply to the loan” in question. Id. at 93.

[9]   Vance filed a Designation of Evidence “relevant to the genuine issues of

      material fact,” which designated, in addition to the pleadings and attachments,

      an Affidavit by Vance. Vance averred that (1) Student “is not my spouse or

      dependent,” (2) “[t]he loan proceeds were paid to [him] . . . and they were spent

      by him for his own expenses,” (3) she filed bankruptcy and “listed the loan that

      is the subject of [Lender]’s Complaint . . . on [her] bankruptcy schedules,” (4)

      her bankruptcy was “a ‘no asset’ case in that no assets were collected and

      distributed to creditors by the trustee,” (5) she was granted a discharge in the

      bankruptcy case on September 16, 2013, as evidenced by the Discharge of

      Debtor form attached to her Affidavit, and (6) her bankruptcy case was closed

      on June 23, 2014, as evidenced by the Order Approving Final Account,

      Discharging Trustee and Closing Case, attached to her Affidavit. Id. at 78-79.

      Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 6 of 14
[10]   Lender timely filed a Reply, asserting that the student loan was excepted from

       discharge. Lender argued that pursuant to 11 U.S.C. § 523(a)(8) (Section 523),

       as well as federal case law, “[s]tudent loans are generally not dischargeable in

       bankruptcy unless the debtor proves that excluding the loans from discharge

       would impose an undue hardship on the debtor.” Appellant’s Appendix Vol. 2 at

       96 (citing Tetzlaff v. Educ. Credit Mgmt. Corp., 794 F.3d 756, 758 (7th Cir. 2015)).

       It further asserted that Vance was incorrect in claiming that it was Lender’s

       burden to establish that the debt was not discharged, as the burden was on her

       to establish that the educational loan was excluded from discharge, “typically

       [accomplished] by filing an adversary proceeding” in bankruptcy court. Id. at

       95. In response to Vance’s assertion that the loan in question did not qualify for

       the definition of a “qualified educational loan,” Lender stated, first, that a

       determination of whether the loan was a “qualified educational loan” was

       unnecessary to the analysis based on other provisions of Section 523, and

       second, any such determination “could only properly be adjudicated by the

       Bankruptcy Court.” Id. Lender maintained that it was entitled to judgment as

       a matter of law, but that, should the trial court disagree that Lender was entitled

       to judgment, Lender consented “to an indefinite stay . . . so as to permit

       [Vance] to seek a declaratory judgment from the bankruptcy court clarifying

       whether the instant loan was discharged.” Id.

[11]   At the March 2018 hearing on the parties’ motions for summary judgment,

       Lender argued that (1) typically student loans are not discharged unless the

       debtor presents evidence of undue hardship, and (2) the debtor or other party

       Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 7 of 14
       responsible for payment has the burden of proving that the student loan was

       discharged. Vance responded that it is the creditor’s obligation to prove that the

       specific debt trying to be collected is excepted from discharge. Vance also

       clarified that she was not claiming undue hardship; rather, her position was that

       “this is not the kind of student loan that is accepted [sic] from discharge,”

       arguing that Lender had not “made the required showing” that this student loan

       meets the “qualified education loan” definition and that she was thus entitled to

       summary judgment. Transcript at 6, 8. Alternatively, Vance asserted “there are

       multiple genuine issues of material fact.” Id. at 9. Lender offered that Lender

       would be amenable to an indefinite stay “just to allow time for the Bankruptcy

       Court to determine whether or not this particular loan was discharged.” Id.

       Vance maintained that a stay was not warranted, arguing that Lender should

       have asked for relief from discharge in the two years that the case had been

       pending. Following the hearing, the trial court issued an order summarily

       granting judgment in Vance’s favor. Lender now appeals.

                                        Discussion & Decision
[12]   There is no dispute that Vance co-signed on the student loan or that the claimed

       amount is due and owing to Lender. Vance’s position is that the trial court

       correctly entered summary judgment in her favor because the debt was

       discharged in her Chapter 7 bankruptcy. Lender maintains, on the other hand,

       that the trial court should have granted summary judgment in its favor because

       the student loan debt was nondischargeable pursuant to Section 523 and no

       Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 8 of 14
       genuine issues of material fact remained as to whether Vance owed the debt on

       the defaulted student loan.

[13]   When reviewing a grant or denial of a motion for summary judgment, our

       standard of review is the same as it is for the trial court. McCullough v.

