Opinion
No. 77 B 2519
December 29, 1978
Discharge of Debts — Provability — Contingent Debts — Student Loans
A bankrupt's direct student loan agreements containing several provisions for the reduction or cancellation of the debts create dischargeable obligations under Section 17a of the Bankruptcy Act as they are provable debts under Section 63a(1).
The bankrupt sought to discharge two student loans issued pursuant to the National Defense Student Loan Program and the National Direct Student Loan Program. The loan agreements in question contained several provisions for the reduction or cancellation of the debts upon such occurrences as the debtor serving as a fulltime teacher or his service as a member of the Armed Forces of the United States. At the time of the bankruptcy, the bankrupt had not repaid any part of the loans. The creditor claimed that these provisions created contingent debts which were not capable of liquidation or reasonable estimation without undue delay thereby making them nondischargeable under Sections 17a, 57d and 63d of the Bankruptcy Act.
The court first determined that the student loans were not contingent but rather fixed liabilities. The National Direct Student Loan agreement contained an acceleration clause. Since the bankrupt had defaulted on several installments before and at the date of the filing of his petition herein, the whole amount was unconditionally due and therefore automatically dischargeable in bankruptcy. The note executed pursuant to the National Defense Student Loan Program did not contain a provision authorizing the lending institution to call for full payment after default, but the court held that because at any particular point in time the exact amount of the debt is known, such loan is a provable debt under Section 63a(1) and therefore dischargeable in the bankruptcy proceeding under Section 17a. The court further indicated that 20 U.S.C. § 1087-3 of the Higher Education Act is not applicable to direct student loans. See Sec. 17a [§ 523] at ¶ 9226, Sec. 57d at ¶ 2513, Sec. 63a(1) at ¶ 2612, and Sec. 63d at ¶ 2623.