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In re Udell

July 10, 2006

IN RE: NATHAN JAMES UDELL, DEBTOR
NATHAN JAMES UDELL, APPELLANT
v.
UNITED STATES OF AMERICA
FREDERIC J. BAKER, ESQUIRE, TRUSTEE
GLORIA M. SATRIALE, ESQUIRE, TRUSTEE



On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 05-cv-00356) District Judge: Honorable Harvey Bartle, III.

The opinion of the court was delivered by: Lourie, Circuit Judge.

PRECEDENTIAL

Argued June 13, 2006

Before: FISHER, ALDISERT and LOURIE,*fn1 Circuit Judges.

OPINION OF THE COURT

Nathan James Udell appeals from the decision of the United States District Court for the Eastern District of Pennsylvania, reversing the order of the United States Bankruptcy Court, Eastern District of Pennsylvania, and holding that Udell's educational debt was not dischargeable. Udell v. United States, 325 B.R. 147 (E.D. Pa. 2005). Because the District Court correctly determined that the Bankruptcy Code, viz., 11 U.S.C. § 523(a)(8), applies to Udell's debt and prohibits the discharge of his debt, we will affirm.

I. BACKGROUND

The underlying facts are not in dispute. Udell entered the United States Air Force Academy as a cadet by Congressional appointment on July 1, 1993. He completed three academic years at the Air Force Academy from July 1, 1993, to August 2, 1996. Upon enrollment at the Air Force Academy, Udell signed a "Record of Acceptance, Obligation, Reimbursement, and Oath of Allegiance," agreeing to complete the educational requirements and to serve on active duty for a period of eight years. He further agreed that if he failed to complete the educational requirements or to serve on active duty for the requisite period of time, he would be required to reimburse the government for the cost of his education.

While enrolled at the Air Force Academy, Udell possessed an official government issued credit card. When questioned by investigators about a delinquent balance on that card, Udell initially claimed that the card was stolen, but later admitted that he had not been truthful about the card being stolen. He also admitted that he had given the card to his girlfriend to "use for whatever she needed," and that she had made various purchases with that card. On April 24, 1996, the Military Review Committee convened and recommended Udell for disenrollment due to his misconduct. Udell was permitted to submit a letter of resignation in lieu of disenrollment. On July 31, 1996, Udell's letter of resignation was accepted and Udell was also discharged (under honorable conditions) from the Air Force.

As a result of his early discharge from the Air Force, Udell was required to reimburse the government for the cost of his education in the amount of $88,936. Including interest and administrative charges, the amount has increased to a total of $123,692. Udell does not dispute that he owes this amount. In June 2002, Udell filed a voluntary petition for bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code, stating that he owed $123,692 to the United States Department of Defense. In October 2002, Udell instituted an adversary proceeding in the Bankruptcy Court, seeking a determination that the debt for his Air Force Academy education was dischargeable.

The Bankruptcy Court determined that Udell's debt was dischargeable. In re Udell, 318 B.R. 293 (Bankr. E.D. Pa. 2004). The court recognized that both the Armed Forces Code, viz., 10 U.S.C. § 2005(d), and the Bankruptcy Code, viz., 11 U.S.C. § 523(a)(8), "deal with the dischargeability of educational obligations or loans." Id. at 296. The court, however, determined that 10 U.S.C. § 2005(d) is a more specific statute "targeted only to educational obligations arising in connection with service in the armed forces" and that, as a specific statute, § 2005(d) controls whether Udell's debt to the government is dischargeable. Id. The court found legal support for its conclusion in case law holding that a more specific statute governs the dischargeability of specific types of educational loans, in those cases Health Education Assistance Loans ("HEAL"). Id. The court also found factual support for its decision in the "Record of Acceptance, Obligation, Reimbursement, and Oath of Allegiance," which specifically references and summarizes § 2005(d). Id. Without expressly considering the language of § 2005(d), the court concluded that Udell's obligation to the government was dischargeable under § 2005(d). Id. at 297.

The District Court reversed the decision of the Bankruptcy Court, concluding that Udell's debt was not dischargeable. Udell, 325 B.R. at 151. The court noted that Udell's type of debt was encompassed within both the Armed Forces Code, § 2005(d), and the Bankruptcy Code, § 523(a)(8). Upon considering the plain language of § 2005(d) and § 523(a)(8), the court determined that § 2005(d) prohibits the discharge of a debt within a period of five years after a debtor has ended service in the armed forces, but "is silent with respect to what happens thereafter." The court concluded that § 523(a)(8), in contrast, prohibits the discharge of a debt at all times absent a showing of undue hardship. Id. at 150.

According to the court, "[t]he two statutes can easily be reconciled so as to give effect to both" because "§ 2005(d) absolutely prohibits the discharge of the debt in question during the first five years, and § 523(a)(8) prohibits a discharge thereafter unless an undue hardship exists." Id. Because five years had passed since Udell had been discharged and Udell had not argued undue hardship, the court determined that his debt was not dischargeable. Id. The court noted that its interpretation of the statutes was "neither an unfair nor unreasonable harmonization of the two statutes," and that it was not Congress's intent to treat the debt of one who leaves the military more leniently than the debt of others. Id.

Udell timely appealed from the District Court's decision, and we have jurisdiction to hear this appeal under 28 U.S.C. ยง ...


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