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May 21, 2009

Bankruptcy Judge Rules that Conditional Promise to Repay Cost of Training by Union is Non-Dischargeable Student Loan

Brief by University of West Los Angeles Law Student, Sara Hussain.

In re Kesler, 401 B.R. 356 (Bkrtcy, S.D. Ill. 2009) 
         
Issue: Is a conditional promise to repay the cost of training by a union an “educational loan” and, therefore, exempt from discharge pursuant to Section 523(a)(8)(A).

Holding:   Yes. 

Facts:  The plaintiff, Indiana/Kentucky Regional Council of Carpenters Joint Apprenticeship and Training Committee (the "JATC"), is a multi-employer apprenticeship and training trust fund.  The debtor Michael O. Kesler was an apprentice from 1996 to 2000 in a union program.  The debtor entered into five apprenticeship loan agreements with the JATC.  In exchange for signing these agreements, the debtor received carpentry training from the JATC through both classroom teaching and field work.  The apprenticeship loan agreements provided that the debtor would have an obligation to repay the cost of his training to the JATC by repaying the loans in cash if he obtained employment in the carpentry industry with a non-signatory employer.  Obtaining such employment, however, was a breach of the agreement and triggered an acceleration clause making all amounts due and owing immediately payable.  The debtor never earned the in-kind credits because he breached the apprenticeship loan agreements by accepting employment within the carpenter's industry with a non-signatory employer.  The debtor failed to repay the funds and the JATC filed suit against him.

The debtor contends that Section 523(a)(8)(A) does not apply as the agreements between the debtor and the JATC are not educational loans within the meaning of the statute.  The JATC counters that the debt fits within the statutory definition of an educational loan made under a program funded by a non-profit institution, and that the debtor has not demonstrated undue hardship to himself or his dependents.
The Plaintiff argued that the language of Section 523(a)(8) referring to educational obligations was not limited to obligations for education received at institutions of higher education, and that the purpose of the nondischargeability provision was to preserve the solvency of student loan programs so that funds would be available for future students.  They argued that the obligation under the agreement reflected the cost of his training and was therefore an educational obligation within the scope of Section 523(a)(8).  Plaintiff argued that “loan” includes extension of credit for tuition and does not to require the delivery of a sum of money ... According to the Scholarship Loan Agreement the plaintiff extended credit ... to pay for the cost of the training program.  The debtor acknowledged the money owed and received training by agreeing to pay the specified amount.

Here, “an agreement to repay existed between the debtor and the creditor that was “prior to or simultaneous with the educational services by which the institution extend[ed] credit.”  Here, as a condition of receiving training, the debtor affirmatively signed a loan agreement which contained language that a loan existed between the debtor and the JATC.  This is an educational loan under Section 523(a)(8) and is not discharged without a showing of undue hardship. 

May 21, 2009 | Permalink

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