44. In Corbin, the debtor was a receptionist for Greenpoint Technologies, and the vice-president of the company agreed to cosign the debtor’s application for a student loan. Corbin, 506 B.R. at 290. Corbin used the proceeds to fund her educational expenses but ultimately left her employment at Greenpoint and defaulted on the loan; the vice-president stepped in and made payments on the loan “to avoid adverse effects on her own credit rating.” Id. The vice-president sought and received a judgment against Corbin in state court. Id. When Corbin later filed bankruptcy, she attempted to discharge the judgment under, among other provisions, § 523(a)(8)(A)(ii). Id. The court noted that a debt is nondischargeable as an “educational benefit” under this subsection if “the stated purpose for the loan is to fund educational expenses.” Id. at 296 (citation omitted). Referencing Into the re also Belforte, the court found that there was “no business purpose to the [l]oan on either the part of [the vice-president] or Corbin.” Id. at 297 (citing In re Belforte, Nos. 10-22742, 11-1008, 2012 WL 4620987, at *7 (Bankr. D. Mass. )). Instead, the funds were received to pay for educational expenses and the vice-president received “no consideration for her signature.” Id. at 297. Id.
45. Thus, in applying the substance of the transaction test to this case, it is clear that the Jubers issued a private loan to the Debtor that served a personal purpose rather than an educational one. Unlike the vice-president in Corbin, the Jubers did have an ulterior motive for using the HELOC to pay off the Three Original Loans: a love for their son and a desire to financially support his impending marriage.
46. The Jubers requested attorney’s fees in this case and cited to the language of the Promissory Note that allowed for the same. Based on well-established case law, however, an award of attorney’s fees to the Jubers would not be appropriate given the court’s ruling in favor of the Debtor. Discover For the lso are Kelly, 582 B.R. 905, 914 (Bankr. S.D. Tex. 2018); Bank of Am. v. Rice, 244 N.C. 358, 375 (N.C. Ct. App. 2015).
The annals of one’s purchase at issue along with a brief history within activities, actually leaves little question the Oral Financing is actually neither stretched since nor meant to be an useful financing. The fresh new Jubers never beat the newest plain vocabulary of § 523(a)(8)(B) or the legislative records one tunes the creation of and you may amendments to help you § 523. An applying of the latest compound of one’s deal sample subsequent bolsters brand new court’s completion your Jubers’ goal, in the event substantial, is actually eventually perhaps not supposed to improve Debtor however,, as an alternative, its child. Thus, the newest Dental Mortgage, therefore the after that Promissory Mention, are dischargeable from the Debtor’s bankruptcy circumstances and will also be treated as a general unsecured debt about Debtor’s Section 13 package. The fresh judge usually enter a different judgment in line with which buy.
4. The fresh new Jubers’ provide towards Debtor try twofold. Transcript on 108. 5% as the interest rate on the HELOC was only step 1.99%. Transcript from the twelve. Brand new Jubers considered that if you are paying off of the Debtor’s Three Original Finance towards HELOC, the fresh new Debtor in addition to their guy would benefit from the lower focus rates and be able to has a reduced prominent harmony whenever they married. Transcript in the thirteen, sixteen. In return, the newest Jubers asked the newest Borrower in order to invest in pay $five hundred biweekly up to they made a decision to offer their residence (the new “Dental Financing”). Transcript at 18. The new Jubers wished to offer their home in the future and do fundamentally need to pay off of the HELOC prior to closure. Transcript at 19-20, 29. As such, at the end of so it about twelve-few days label, the brand new Jubers understood that the Borrower as well as their son, together with her, carry out re-finance the remainder dominating, albeit significantly quicker by the Dental Loan. Transcript on 12, 18. Particularly, that it deal carry out occur following the Borrower together with Jubers’ Man get married, therefore the Jubers presumed that the son would have to cosign towards the financial obligation. Transcript during the 19, forty-two.
Very first, the latest Jubers planned to activate their home guarantee personal line of credit (the newest “HELOC”) to pay off the 3 Brand-new Finance
10. Towards the , the fresh Borrower filed a chapter thirteen bankruptcy petition. Brand new Jubers began that it challenger proceeding on the seeking to classify the fresh Debtor’s indebtedness, because depicted from the Dental Loan and the further Promissory Notice, since the nondischargeable loans incurred because a good re-finance regarding a professional knowledge financing significantly less than § 523(a)(8) of your own Personal bankruptcy Password and you may § 221(d) of your own Inner Revenue Code.
15. The new supply of password at issue in this situation are eleven You.S.C. § 523(a)(8)(B). Area 523(a)(8) traces numerous types of beginner loans and this can be excluded off launch, also any personal debt to own:
The newest Jubers realized that weighted mediocre of the rates to your About three Fresh Financing try as much as nine
20. The Oliver court began by looking at the history of § 523(a)(8) as laid out, more thoroughly, in In the re also Spaces, a 2003 case from https://servicecashadvance.com/payday-loans-wv/barboursville/ the Seventh Circuit, that had facts analogous to those in Oliver. Id. at 621-22 (citing Within the re also Spaces, 348 F.3d 650, 652-58 (7th Cir. 2003)). In Chambers, the court found that an unpaid balance on a student account was not a loan at all, so it was dischargeable under § 523(a)(8). Chambers, 348 F.3d at 658. The Oliver court highlighted that Chambers “expressly left to Congress the opportunity ‘to protect any educational “extension of credit” ‘ ” and expand the statute if it so chose. Oliver, 499 B.R. at 622 (quoting Chambers, 348 F.3d at 657).
25. Here, the Jubers were not extending credit, as an institutional lender would, to fund an education by paying for tuition, housing expenses, books, technology fees, meal plans, study-abroad, and the like. Unlike the lender in Pelzman, 233 B.R. at 580, the Jubers did not aim to facilitate the Debtor’s education or allow the Debtor to pay for costs incidental to her education. Instead, the Oral Loan was personal in nature. It was extended to the Debtor as a means of helping the Juber’s Son. At trial, Mr. Juber testified that the loan was made so that his son and future daughter-in-law could start their marriage on the right foot. Mr. Juber admitted that the loan would benefit both his son and the Debtor and would help their financial situation in the long run. The Debtor did not seek the loan from the Jubers. Rather, the Jubers approached the Debtor about this opportunity and framed the offer as one to benefit the pending marriage. The Oral Loan was the Jubers’ good-hearted, albeit misguided, attempt to get rid of debt their son could ultimately be responsible for upon marriage. It was not educational in nature.
43. Courts have also applied an analysis similar to the substance of the transaction test in cases examining the “educational benefit” language of § 523(a)(8)(A)(ii) by looking at whether a loan serves a “business purpose or an educational purpose.” Come across, elizabeth.grams., Benson v. Corbin (Inside the re Corbin), 506 B.R. 287, 297 (Bankr. W.D. Wash. 2014).