By: Sabihul Alam
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
In In re Moore, the United States District Court for the Eastern District of Virginia found that Novus Law School violated a discharge injunction by refusing to issue a transcript or award a degree to Moore, a law student, until he paid his outstanding tuition balance, which had been discharged in Moore’s chapter 7 proceeding.[1] Moore successfully completed a two-year juris doctor program at Novus, a non-accredited web-based private law school, yet, at the time of completion, had an outstanding balance from unpaid tuition.[2] Moore’s obligation did not arise as a result of a government loan program, but instead was part of his tuition bill which he decided not to pay as it came due.[3] In May 2008, Moore filed for chapter 7 relief on account of his over $400,000 debt, approximately $6,000 of which was owed to Novus.[4] After receiving notification of Moore’s filing, Novus sent Moore an email stating that the law school would not grant Moore a degree nor certify his graduate status to employers if his debt was discharged through bankruptcy.[5] Subsequently, the court granted Moore a bankruptcy discharge.[6] The tuition owed to the law school was among those debts discharged.[7] In keeping with its prior warning, Novus refused to issue Moore his Juris Doctor degree or a transcript.[8] Moore then filed a motion seeking contempt sanctions against Novus for violating the discharge injunction for refusing to award Moore a degree or issue a transcript.[9]
Generally, a bankruptcy discharge “cancels [a] debtor’s personal liability for a discharged debt.”[10] As a result, creditors are prohibited from “commencement or continuation of an action, the employment of process, or an act to collect, recover or offset any such debt as a personal liability of the debtor, whether or not discharge of such debt is waived.”[11] However, certain debts are not included in the discharge.[12] Section 523(a)(8) lists student loan obligations among the debts presumptively non-dischargeable in bankruptcy.[13] To qualify as a student loan, the debt must be (1) “an educational benefit overpayment” or a loan made by a government unit as a part of a government-funded program,[14] or (3) “an obligation to repay funds received as an educational benefit.”[15]
In deciding Moore’s motion, the court first sought to determine whether Moore’s obligation to Novus qualified as a student loan which may not be discharged in bankruptcy. The court found that Moore’s obligation to Novus Law School was not a student loan under 11 U.S.C. § 523(a)(8) because it was not “an educational benefit overpayment” or a loan made by a governmental unit as a part of a government-funded program. It was also not “an obligation to repay funds received as an educational benefit.”[16] Because Moore’s obligation did not fall under the student loan exception, the court found that the debt owed to Novus was discharged in his bankruptcy.[17]
Because the court determined that the debt was discharged, it then considered whether Novus violated the discharge injunction when it refused to grant Moore his degree or issue his transcript. The court analogized the discharge injunction to the automatic stay because (1) the question of whether the withholding of a transcript violates the discharge injunction was a question of first impression, and (2) many courts have already decided similar cases in regards to the violation of the automatic stay.[18] In determining whether Novus engaged in “an act to collect,” the court aligned with the majority view that “the act of refusing to issue a transcript . . . is an act done with the purpose of compelling the debtor to pay a pre-petition debt.”[19] Furthermore, the court found that “[i]f that pre-petition debt is discharged in bankruptcy, any such act is necessarily a violation of the discharge injunction.”[20] Consequently, the court held that Novus had violated the discharge injunction by refusing to issue Moore’s transcript.[21]
[1] In re Moore, 407 B.R. 855, 861 (Bankr. E.D. Va. 2009).
[2] Id. at 858 & n.3.
[3] Id. at 859.
[4] Id. at 856.
[5] Id. at 857.
[6] Id. at 858; see 11 U.S.C. § 524(a)(1) (2006) (voiding judgments of personal liability against debtor for debts discharged).
[7] In re Moore, 407 B.R. at 857.
[8] Id. at 858.
[9] Id. at 857.
[10] Id. at 858.
[11] 11 U.S.C. § 524(a)(2) (2006) (emphasis added).
[12] See 11 U.S.C. § 523(a)(1)-(19) (2006).
[13] § 523(a)(8).
[14] 11 U.S.C. § 523(a)(8)(A)(i) (2006).
[15] § 523(a)(8)(A)(ii).
[16] In re Moore, 407 B.R. at 859.
[17] Id.
[18] 11 U.S.C. § 362(a)(6) (2006) (restricting creditors and other entities from engaging in “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case”).
[19] In re Moore, 407 B.R. at 861; see, e.g., 11 U.S.C. § 362(a)(6) (2006) (restricting creditors and other entities from engaging in “any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case”);Andrews Univ. v. Merchant (In re Merchant), 958 F.2d 738 (6th Cir. 1992); Va. Union Univ. v. Parham(In re Parham), 56 B.R. 531 (Bankr. E.D. Va. 1986). But see, e.g., In re Mu’Min, 374 B.R. 149, 155 (Bankr. E.D. Pa. 2007) (holding university may be found in violation of section 362(a)(6) notwithstanding non-dischargeable student loan owed to university); In re Parker, 334 B.R. 529, 536 (Bankr. D. Mass. 2005) (positing school may not be found in violation of automatic stay due to its refusal to release student’s transcript regardless of whether debt is found non-dischargeable).
[20] In re Moore, 407 B.R. at 861.
[21] Id.
- webadmin's blog
- Log in to post comments