Hayward v. U.S. Dep't of Educ. (In re Hayward)

655 B.R. 458

IN RE: William Reed HAYWARD and Lulu Wang Hayward, Debtors.

William Reed Hayward, Plaintiff, v. United States Department of Education, Defendant.

CASE NO. 19-10286-smr

ADVERSARY NO. 23-01004-smr

United States Bankruptcy Court, W.D. Texas, Austin Division

Signed September 26, 2023

Steven B. Bass, U.S. Attorney's Office, Austin, TX, for Defendant.

MEMORANDUM OPINION AND ORDER ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

SHAD M. ROBINSON, UNITED STATES BANKRUPTCY JUDGE

William Reed Hayward (the "Plaintiff") filed his Complaint on January 23, 2023, against the United States Department of Education (the "DOE" or the "Defendant") seeking a hardship discharge of his student loans under 11 U.S.C. § 523(a)(8) [the "Complaint," ECF No. 2].

On June 14, 2023, the DOE timely filed its Motion for Summary Judgment seeking summary judgment denying the Plaintiff's claim that his student loan debt held by the DOE should be discharged in bankruptcy pursuant to 11 U.S.C. § 523(a)(8) [the "Defendant's MSJ," ECF No. 12].

PARTIES CONTENTIONS

The Plaintiff asserts in his Complaint that his consolidated student loans in the principal amount of $480,176.47 (plus interest and fees) impose an undue hardship and are dischargeable under: (1) 11 U.S.C. § 523(a)(8), (2) the so-called Brunner test applicable in the Fifth Circuit, see, e.g., Thomas v. Dep't. of Educ. (In re Thomas), 931 F.3d 449 (5th Cir. 2019), U.S. Dep't. of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89 (5th Cir. 2003), and (3) internal Department of Justice guidelines.¹

The DOE asserts that the Plaintiff's student loans are not dischargeable because: (1) the consolidated student loans arose postpetition in September 2022, and (2) the consolidated student loans are not debts that arose before the Plaintiff filed his bankruptcy case in March 2019 as required under 11 U.S.C. § 727(b) and 11 U.S.C. § 523(a)(8). According to the DOE, the Court does not need to consider the "undue hardship" standard under 11 U.S.C. § 523(a)(8) because it is undisputed that the Plaintiff's student loans are postpetition debts that are not dischargeable as a matter of law.

The Plaintiff responded to the DOE's position and asserts that the consolidated student loans are not postpetition loans because the lender on the consolidation loans is the same as the lender on the original student loans; therefore, the consolidation loans did not create new loans [Resp, ECF No. 13 and Second Supp. Resp., ECF No. 21].²

The issue before the Court is whether the Plaintiff's student loans that were consolidated three and a half years after he filed his bankruptcy case are dischargeable under 11 U.S.C. § 523(a)(8).

JURISDICTION AND VENUE

The Court finds that it has jurisdiction over this matter under 28 U.S.C. §§ 157 and 1334(a) and (b). This matter is a core proceeding as defined under 28 U.S.C. § 157(b)(1) and (b)(2)(I). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The bankruptcy court has authority to adjudicate this matter pursuant to the District Court's Standing Order of Reference. All parties have consented to this Court's authority to enter a final judgment in this adversary proceeding [Statements of Consent, ECF No. 6 and ECF No. 9]. The Plaintiff's Complaint is timely under Federal Rule of Bankruptcy Procedure 4007(b). See Walker v. Sallie Mae Servicing Corp. (In re Walker), 427 B.R. 471, 477-79 (B.A.P. 8th Cir. 2010) (concluding that dischargeability of a student loan debt may be determined after discharge is granted).

SUMMARY JUDGMENT STANDARD

Rule 56 of the Federal Rules of Civil Procedure governs the Defendant's MSJ.³ Summary judgment on a claim is appropriate only if a movant (here the Defendant) shows: (1) there is "no genuine dispute as to any material fact" and (2) it is "entitled to judgment as a matter of law." FED. R. CIV. P. 56(a). In sustaining this burden, a movant must identify "those portions of pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrates the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotations omitted). To meet its burden, a defendant "need only present or designate evidence which negates or disproves the existence of any essential element of the opposing party's claim." Neff v. Am. Dairy Queen, Inc., 879 F.Supp. 57, 59 (W.D. Tex. 1994) (internal quotations omitted).

Summary judgment is properly granted when "viewing the evidence in the light most favorable to the nonmoving party, the record indicates that there is no genuine issue as to any material fact . . . ." Am. Home Assurance Co. v. United Space All., LLC, 378 F.3d 482, 486 (5th Cir. 2004). Whether a fact is material is governed by substantive law and "only facts that might affect the outcome of the suit will preclude summary judgment." The Cadle Co. v. Brunswick Homes, LLC (In re Moore), 379 B.R. 284, 288 (Bankr. N.D. Tex. 2007) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). When reviewing the summary judgment record, a court should not make credibility determinations or weigh the evidence presented. Coury v. Moss, 529 F.3d 579, 584 (5th Cir. 2008).

