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Leeper v. Pennsylvania Higher Educ. Assistance Agency

filed: February 27, 1995.

LISA LEEPER; WILLIAM LEEPER; DWIGHT WEBSTER AND DELLA WEBSTER, APPELLANTS
v.
PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, (PHEAA), STUDENT LOAN SERVICE CENTER; GARY J. GAERTNER, TRUSTEE



On Appeal from the United States District Court For the Western District of Pennsylvania. D.C. Civ. Nos. 93-cv-01905 & 93-cv-01906.

Before: Sloviter, Chief Judge, Lewis and Rosenn, Circuit Judges.

Author: Sloviter

Opinion OF THE COURT

SLOVITER, Chief Judge.

This appeal presents an issue of law: whether interest can accrue after the filing of a Chapter 13 bankruptcy petition on a nondischargeable student loan. The bankruptcy court held that debtors would remain liable for the amount of the post-petition interest that accrued on the unpaid principal of the student loan. The district court affirmed. This appeal presents what appears to be an issue of first impression for the courts of appeals as to which, unfortunately, we have found no helpful legislative history.

I.

FACTS AND PROCEDURAL HISTORY

Appellants Della and Dwight Webster ("the Websters") filed a Chapter 13 bankruptcy petition on March 25, 1992.*fn1 Lisa and William Leeper ("the Leepers") filed a bankruptcy petition on July 28, 1992. Their Chapter 13 plans have been confirmed and are currently in place.

The Pennsylvania Higher Education Assistance Authority ("PHEAA") is an unsecured creditor of both the Websters and the Leepers. Both the Websters and the Leepers borrowed money from PHEAA to attend college under the guaranteed student loan program. When the Leepers and the Websters filed for bankruptcy, PHEAA filed claims with the bankruptcy court for the principal amounts owing on the respective loans at the time of the bankruptcy petitions plus all pre-petition interest. Portions of the amounts paid pursuant to their two Chapter 13 plans are being applied to the PHEAA claims.

Neither the Websters nor the Leepers will be able to repay their student loan debts in full during the course of their Chapter 13 plans. Pursuant to 11 U.S.C. § 1328 (1988 & Supp. II 1990), which references 11 U.S.C. § 523(a)(8) (1988 & Supp. II 1990), debts for student loans such as those guaranteed by PHEAA are excepted from discharge in Chapter 13 bankruptcy proceedings unless they fall within a hardship exception or unless they matured seven years before the commencement of the bankruptcy case.*fn2 The parties agree that unless one of the two exceptions applies, PHEAA will be able to collect the balance of the amount owing on its bankruptcy claims at the end of the sixty-month bankruptcy period for each of the debtors.

In addition, PHEAA intends to accrue interest on the unpaid principal balance of the loans while the two Chapter 13 bankruptcy cases are pending and intends to collect that interest after the plans are completed. Thus, after their plans were confirmed both the Leepers and the Websters (hereafter "the debtors") initiated adversary proceedings in the bankruptcy court against PHEAA, invoking the bankruptcy court's core jurisdiction under 28 U.S.C. § 157 (1988). Each complaint sought an order from the bankruptcy court declaring (1) that PHEAA is not entitled to accrue post-petition interest during the pendency of the Chapter 13 proceedings, and (2) that payments made to PHEAA under the Chapter 13 plans be applied only to the principal balances of the loans.

In its answers to the complaints, PHEAA conceded that all plan payments made by the debtors should be applied only to their bankruptcy claims, which include the outstanding principal balances of the loans and all pre-petition interest. PHEAA maintained, however, that it is entitled to accrue post-petition interest on the unpaid principal balance of the student loan debts during the pendency of the Chapter 13 plans.

After the two cases were consolidated and the parties filed cross-motions for summary judgment, the bankruptcy court granted summary judgment in favor of PHEAA. The bankruptcy court relied primarily upon Bruning v. United States, 376 U.S. 358, 11 L. Ed. 2d 772, 84 S. Ct. 906 (1964), in concluding that post-petition interest may accrue on a nondischargeable student loan debt during the pendency of a Chapter 13 bankruptcy proceeding, although it ordered that all of the debtors' payments during the course of the plan should be applied to the principal balances and the pre-petition interest. The court declined to address the debtors' claim that the accrual of post-petition interest would impose an undue hardship on the debtors under 11 U.S.C. § 523(a)(8)(B). The court determined that the hardship claim would not be ripe for review until the debtors have completed all payments under the Chapter 13 plan. That determination is not before us in this appeal.

The district court entered an order affirming the bankruptcy court's decision, essentially adopting the reasoning of the ...


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