       CitiMortgage, Inc., 70 N.E.3d 820, 824 (Ind. 2017). “The moving party ‘bears

       the initial burden of making a prima facie showing that there are no genuine

       issues of material fact and that it is entitled to judgment as a matter of law.’”

       Id. (quoting Gill v. Evansville Sheet Metal Works, Inc., 970 N.E.2d 633, 637 (Ind.

       2012)). If the movant carries its burden, “‘then the nonmoving party must

       come forward with evidence establishing the existence of a genuine issue of

       material fact.’” Id. In determining whether summary judgment is proper, the

       reviewing court considers only the evidentiary matter the parties have

       specifically designated to the trial court. Ind. Trial R. 56(C). We construe all

       factual inferences in the nonmoving party’s favor and resolve all doubts as to

       the existence of a material issue against the moving party. McCullough, 70
N.E.3d at 824.

[14]   In determining whether Vance’s debt on the student loan was discharged, as she

       claims, or nondischargeable, as Lender claims, we must examine relevant

       Bankruptcy Code provisions. We begin by examining Section 727, under

       which Vance received her Discharge. Section 727 provides in relevant part:

                (b) Except as provided in section 523 of this title, a discharge under
               subsection (a) of this section discharges the debtor from all debts

       Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 9 of 14
        that arose before the date of the order for relief under this
        chapter[.]

(Emphasis added). Section 523 states, in relevant part:

        (a) A discharge under section 727 . . . does not discharge an
        individual debtor from any debt --

                 (8) unless excepting such debt from discharge under this
                 paragraph would impose an undue hardship on the debtor
                 and the debtor’s dependents, for --

                         (A) (i) any 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 (ii) an obligation to repay funds
                         received as an educational benefit, scholarship, or
                         stipend; or

                         (B) any other educational loan that is a qualified
                         education loan, as defined in section 221(d)(1) of
                         the Internal Revenue Code of 1986, incurred by a
                         debtor who is an individual[.]

“‘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.’” In re Clark, 341 B.R. 238,

248 (Bankr. N.D. Ill. 2006) (quoting United States v. Wood, 925 F.22d 1580, 1583

(7th Cir. 1991)). “Thus, it is the debtor who is required to file an adversary

proceeding against the holder of a student loan debt in order to show that the

Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 10 of 14
       debt should be discharged.” Id. (citing In re Hanson, 397 F.3d 482, 484 (7th Cir.

       2005)).

[15]   The parties agree that Section 523(a)(8) has been interpreted to mean that four

       types of educational loans are not included in a Section 727 discharge, absent

       undue hardship on the debtor, and those four types are: (1) loans made,

       insured, or guaranteed by a governmental unit; (2) loans made under any

       program partially or fully funded by a government unit or nonprofit institution;

       (3) loans received as an educational benefit, scholarship, or stipend; and (4) any

       “qualified educational loan” as that term is defined in the Internal Revenue

       Code.

[16]   Vance, while focusing exclusively on the last of the four types, regarding any

       “qualified educational loan,” contends that Section 523 does not apply to the

       student loan at issue. Specifically, she argues that the student loan does not

       meet the definition of a “qualified education loan” as that term is defined by the

       Internal Revenue Code in 26 U.S.C. § 221(d)(1), which states in relevant part:

               (1) Qualified education loan. -- The term “qualified education
               loan” means any indebtedness incurred by the taxpayer solely to
               pay qualified higher education expenses--

                        (A) which are incurred on behalf of the taxpayer, the taxpayer’s
                        spouse, or any dependent of the taxpayer as of the time the
                        indebtedness was incurred,

                        (B) which are paid or incurred within a reasonable period
                        of time before or after the indebtedness is incurred, and

       Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018   Page 11 of 14
                         (C) which are attributable to education furnished during a
                         period during which the recipient was an eligible student.

       (Emphasis added). Vance’s argument is that since the student loan in question

       was “not incurred on behalf of [Vance], or [Vance]’s spouse or dependent, then

       the loan is not a qualified education loan under 26 U.S.C. § 221(d)(1) and is not

       excepted from discharge under 11 U.S.C. § 523(a)(8).” Appellee’s Brief at 15.

[17]   Lender, however, maintains that the “qualified education loan” exception – in

       Section 523(a)(8)(B) – is not the relevant subsection and thus it is unnecessary

       to determine whether the student loan at issue satisfies that definition.2 Lender

       explains that, instead, “the subject student loan was excepted from discharge

       under subsection (A)(i) because it was ‘an educational 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.’” Appellant’s Brief at 14 (quoting from and adding emphasis to 11

       U.S.C. § 523(a)(8)(A)(i)).

