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#2354 signed 8-18-97



In Re:



CASE NO. 95-40112-7




v. ADV. NO. 96-7037



This proceeding is before the Court for a determination of the dischargeability of a debt. The plaintiff-debtor appears by counsel John R. Hooge. Defendant the United States of America on behalf of the Department of Health and Human Services appears by Unites States Attorney Jackie N. Williams and Assistant United States Attorney Tanya Sue Wilson. The Court has reviewed the relevant pleadings and is now ready to rule.


The parties have agreed on the facts, submitting a stipulation and various supporting documents. The Court finds the following facts to be relevant to its decision.

The debtor was born in Nigeria and moved to the United States in 1976 to attend college in Arkansas. He received a Bachelor of Science degree in Chemistry in May 1980. Somewhere around 1979, he fathered two children, the youngest of whom will turn 18 in June 1998. After obtaining his B.S., he started medical school in the West Indies, but returned to the United States in December 1981. He worked for two years as a clinical laboratory technologist at a hospital in Houston, Texas. Then he started medical school in San Antonio in 1984. While studying there, he obtained Health Education Assistance Loans (HEAL loans) in October 1984 and November 1985. He never completed medical school.

After his father died, the debtor became interested in becoming a Catholic priest. From 1987 to 1990, he undertook theological training at various places. During this time, he was advised that he should seek a vocation involving a mission in Africa because of concern about his ability to communicate in this country. Even now, the debtor still has difficulty communicating in English. In 1990, the debtor followed his brother to Lawrence, Kansas. When he filed for bankruptcy in January 1995, he was working full-time at a manufacturing plant and part-time as a custodian for his parish church.

In October 1990, the original lender obtained a judgment for $11,583.51 against the debtor on his HEAL loans. Since the two loans totaled $6,341, it is clear the debtor had repaid little, if any, of the loans. Ultimately, the judgment was transferred to the Department of Health and Human Services. The government asserts in its brief that, "[N]o payments have been made on this debt." The Court cannot tell whether the government is referring only to the time after the judgment was obtained or to all the time that has passed since the loans were made. This allegation was not included in the parties' stipulation. The government also states that the loans began to accrue interest on the day they were disbursed. Roughly calculated, it appears the interest rate was around 15% on the loans. If the judgment accrued interest at this rate, too, adding about $950 to the debt per year, the debtor would now owe about $6,500 more interest than he did when the judgment was entered. If the judgment instead accrued interest at the federal judgment interest rate in effect in October 1990, 7.78%, adding about $490 to the debt per year, then he would now owe about $3,350 more. Even if the higher rate applies, the debtor could pay off $250 in principal in the first year he paid $100 per month on the debt, and would of course pay off the principal more rapidly in succeeding years.

The debtor has not explained what he did to pursue his dream of becoming a priest between 1990 and the time he filed for bankruptcy in 1995. In May 1995, he obtained a letter from a church official indicating he could not be admitted to seminary until his children both reached age 18 and he obtained an annulment of his marriage. He obtained the annulment late in July 1995, but his younger child will not turn 18 until June 1998. He borrowed money from his brother in August 1995 to take a trip to Rome, Italy, and Nigeria to meet with Catholic officials about his desire to enter the priesthood and to visit his family. In the spring of 1997, the debtor indicated he wanted to take some college classes that fall to improve his use of the English language. If he is able to enter seminary in 1998, he will not be able to earn any income while he attends it.

When he filed for bankruptcy, the debtor reported that he was paying $100 per month to support his two children. Clearly, he is obliged to provide such support even though no court has ordered him to do so. His records are not adequate to demonstrate how regularly he has paid this support; he claims he has paid it every month for a number of years.

Sometime after he filed for bankruptcy, the debtor left the manufacturing company and began working as a full-time custodian with a new company. He continued his part-time custodial job with his church. The new job increased his pay, but he also increased the amount of his tax withholding, a wise move since he had owed about $1,600 in federal income tax and $500 in state income tax each year when he filed his returns for 1993, 1994, and 1995. In fact, as of November 1996, he still owed over $1,000 on his 1995 federal tax liability and was trying to pay it off at $100 per month, a rate that was covering penalties and interest plus about $15 per month in principal. He also reports that he is paying $100 per month to repay his brother the loan that paid for his trip to Rome and Nigeria. As the government points out, the fact that at some time in January 1997 he still owed about $1,800 on the $2,392 loan that he received in August 1995 shows he has not been making these payments regularly.

The government asserts on page 3 of its brief that the debtor would have up to 33 years, excluding any deferment or forbearance period, to repay his HEAL loans, but cited no authority for this claim. The available terms of repayment are certainly relevant to the dischargeability of student loans, but the Court can decide this case without knowing what terms are available to this debtor.

