Opinion
No. B78-2236A
April 17, 1980
Bankruptcy Reform Act — Discharge of Debts — Educational Loans — Gap Period
A student loan debt was dischargeable in proceedings commenced during the "gap" period between November 6, 1978 and August 14, 1979 even though the petition was pending when both P. L. 96-56 and Section 523(a)(8) of the Bankruptcy Code were enacted. Neither statute was intended to be applied retroactively to pending cases pursuant to Section 403(a) of the Bankruptcy Reform Act of 1978 and therefore, the law in effect at the time the petition was filed governed this proceeding. See Sec. 523(a)(8) at ¶ 9234.
The question raised by the above-styled adversary matter is whether student loan debts are dischargeable in proceedings commenced during the so-called "gap" period between November 6, 1978, and August 14, 1979.
I.
Prior to 1977, only those debts listed in § 35 of title 11 of the United States Code (§ 17 of the Bankruptcy Act) were not dischargeable in bankruptcy. With the passage of certain amendments (effective in 1977) to the Higher Education Act of 1965, however, § 439A of title 20 of the United States Code provided for the non-dischargeability of debts incurred as part of the federal Guaranteed Student Loan Program.
Although student loan debts were not absolutely non-dischargeable under the terms of the title 20 provision, (the debts were susceptible to discharge five years after the initiation of the pay-back periods), the word "non-dischargeable" will be used hereinafter to describe the title 20 provision and other similar non-dischargeability provisions.
This title 20 provision was, however, rather short-lived, because it was unequivocally repealed on November 6, 1978 by § 317 of the Bankruptcy Reform Act. Accordingly, as of that date, student loan debts were once again dischargeable.
Section 317 provides that "§ 439A of Part B of Title IV of the Higher Education Act of 1965 ( 20 U.S.C. § 1087-3) is repealed."
The legislative history behind the Reform Act confirms the unambiguous language of the repealer. H. R. REP. No. 95-595 at 455 (1978); S. REP. No. 95-989 at 163 (1978).
Section 402(d)) of the Reform Act provided that November 6, 1978 would be the effective date of § 317.
On August 14, 1979, however, the President signed into law P. L. 96-56, which returned student loan debts to a state of non-dischargeability. Since Congress did not intend that P. L. 96-56 be applied retroactively to cases commenced prior to August 14, 1979, the non-dischargeability "gap" which existed between November 6, 1978 and August 14, 1979 was not cured by the enactment of P. L. 96-56. See In re Sawaya, 5 B. C. D. 1072, 1074 (Bk. Ct. D. Mass. 1979). See also Letter from Congressional Budget Office Director, [1979] U.S. CONG. ADM. NEWS 1884.
Section 2 of P. L. 96-56 specifically states that "amendments made by [P. L. 96-56] shall apply with respect to any proceeding commenced under the Bankruptcy Act during the period beginning on the date of enactment of this Act and ending on October 1, 1979." See also S. REP. No. 96-2301.
Furthermore, Congress did not intend that the student loan debt non-dischargeability provision of the new Bankruptcy Code, § 523(a)(8), be applied retroactively to cure the "gap." In fact, Congress flatly stated that its intention was that virtually no provision of the new Code be applied to cases commenced prior to its effective date, October 1, 1979:
Only pending railroad reorganization cases were intended to be affected by the new Code. See § 403(b). The fact that such cases, and no others, were singled out for such treatment underscores the lack of an intent that § 523(a)(8) of the Code be applied retroactively.
A case commenced under the Bankruptcy Act, and all matters and proceedings in or relating to any such case, shall be conducted and determined under such Act as if this Act had not been enacted, and the substantive rights of parties in connection with any such bankruptcy case, matter, or proceeding shall continue to be governed by the law applicable to such case, matter, or proceeding as if the [Reform] Act had not been enacted.
§ 403(a) of the Bankruptcy Reform Act of 1978, (known as the "savings provision").
In sum, the compromise-oriented process which marks the workings of the Congress has resulted in patchwork-like treatment for the discharge of student loan debts: dischargeable under September 30, 1977; not dischargeable from September 30, 1977 until November 6, 1978; dischargeable from November 6, 1978 to August 14, 1979; not dischargeable from August 14, 1979 to the present. Accord, In re Sawaya, 5 B. C. D. 1072 (Bk. Ct. D. Mass. 1979); In re Utterbach, 5 B. C. D. 1046 (Bk. Ct. N. D. Texas 1979); In re Cothren, 5 B. C. D. 597 (Bk. Ct. S.D. N.Y. 1979); In re King, 5 B.C.D. 417 (Bk. Ct. S.D. Ohio 1979); and In re Esproceda, 5 B. C. D. 267 (Bk. Ct. S.D. Texas 1979).
Representative of the political compromises which were part of the Congressional decision-making process in connection with the dischargeability of student debts is the correspondence reprinted in the House Report which accompanied the Bankruptcy Reform Act. H.R. REP. No. 95-595 at 132-169 (1978).