[18]   Lender urges that “the record plainly establishes” that the student loan in

       question was an education loan that was funded in whole or in part by a non-

       profit institution. Appellant’s Brief at 14. In doing so, Lender refers to the loan

       documents, including the Credit Agreement which states in bolded letters:

       2
        Lender states that, not only is it unnecessary to decide that issue, but also any such determination would
       need to be made by the bankruptcy court.

       Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018                 Page 12 of 14
         12. I understand and agree that this loan is an education loan
         and certify that it will be used only for costs of attendance at
         the School. I acknowledge that the requested loan is subject to
         the limitations on dischargeability in bankruptcy contained in
         Section 523(a)(8) of the United States Bankruptcy Code
         because either or both of the following apply: (a) this loan was
         made pursuant to a program funded in whole or in part by The
         Education Resources Institute, Inc. (“TERI”), a non-profit
         institution, or (b) this is a qualified education loan as defined in
         the Internal Revenue Code. This means that if, in the event of
         bankruptcy, my other debts are discharged, I will probably still
         have to pay this loan in full.

Appellant’s Appendix Vol. 2 at 45 (italics added). Other designated documents,

namely the account’s payment history and the 2006-4 Pool Supplement, which

transferred and assigned the loan to National Collegiate Funding LLC, also

reflect that TERI was a guarantor.3 Lender argues that it thereby designated

evidence showing that the student loan was made pursuant to a program

funded by a non-profit institution, TERI, and, absent undue hardship to the

debtor, which Vance does not claim, the student loan was not discharged in

Vance’s Section 727 general discharge from bankruptcy. We agree.

3
  As pointed out by Lender, case law provides that a TERI-guaranteed loan program, even if TERI did not
fund the debtor’s specific loan, meets the standard set forth in Section 523(a)(8)(A)(i). Appellant’s Brief at 15-
18 and Reply Brief at 11; see e.g., In re O’Brien, 419 F.3d 104, 106 (2nd Cir. 2005) (holding that Section
523(a)(8) was applicable where TERI “merely guaranteed, without funding” the debtor’s particular loan,
obtained through Key Bank, as 523(a)(8) requires only that loan was “made under any program funded in
whole or in part by” a non-profit institution); Decker v. EduCap, Inc., 476 B.R. 463, 468 (W.D. Pa. 2012)
(finding that Section 523(a)(8)(A)(i) was satisfied where non-profit entity guaranteed loan that was funded by
Bank of America, noting “Congress’ intentionally stringent limits on the dischargeability of educational
loans”); In re Drumm, 329 B.R. 23, 35 (Bankr. W.D. Pa. 2005) (finding that a non-profit guarantee was
enough and that meaningful financial contribution or meaningful financial risk are not required).

Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018                    Page 13 of 14
[19]   Where, as here, Lender designated evidence that the loan was not discharged,

       the burden shifted to Vance to show that a genuine issue of material fact existed

       precluding summary judgment. Although Vance suggested that a question of

       fact remained as to whether the loan was a “qualified educational loan” under

       Section 523(a)(8)(B), we agree with Lender that such a determination is not

       warranted under the facts of this case, where the loan satisfied the parameters of

       Section 523(a)(8)(A).4

[20]   Having found that Lender established, through Section 523 and the designated

       evidence, that the student loan at issue was not discharged in bankruptcy, and

       where there is no dispute as to the fact that Vance co-signed on the loan or as to

       the amount due and owing, Lender has established that it is entitled to

       judgment as a matter of law on its claim to collect the debt. Accordingly, we

       reverse the trial court’s entry of summary judgment in favor of Vance and

       remand with instructions to enter judgment in Lender’s favor on its Complaint

       against Vance.

[21]   Judgment reversed and remanded with instructions.

       Brown, J. and Tavitas, J., concur.

       4
         Courts have determined Section 523(a)(8)(A)(i)’s discharge exception for government or non-profit-funded
       loans applies to non-related, non-student debtors, like Vance. See Corletta v. Texas Higher Educ. Coordinating
       Bd., 531 B.R. 647, 653 (W.D. Tex. 2015); Cockels v. Mae, 414 B.R. 149, 155 (E.D. Mich. 2009).

       Court of Appeals of Indiana | Memorandum Decision 18A-CC-1061 | October 29, 2018                 Page 14 of 14