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In re Werner

November 21, 2008

IN RE: JOHN WERNER, DEBTOR.
JOHN WERNER, APPELLANT,
v.
U.S. DEPT. OF EDUCATION, APPELLEE.



ON APPEAL FROM AN ORDER OF THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEW JERSEY Case No. 05-06193/GMB.

The opinion of the court was delivered by: Simandle, District Judge

HON. JEROME B. SIMANDLE

MEMORANDUM OPINION

This matter is before the Court on appeal by Debtor John Werner ("Appellant" or "Debtor") of two orders by the Bankruptcy Court, the first vacating an entry of default against Appellee United States Department of Education ("Appellee"), and the second granting summary judgment in favor of Appellee. THIS COURT FINDS AS FOLLOWS:

1. On November 28, 2005, Appellant filed a complaint initiating adversary proceedings in Bankruptcy Court seeking discharge of a debt owed to Appellee in the form of student loans obtained to pay for the education of his estranged step-daughter. (Bankr. Docket Item 1.) Appellant asked that this debt be discharged for "undue hardship" pursuant to 11 U.S.C. § 523(a)(8).

2. On October 26, 2006, Appellant sought, and on October 31, 2006, default was entered against Appellee for failure to defend. (Bankr. Docket Items 15 and 16.) On December 15, 2006, Appellee moved to vacate the default, and in support thereof submitted a four-page brief and two attachments, arguing that Appellant had not complied with the Federal Rules of Bankruptcy Procedure in serving his complaint. (Bankr. Docket Item 18.) Appellee responded with evidence of proper service. (Bankr. Docket Item 20.) Appellee, in reply, explained why Appellee's counsel had believed they were not served, why Appellee's counsel was not in possession of Appellant's complaint, and noting that Appellee was not served with the alias summons or the notice of pretrial conference. (Bankr. Docket Item 21.) On January 29, 2007, the Bankruptcy Court, "having considered this matter," issued a short order vacating entry of default. (Bankr. Docket Item 22.)

3. On December 17, 2007, both parties appeared before the Bankruptcy Court for a hearing on Appellee's motion for summary judgment. Before commencing, the Bankruptcy Court gave the parties an opportunity to come to an agreement, satisfactory to all, that would resolve the matter. (Hr'g Tr. at 3.) Though Appellant offered to pay 65 percent of his outstanding debt, Appellee refused to accept his offer, and the parties could not come to an agreement. (Id. at 3-4.) Therefore, the Bankruptcy Court moved forward with the hearing, explaining to Appellant: "If [Appellee doesn't] want to settle, I can't make them settle." (Id. at 5.)

4. The Bankruptcy Court proceeded to grant summary judgment in favor of Appellee. (Bankr. Docket Item 35.) During the December 17th hearing the Bankruptcy Court explained:

Mr. Werner . . . I'm very sympathetic to your situation, I really am. I know that it wasn't a debt that you got a personal benefit out of. I know that you want to try to work this out, but my hands are really tied by the law and that's why I had suggested you try to resolve it with them.

In this circuit, the law is very strict. It's the Brunner test*fn1 that the Third Circuit determined should be followed in PHEAA v. Faish case, 72 F.3d 298, and . . . you know about that . . .

It requires a very high standard for the Court to look at. You have to show that you cannot maintain a minimal standard of living. I know that you're not a rich man, Mr. Werner, and I know you're trying to save for retirement and so on. But the facts of your case do not meet that standard of being unable to maintain a minimal standard of living.

(Hr'g Tr. at 4-5.) Appellant responded: "I understand that I don't meet the standard . . ." (Id. at 5.)

5. Appellant bases his appeal on two alleged errors by the Bankruptcy Court [Docket Item 2 at 1-2]:

(1) [Appellant], John A. Werner, pro se, entered a[n] "Entry of Default" on grounds that the defendant did not file a response in compliance with Rule 7004(b)(4)(5), 7012(4), Federal Rules of Bankruptcy [P]rocedure . . . [The Bankruptcy] ...


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