Admittedly, some Bankruptcy Courts have determined, contrary to the decision rendered here, that student loan debts were not dischargeable during the November 6, 1978 to August 14, 1979 period. E.g., In re Edson, 4 B. C. D. 1191 (Bk. Ct. D. Nev. 1979); In re Kohn, 5 B. C. D. 419 (Bk. Ct. S.D. N.Y. 1979); In re Erickson, 5 B.C.D. 734 (Bk. Ct. E. D. Wisc. 1979). This court fails to understand the logic used to justify the decisions rendered in those three cases or in their progeny.
The Edson and Erickson courts justified their conclusion that there was no dischargeability "gap" during the November to August period on the ground that the savings provision of the Reform Act, (§ 403(a), which is quoted in full above), caused the effective date of the § 317 repealer to be changed from November 6, 1978 to October 1, 1979. Such a conclusion not only makes § 317 superfluous, but also directly contradicts § 402(d), which provides that eleven different sections of the Reform Act, including § 317, took effect on November 6, 1978. Furthermore, acceptance of the Edson/Erickson position would cause the effective date of all eleven sections listed in § 403(a) to be delayed until October 1, 1979. Since § 411, which increased the salaries of Bankruptcy Judges, was among those eleven sections, adoption of the Edson/Erickson position would require the entire Bankruptcy bench to refund its salary increase for the period between November 6, 1978 and October 1, 1979, (an obvious legal absurdity and factual economic impossibility). Finally, the Edson/ Erickson position misinter prets the role of the savings provision, since the provision was intended simply to prevent the new Code from being applied to cases which were pending on October 1, 1979. H.R. R.E.P. NO. 95-595 at 459 (1978).
The Kohn case is similarly not persuasive, since the court in that case simply rewrote the Reform Act on the ground that the "gap" created by § 317 was a "mistake." Such a conclusion is contradicted by the fact that "Congress could have made P. L. 96-56 retroactive to November 6, 1978, [in order to cure the "gap"], but chose not to do so. The corrective legislation admits the existence of the legal hiatus between November 6, 1978 and October 1, 1979." In re Sawaya, 5 B. C. D. 1072, 1074 (Bk. Ct. D. Mass. 1979).
II.
Having determined that student loanbased debts are not dischargeable at the present time but were indeed dischargeable from November 6, 1978 to August 14, 1979, the court must now determine whether the law which was in effect on the date that the debtor's petition was filed (July 24, 1979) or the law in effect at some other time governs the instant case.
Implicit in many recent decisions regarding the dischargeability of student loan debts is that the law in effect on the date that the petition is filed is the law which governs the case. E.g., In re Fonzo, 5 B.C.D. 1174 (Bk. Ct. S.D.N. Y. 1979) (Schwartzberg, B. J.); In re Carpenter, 5 B. C. D. 577 (Bk. Ct. D. Colo, 1979). This implication follows the well-worn proposition that the date on which a petition is filed is the cleavage date for virtually all purposes of administering an estate in bankruptcy. See 4A Collier on Bankruptcy ¶ 70 (14th ed. 1978). Despite wide acceptance of this proposition, some courts have held that the Congress may change the rules of the game in mid-stream insofar as bankruptcy discharge law is concerned; the usual result caused by such a holding is that the law which is deemed to govern a case is the law in effect on the date that dischargeability disputes are resolved. Lockhart v. Ettel, 23 F.2d 912 (4th Cir. 1928); In re Sloss, 192 F. Supp. 136 (S. D. N.Y. 1961); In re Piccione, 1 B.R. 364, 5 B. C.D. 1076 (Bk. Ct. D. Conn. 1979); In re Amadori, 5 B. C. D. 187 (Bk. Ct. W. D. N.Y. 1979); In re Payton, 4 B. C. D. 976 (Bk. Ct. E.D. Pa. 1978).
In order for any court to reach such a conclusion, it must be determined not only that the statute as drafted was intended to be applied retroactively to pending cases, but also that the statute as retroactively applied withstands the scrutiny imposed by the due process clause of the Constitution. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 17, 96 S.Ct. 2882, 2893 (1976); Lockhart v. Ettel, supra. Before the due process question is properly presented, however, it must first be determined that the statute in question was indeed intended to be applied retroactively. Usery, supra; In re Payton, 4 B. C. D. at 981 n. 4 (Bk. Ct. E.D. Pa. 1978); In re Old Algiers, Inc., 100 F.2d 374 (2nd Cir. 1938); Dreyfuss Drygoods Co. v. Morgan, 23 F.2d 54 (5th Cir. 1927); VanVoorhis v. Dist. of Columbia, 240 F. Supp. 822, 825 (D. D.C. 1965).
The instant proceeding was pending when both P. L. 96-56 and § 523(a)(8)of the new Code were enacted. But, as explained above, neither statute was intended to be applied retroactively to pending cases. Therefore, the law in effect at the time the petition was filed, (July 24, 1979), governs this proceeding. As explained above, the law in effect as of that date did not preclude the discharge of student loan-based debts.
See text accompanying notes 3 and 4, supra.
Accordingly, a judgment will be entered contemporaneously herewith declaring the debt put in issue by the above-styled adversary proceeding to be dischargeable.