If the moving party establishes there are no factual issues, the burden shifts to the non-moving party to produce evidence that a genuine issue of material fact exists for trial. Bustos v. Martini Club, Inc., 599 F.3d 458, 468 (5th Cir. 2010). "The non-moving party must then 'go beyond the pleadings,' and by affidavits or other competent summary judgment evidence, cite 'specific facts' that show that there is a genuine issue for trial." Id. (quoting Celotex, 477 U.S. at 324, 106 S.Ct. 2548); FED. R. CIV. P. 56(c)(1).

FINDINGS OF FACT⁴

The Court has considered the evidence presented and finds that there is no genuine dispute as to the following material facts:

1. Prior to filing bankruptcy, the Plaintiff obtained twenty-seven (27) student loans between August 1979 and August 2017 (the "Prepetition Student Loans"). See Mot. Summ. J., Ex. A 2-3, ECF No. 12.

2. The Plaintiff filed his Chapter 7 bankruptcy petition on March 5, 2019 (Case No. 19-10286, ECF No. 1, the "Petition Date" or "Order for Relief Date").

3. On June 14, 2019, the Court entered an order granting the Plaintiff a general discharge of debts in his main bankruptcy case (Case No. 19-10286, ECF No. 13, the "Discharge") and the main bankruptcy case was closed on June 17, 2019. (Case No. 19-10286, ECF No. 15).

4. After the Order for Relief Date, after the Plaintiff received a Discharge, and after the main bankruptcy case was closed, the Plaintiff obtained a direct Stafford unsubsidized loan in the amount loan of $7,020.00 on June 27, 2019, a direct graduate plus loan in the amount of $2,496.00 on June 28, 2019, and a direct Stafford unsubsidized loan in the amount of $6,740.00 on November 8, 2019 (the "Postpetition Student Loans"). See Mot. Summ. J., Ex. A 2, ECF No. 12.

5. After the Order for Relief Date, after the Plaintiff received a Discharge, and after the main bankruptcy case was closed, on August 8, 2022, the Plaintiff executed a Direct Consolidation Loan Application and Promissory Note (the "Consolidation Note"). See Mot. Summ. J., Ex. A 2, ECF No. 12.

6. After the Order for Relief Date, after the Plaintiff received a Discharge, and after the main bankruptcy case was closed, on September 14, 2022, the DOE disbursed proceeds for a subsidized consolidation loan in the amount of $116,693.12 (hereinafter the "116k Consolidation Loan") and an unsubsidized consolidation loan in the amount of $363,483.35, pursuant to the Consolidation Note (hereinafter the "363k Consolidation Loan"). See Mot. Summ. J., Ex. A 2, ECF No. 12. Furthermore, the Plaintiff admits in his Complaint that his student loans were consolidated in September 2022. See Compl. 11, ECF No. 2; see also Compl., Ex. I 5-6, ECF No. 2.

7. The 116k Consolidation Loan and 363k Consolidation Loan (collectively the "Consolidation Loans") arose after the Order for Relief Date. See Mot. Summ. J., Ex. A 2 13-44, ECF No. 12.

8. The Consolidation Loans extinguished and paid off the balances due on all of the Plaintiff's outstanding federal student loans, including the Prepetition Student Loans and Postpetition Student Loans. See Mot. Summ. J., Ex. A 2 22, ECF No. 12.

9. The Consolidation Loans are the only outstanding student loans owed by the Plaintiff that are held by the DOE. See Mot. Summ. J., Ex. A 2, ECF No. 12.

10. The Plaintiff filed this adversary proceeding on January 23, 2023, nearly four (4) years after the Petition Date. Compl., ECF No. 2.

11. As of February 28, 2023, the total outstanding principal balance owed by the Plaintiff to the DOE was $480,176.47 consisting of $116,693.12 owed on the 116k Consolidation Loan and $363,483.35 owed on the 363k Consolidation Loan. See Mot. Summ. J., Ex. A 2 44, ECF No. 12; see also Compl. 17, ECF No. 2.

CONCLUSIONS OF LAW

The Court has considered the applicable law and makes the following conclusions of law:

1. The scope of the Plaintiff's bankruptcy discharge is governed by § 727(b) of the Bankruptcy Code. Section 727(b) provides in pertinent part that "[e]xcept as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter . . . ." 11 U.S.C. § 727(b) (emphasis added). Therefore, a discharge in bankruptcy only discharges debts that arise before the Chapter 7 bankruptcy petition is filed. Conversely, debts that arise after the Chapter 7 bankruptcy petition is filed are not discharged.

2. The Order for Relief Date applicable in this case is March 5, 2019—the date that the Plaintiff commenced his voluntary bankruptcy case by filing a petition under 11 U.S.C. § 301.

3. Under 11 U.S.C. § 727(b), the Plaintiff may only obtain a discharge...