In re Johnson

No. 77-2033 TT, 1979 U.S. Dist. LEXIS 11428 (E.D. Pa. June 27, 1979)

 

RULE:

A debtor should be denied discharge of his student loan within the five year period after the debt matures, if either: (a) his future financial resources are most likely sufficient to finance repayment of the student loan, and to support the debtor and his dependents at or above the poverty level, or, (b) but for the debtor's negligence or irresponsibility, he would be able to repay the loan without lowering his standard of living below the poverty level. A court should grant discharge of a student loan within five years after it becomes due, based on a finding that repayment of the loan would cause the debtor "undue hardship," where: (a) The debtor's future income and wealth, in the maximum foreseeable period allowed for repayment of the student loan, are likely to be insufficient to fund the loan's repayment and to support the debtor and his dependents at a subsistence level of living, and (b) either such hardship is due to circumstances beyond the debtor's control; or, (c) the circumstances clearly indicate that discharge of the student loan was not a dominant reason for filing bankruptcy, and that the debtor's earnings prospects have not appreciably benefited from his education.

FACTS:

The bankrupt obtained a loan from a bank for her education. The debtor executed a promissory note for the total amount of the loan, which was guaranteed by PHEAA. She did not repay the loan, and pursuant to its role as guarantor of student loans, PHEAA purchased the note from the bank. The bankrupt filed a voluntary petition in bankruptcy. PHEAA filed its complaint, arguing that the student loan was not dischargeable in bankruptcy. PHEAA relied on § 439A of the Higher Education Act of 1965, Education Amendments of 1976, 20 U.S.C.S. § 1087-3.

ISSUE:

Did PHEAA have a vested interest in the application of § 439A of the Education Act?

ANSWER:

No.

CONCLUSION:

The court held that the repeal of § 439A by § 317 of the Bankruptcy Reform Act of 1978 deprived PHEAA of a cause of action. PHEAA had no vested interest in the application of § 439A of the Education Act. The court considered the law existing at the time of the court's decision, not at the time the suit in bankruptcy was filed. Thus, the bankrupt's loan was fully dischargeable in bankruptcy. Even if the court erred in its analysis of the effect of the repeal of § 439A, the court applied the mechanical test and determined that repayment of the loan obligation to PHEAA would impose an undue hardship on the bankrupt.

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