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In re- 450 S. WESTERN AVE., LLC,

Summarizing by Bradley Pearce

Institute of Imaginal Studies v. Christoff (In re Christoff)

9th Cir. BAP No. NC-14-1336-PaJuTa
Affirmed. Writing on an issue of first impression in the Ninth Circuit, the BAP Panel held that application of the Section 523(a)(8)(A)(ii) student loan discharge exception requires the debtor to have received actual funds to pay for the debtor's education. The text of Section 523(a)(8)(A)(ii) excepts from discharge, "an obligation to repay funds received as an educational benefit, scholarship, or stipend." Reading this plain language narrowly, and not as a catch-all provision, the BAP determined that, "because Debtor did not actually receive any funds, Meridian's debt is not excepted from discharge under Section 523(a)(8)(A)(ii)." Thus, while Section 523(a)(8)(A)(i) and (B) make student "loans" nondischargeable, the exception found in 523(a)(8)(A)(ii) essentially "mandates that cash be advanced to or on behalf of the debtor."
Procedural context:
Appeal to the Ninth Circuit BAP from a bankruptcy court's summary judgment ruling in an adversary proceeding finding debt owed to a private for-profit university did not qualify for the discharge exception found in Section 523(a)(8)(A)(ii) of the Bankruptcy Code.
Approximately ten years before filing Chapter 7, the debtor enrolled in Meridian University--a private for-profit university in California. Meridian offered the debtor a total of $11,000 in financial aid, coming in the form of a $6,000 tuition credit in year one, and a $5,000 tuition credit in year two (the debtor signed a separate promissory note for each). Payments on the notes began in 2005 when the debtor completed course work, but the debtor never received a degree because she withdrew from Meridian without completing her dissertation (a requirement for the degree). After making several payments on the notes, debtor requested a deferral in 2009, which Meridian granted. After the deferral expired, debtor did not pay on the notes and Meridian began collection efforts. In 2012, an arbitrator ruled in Meridian's favor and ordered the debtor to pay Meridian the balance owing plus interest. The debtor filed Chapter 7 a year later and Meridian initiated an adversary proceeding seeking a nondischargeability ruling under Section 523(a)(8) of the Bankruptcy Code. Because Meridian is not a governmental unit or nonprofit institution, and because the debt at issue was not a qualified education loan under section 221(d)(1) of the Internal Revenue Code, Meridian's summary judgment briefing conceded that the debt did not qualify for the discharge exceptions found in Sections 523(a)(8)(A)(i) or (a)(8)(B). Instead, Meridian argued that Section 523(a)(8)(A)(ii) excepted the debt from discharge. The bankruptcy court disagreed, finding that because the debt "did not flow from 'funds received' either by [the debtor] as the student or by Meridian from any other source, the debt is not covered by [Section 523(a)(8)(A)(ii)] and is therefore eligible for discharge in Debtor's discharge."
Pappas, Jury, and Taylor, Bankruptcy Judges.

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