The debtor filed for bankruptcy on January 23, 1995, and received a discharge in June. In September, he filed a motion to reopen his case to determine the dischargeability of the HEAL loans, and the government opposed his request. He revised his motion in November, but the government still opposed it. After several continuances, the motion was granted at a hearing in February 1996. Some other delays occurred before the debtor commenced this proceeding in April. The parties agreed to submit the case for decision on a stipulation and briefs, the last of which was filed in March 1997.


The dischargeability of HEAL loans is governed by 42 U.S.C.A. §292f(g), rather than any provision located in the Bankruptcy Code. It provides:

A debt which is a loan insured under the authority of this subpart may be released by a discharge in bankruptcy under any chapter of Title 11, only if such discharge is granted--

(1) after the expiration of the seven-year period beginning on the first date when repayment of such loan is required, exclusive of any period after such date in which the obligation to pay installments on the loan is suspended;

(2) upon a finding by the Bankruptcy Court that the nondischarge of such debt would be unconscionable; and

(3) upon the condition that the Secretary shall not have waived the Secretary's rights to apply subsection (f) of this section to the borrower and the discharged debt.

The parties agree the first and third parts of this provision are satisfied, so they are now asking the Court to determine whether it would be unconscionable not to allow the debtor to discharge these loans. Apparently, the Sixth Circuit is the only circuit court to have considered the dischargeability standard established by §292f(g), and it offered the following initial analysis:

Although Congress has not defined the term "unconscionable" as used in §292f(g), we have little doubt that in using this term it intended to severely restrict the circumstances under which a HEAL loan could be discharged in bankruptcy. We therefore conclude, as have other courts, that in employing the term "unconscionable," Congress intended to adopt the ordinary usage of the term as "excessive, exorbitant," "lying outside the limits of what is reasonable or acceptable," "shockingly unfair, harsh, or unjust," or "outrageous." See, e.g., Matthews v. Pineo, 19 F.3d 121, 124 (3d Cir.) (applying term "unconscionable" as used in 42 U.S.C. §254o(d)(3)(A), which establishes conditions for discharge in bankruptcy of National Health Service Corps scholarship obligations), cert. denied, ___ U.S. ___, 115 S.Ct. 82, 130 L.Ed.2d 35 (1994). We find the standard imposed by this definition of "unconscionability" to be significantly more stringent than the "undue hardship" standard established for the discharge of educational loans under 11 U.S.C.A. §523(a)(8)(B), which we recently addressed in Cheesman [v. Tennessee Student Assistance Corp. (In re Cheesman)], 25 F.3d [356,] 359-60 [6th Cir. 1994)]. [Additional citations omitted.] We also conclude that the imposition of such a standard for the discharge of HEAL loans indicates that Congress intended to place the burden on the debtor to prove his entitlement to a discharge. [Citations omitted.] Given the strict nature of the unconscionability standard, this burden is a heavy one. [Citation omitted.]

Rice v. United States (In re Rice), 78 F.3d 1144, 1148-49 (6th Cir. 1996). In applying this standard, the court added that bankruptcy courts should consider all the facts and circumstances surrounding the debtor and the HEAL loans. Id. at 1149. Seeing no reason to construe the statute differently and unaware of any binding precedent, this Court finds it appropriate to apply the Sixth Circuit's legal analysis to this case.

In essence, the debtor contends it would be unconscionable to deny him a discharge of his HEAL loans because he will be unable to go to seminary and begin training to become a priest if he must repay them. Right now, the debtor claims he is making enough money to pay $100 per month to support his children, $100 per month to repay a loan to his brother, and $100 per month to pay his 1995 federal income taxes. His child support obligation will end next June. He voluntarily chose to borrow money from his brother long after he took out the HEAL loans. Since he owed similar amounts on his federal income taxes for 1993 and 1994 as he did for 1995, he had fair warning that he should increase his withholding before he finally did in 1996. Even assuming he should pay his brother in full before making any payments on the HEAL loans, at least in the near future, if not now, he would be able to make some monthly payment on the HEAL loans.

The debtor's own report of his efforts to become a priest cast substantial doubt on the strength of his commitment to that calling. He indicates he took some steps in that direction between 1987 and 1990, but was told he needed to learn to communicate better in English to become a priest in the United States. He did not report having done anything between 1990 and 1995 to fulfill his dream, and was told again in 1995 that he still needed better English language skills. So far as the record shows, he has lived in the United States full-time since 1976. Now, more than 20 years later, and at least 7 years after being advised his dream would require it, he declares that he hopes to begin taking classes this fall to improve his English. Then in 1998, after his younger child turns 18, he hopes to begin seminary. The record simply does not demonstrate a substantial likelihood he would reach that goal then even if he were permitted to discharge these loans.

The debtor's present financial condition may be difficult, but he does appear to have the ability to make some monthly payment on his HEAL loans now and he should be able to make more substantial payments in the near future. Under the circumstances, the Court cannot find that the nondischarge of the debtor's HEAL loans would be unconscionable.

The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by FRBP 9021 and FRCP 58.

Dated at Topeka, Kansas, this ____ day of August, 1997.





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