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Johnson v. Edinboro State College and Pennsylvania Higher Education Assistance Agency

February 27, 1984


On Appeal from the United States District Court for the Western District of Pennsylvania

Author: Adams

BEFORE: ADAMS and BECKER, Circuit Judges, and NEWCOMER, District Judge*fn*


ADAMS, Circuit Judge.

In this appeal, we are asked to decide whether the Bankruptcy Code prohibits a state college from retaining the transcript of a debtor whose educational loans were not dischargeable in a Chapter 7 proceeding. We hold that it does not.


Robert Johnson was graduated from Edinboro State College (Pennsylvania) in December, 1974. In 1980, he filed a Chapter 7 petition for an order of discharge in bankruptcy, which was granted in March, 1981. Shortly thereafter, Johnson filed a complaint in the bankruptcy court to determine whether a debt he owed to Edinboro State was dischargeable. Through the College, he had received some $1700 from both the National Defense and the Direct Student Loan dischargeable under 11 U.S.C. § 523(a)(8) (Supp. V 1981) because they had become due over five years before his filing of a petition in bankruptcy and because they imposed an undue hardship on him as a debtor.*fn1 Johnson also complained that the College had withheld his diploma and had denied him a transcript of his academic records, thus jeopardizing his professional advancement.

The bankruptcy judge noted that payment of the educational loans should cause Johnson no hardship, since the quarterly payments were only $47.00 and the debtor's current annual income was over $17,000.00. The bankruptcy judge also concluded that Johnson's loans had not become due over five years before the filing of his petition and, as a result, were not dischargeable under the Bankruptcy Code for that reason. Nonetheless, he ordered that the college turn over to the debtor a diploma and a copy of his transcript. See Johnson v. Edinboro State College (In re Johnson), No. 80-2130 (Bankr. W.D. Pa. June 18, 1981).

Upon Edinboro's motion that the court reconsider the portion of its Order directing that a transcript be issued to the debtor, the bankruptcy judge asserted that the denial of a transcript violated the "fresh start" policy of the Bankruptcy Code. Johnson v. Edinboro State College (In re Johnson), No. 80-2130 (Bank. W.D. Pa. Mar. 5, 1982). This judgment was affirmed by the district court. Johnson v. Edinboro State College (In re Johnson), No. 82-589 (W.D. Pa. Dec. 3, 1982).Edinboro's petition for the allowance of an appeal was granted under Fed. R. App. P. 6.*fn2 We now reverse.


The desire to give the debtor a "fresh start" is one of the key goals of the Bankruptcy Code, but it is only one of several policies that underlie this complex statute, policies that often come into conflict with one another.The trustee's duty to marshal the assets of an estate in bankruptcy can, for example, seriously inhibit the capacity of a debtor to start anew. So, too, a legislative decision to exempt certain kinds of loans from discharge in bankruptcy can make it that much more difficult for a debtor to put the past behind. Nonetheless, courts are bound by Congressional judgments that general bankruptcy policy give way to more specific policy considerations. United States v. Sotelo, 436 U.S. 268, 279 (1978); In the Matter of Becker's Motor Transport, Inc., 632 F.2d 242, 248 (3d Cir. 1980), cert. denied, 450 U.S. 916 (1981). Here, it is abundantly clear from both the legislative history and the text of the Bankruptcy Code itself that Congress meant to bar the discharge of educational loans like those Johnson received through Edinboro State College. See H.R. Rep. No. 1232, 94th Cong., 2d Sess. 13, 80 (1977); S. Rep. No. 989, 95th Cong., 2d Sess. 79 (1978).

In spite of the fact that Johnson had made no payments on his non-dischargeable educational loans, the bankruptcy judge ordered Edinboro to turn over to the debtor a copy of his college transcript. To do otherwise, the bankruptcy judge reasoned, would be to violate 11 U.S.C. § 525 (Supp. V 1981) which provides statutory protection from discrimination to those who file petitions under the Code.*fn3 The legislative history shows that, in drafting this provision, Congress intended to codify the result in Perez v. Campbell, 402 U.S. 637 (1971), which held that a state could not, without violating the fresh-start policy, refuse to renew a driver's license because a tort judgment resulting from an automobile accident had been unpaid as a result of a discharge in bankruptcy. S. Rep. No. 989, 95th Cong., 2d Sess. 81 (1978); H. Rep. No. 595, 95th Cong., 1st Sess. 366 (1977).The Court in Perez made clear that it did not question the state's capacity to require proof of financial responsibility as a precondition for granting driving privileges. Rather the issue was "the power of a State to include as part of [a] comprehensive enactment designed to secure compensation for automobile accident victims a section providing that a discharge in bankruptcy of the automobile accident tort judgment shall have no effect on the judgment debtor's obligation to repay the judgment creditor. . . ." 402 U.S. at 643.The Court's disposition of this issue is reflected in the final portion of § 525, see note 2 supra, which prohibits discrimination against a one-time petitioner who has not paid a debt that has been discharged under the Bankruptcy Code. In the present case, Johnson's loans have not been discharged, indeed they are nondischargeable, and whatever remedies he may have for the college's withholding of his transcript, he cannot seek relief under § 525 of the Bankruptcy Code.


In support of the proposition that Edinboro's refusal to give Johnson a copy of his transcript violates the fresh-start policy, the bankruptcy judge referred to a number of opinions, all but two of which involve loans that had in fact been discharged in bankruptcy. Lee v. Bd. of Higher Ed., 1 B.R. 781 (S.D.N.Y. 1979), is typical. That case was certified as a class action and was limited to certain graduates who "have received a final discharge in bankruptcy of their student loans and who thereafter have been denied access to their college records . . . by reason of their failure to repay their educational loans." Id. at 786. In ...

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