Press "Enter" to skip to content

6th Cir. Holds Non-Compliance With IRS Regs on ‘Qualified Education Loans’ Not Relevant to Dischargeability

student loansThe U.S. Court of Appeals for the Sixth Circuit recently held that loans incurred by a debtor to pay university tuition were “qualified education loans” under the Bankruptcy Code and thus were not dischargeable.

In so ruling, the Sixth Circuit rejected the debtor’s arguments that:

  • “importing a definition from a separate statutory context should entail importing any attendant regulations as well;” and therefore
  • the “loans are not qualified education loans because she never filed an IRS Form W-9S expressly certifying that the loans were incurred to pay ‘qualified higher education expenses’ and she never received a Form 1098-E that would follow that certification.”

A copy of the opinion in Conti v. Arrowood Indemnity Co. is available at:  Link to Opinion.

The debtor took out five loans from a national bank totaling $76,049. The loan documents reflected that they were for students attending four-year colleges and universities and required the school to “certify the student applicant’s year, enrollment status, loan amount (not to exceed the cost of education when combined with other financial aid), and recommended disbursement dates.” The loans were disbursed directly to the university.

The debtor paid for several years and the loans were assigned to a new owner. The debtor filed a voluntary Chapter 7 bankruptcy petition and “listed the five … loans as dischargeable, claiming that they were not excepted under 11 U.S.C. § 523(a)(8)” and then filed an adversary proceeding seeking an order that the loans were dischargeable.

The parties filed cross-motions for summary judgment and the bankruptcy court granted the loan owners’ motion. The debtor appealed and the district court affirmed the bankruptcy court. The debtor then appealed to the Sixth Circuit.

On appeal, the Court explained that subsection 523(a)(8)(B) “was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 … [and] expanded to private loans § 523(a)(8)’s existing discharge exception for government-and-non-profit-backed educational loans. … Subsection (8)(B) defines qualified education loans by cross-reference to the tax code which in turn defines them, in relevant part, as: ‘any indebtedness incurred by a taxpayer solely to pay qualified higher education expenses.’”

The Court agreed with the parties that it “should look to the initial purpose of [the debtor’s] loans, rather than their actual uses, to determine whether they fall within the scope of (8)(B).”

First, the Court pointed out, “the statutory definition of qualified education loan specifically focuses on whether the loan was ‘incurred … to pay’ qualified higher education expenses, rather than on its ultimate uses.” In addition, “allowing debtors to discharge their student loans simply because they misuse the funds for non-educational expenses would not further Congress’ goal of preserving the financial integrity of the student loan system.”

The Court then analyzed the purpose of the loans by construing the loan documents, concluding that “[t]he bankruptcy court correctly concluded that the sole purpose of the … loans was to pay the cost of attendance at [the university] minus the maximum amount of other financial aid [the debtor] received.”

The Court rejected the debtor’s argument that the debtor’s and university’s status as ‘eligible’ were in dispute because the debtor “forfeited any dispute as to these facts by failing to raise them below.” In addition, the debtor failed “to point to any evidence in the record, beyond the allegations in her complaint, that creates a dispute regarding these facts.”

The Court also rejected the debtor’s argument as irrelevant to the issue of whether the loans are dischargeable in that “her non-receipt of IRS 1098-E forms and [the university’s] failure to certify three of the five loans are also material facts.”

The debtor’s argument that the “loans are not qualified education loans because she never filed an IRS Form W-9S expressly certifying that the loans were incurred to pay ‘qualified higher education expenses’ and she never received a Form 1098-E that would follow that certification” fared no better. The Court reasoned that the debtor “offers no authority for the general proposition that importing a definition from a separate statutory context should entail importing any attendant regulations as well, let alone any support for doing so in this specific context.”

In short, the tax regulations relied upon by the debtor “have nothing to do with bankruptcy.”

The Court affirmed the judgment of the bankruptcy court, concluding that because the “undisputed evidence in the record thus establishes that [the debtor] incurred the … loans solely to pay her qualified higher education expenses at [the university][,] … the loans are qualified education loans under 11 U.S.C. § 523(a)(8)(B)” and were not dischargeable.

Print Friendly, PDF & Email

Hector E. Lora manages the firm’s Florida office and has substantial experience in all phases of complex commercial litigation, including bench and jury trials as well as appellate practice. Hector represents lenders, servicers, debt collectors and debt buyers in complex mortgage foreclosure actions, quiet title actions, federal TILA, RESPA, TCPA, and FDCPA actions and Florida FCCPA actions brought by borrowers or debtors. He also represents creditors in bankruptcy litigation, purchasers of accounts receivable or factoring companies that provide revenue-based financing to small and mid-sized businesses in collection actions, and landlords in commercial and residential evictions. Hector’s broad litigation experience includes over a decade of defending civil enforcement actions filed by the Federal Trade Commission as well as real estate contract disputes and partition actions, contested mortgage foreclosure and condominium lien foreclosure actions and the foreclosure of UCC Article 9 security interests. Hector also has advised a variety of types of businesses regarding their compliance with applicable federal and state consumer protection laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act (TCPA), the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida. For more information, see

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.