Bankruptcy Court Determines that a Commercial Bar Loan is Dischargeable


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Authored by James V. Block

Background

The debtor, Lesley Campbell (“Campbell”), filed an adversary proceeding to obtain a determination that funds she borrowed under a CitiAssist Bar Exam Loan in April 2009 is dischargeable. Campbell was a student at Pace University Law School. Citibank, N.A. and The Student Loan Corporation (“Defendants”) sought dismissal. On March 24, 2016, Judge Carla E. Craig of the U.S. Bankruptcy Court for the Eastern District of New York in
Campbell v. Citibank, N.A. et al, Adv. Pro. No. 15-01038-CEC denied the Defendants Motion to Dismiss Lesley Campbell adversary proceeding and determine seeking a determination that funds she borrowed under a CitiAssist Bar Exam Loan is dischargeable.

Section 523(a)(8)

Bankruptcy Code Section 523(a)(8) provides that certain educational loans and educational benefits are excepted from a bankruptcy discharge:

Section 523(a)(8) provides, in relevant part:
(a) A discharge under section 727...of this title does not discharge an individual debtor from any debt–
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for—
(A)

(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

Defendants did not dispute that the Bar Loan is not excepted from discharge under § 523(a)(8)(A)(i) or § 523(a)(8)(B). (Campbell at 3). The Defendants argued that the Bar Loan is an educational benefit under Section 523(a)(8)(A)(ii) and therefore excepted from discharge (Id at 4).

Decision

It reaching its decision, the Court cited to a cannon of statutory construction known as noscitur a sociis “that when a statute contains a list, each word in that list presumptively has a ―similar meaning.” The Court stated that “Section 523(a)(8)(A)(ii) sets forth a list of nondischargeable obligations, as follows: ―an obligation to repay funds received as [1] an educational benefit, [2] a scholarship, or [3] a stipend” and that “educational benefit” should have similar meaning to the other items in the list. Id. The Court also noted that “educational benefit” must be something other than a loan since the term “loan” is used elsewhere by Congress (Campbell 5 and 6.)
The Court also expressed concern that a broad interpretation of “educational benefit” would render the rest of § 523(a)(8) as redundant.

If you have student loan debt problems or are considering filing bankruptcy to tackle your student loan debt, make sure you have a bankruptcy attorney review your options.

For more information about this and other bankruptcy law issues, please contact me by
email or call at 715-842-2162.

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