Memorandum Decision Finding No violation of 11 U.S.C. Section 524 and Denying Injunctive Relief and Damages

In re ] Case No. 590-3372-ASW

Judith Bryant, ] Chapter 7


Debtor(s). ]


Judith Bryant, ] Adversary Proceeding

] No. 99 5282

Plaintiff, ]


vs. ]


Educational Credit Management Corp., ]


Defendant. ]





Before the Court is a complaint by Judith Bryant, the Debtor in this Chapter 7 1 case ( A Debtor @ ), against Educational Credit Management Corporation ( A ECMC @ ). The complaint seeks to enjoin ECMC from violating Debtor = s bankruptcy discharge, and also seeks damages for violations that allegedly have occurred. The matter has been tried and submitted for decision; Debtor is represented by James M. Lauderdale, Esq. of the Lauderdale Law Offices and ECMC is represented by Miriam Hiser, Esq. of the Law Offices of Miriam Hiser. This Memorandum Decision constitutes the Court's findings of fact and conclusions of law, pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.



The facts are largely undisputed.

This bankruptcy case was commenced by Debtor filing a Chapter 13 petition in July 1990. The schedule of unsecured debts filed by Debtor in the Chapter 13 case included the following entry:


P.O. Box 92250

Los Angeles, CA 90009

Spouse liable: D

Account number: SM410A 553-54-3149-1

Amount claimed by creditor: $10,000.00

Amount admitted by debtor: $0.00

Consideration: bal. due on student loan for U of Cal Santa Cruz

No proof of claim was filed in the bankruptcy case under that name or stating that address. The only claim filed for a student loan was filed on September 24, 1990 for $10,000 by California Student Aid Commission ( A CSAC @ ) stating an address in Sacramento, California. The proof of claim states that it is based on two loans: one dated 10/28/85 for $2,500, with a A servicer @ of A SLMA AFSA @ ; one dated 8/12/88 for $7,500, with the same A servicer @ . The proof of claim includes an attachment setting forth two addresses, as follows:


P. O. BOX 2068

LOS ANGELES, CA 90051-0068




P. O. BOX 2590


In September 1992, Debtor commenced Adversary Proceeding No. 92-5502 by filing a complaint against a single defendant identified as A CELP/CALIF STUDENT LOANS @ . The complaint alleged, inter alia, as follows:

The defendants are student loan lenders

and/or educational institutions that pro-

vided student loans and their assignees

for the purpose of collecting the student

loan obligations. ... At the time of the

filing of the debtor = s chapter 13 case, the

defendants maintained that the debtor was

indebted to them for educational loans made

by the defendant to the plaintiff. Such

educational loans first became due less than

seven years prior to the filing of the petition

in bankruptcy. The plaintiff alleges that

the debt is dischargeable pursuant to 11 U.S.C.

' 523 (a)(8)(B) as not excepting such debt from

discharge under this paragraph would impose an

undue hardship on the debtor for the following

reasons: debtor is on disability.

On September 21, 1992, Debtor served the complaint by mail addressed as follows:


P.O. Box 2068

Los Angeles, CA 90051

On October 26, 1992, Debtor filed an application for entry of the default of CELP/CALIF STUDENT LOANS and served it on that date by mail to the same address that had been used for service of the complaint; on November 1, 1992, the clerk of this Court entered the default of CELP/CALIF STUDENT LOANS. On March 12, 1993, Debtor applied for judgment by default against CELP/CALIF STUDENT LOANS; on April 20, 1993, a judgment was issued, providing as follows:

ORDERED, ADJUDGED, and DECREED that the obli- gation of the debtor of [sic] CELP/CALIFORNIA STUDENT LOANS is hereby declared dischargeable.

In December 1993, Debtor = s Chapter 13 case was converted to Chapter 7 at Debtor = s request. Debtor received a discharge in the Chapter 7 case in May 1994.

Debtor testified that, in 1996, she began receiving notices, letters, and telephone calls demanding payment of her student loan. She attempted to respond to each approach and explain that the loan had been discharged in bankruptcy, but they did not stop. At some point in 1998, one of the callers was A very rude @ and said she was A a lazy bitch @ . Debtor suffered from depression and rheumatoid arthritis when she filed bankruptcy; about a year after the calls and notices commenced, she learned that she had cancer. The collection activity angered and frightened her because it included threats to garnish wages, seize tax refunds, and take her property. Debtor consulted a doctor about inability to sleep and uncontrollable weeping, which continued for some three years -- she has been and is taking medication for depression. Debtor testified that she has been unable to acquire a credit card or a car loan during the past few years because her credit report shows that she did not pay her student loan; she ordered a copy of the report and it includes no other damaging information.

The documents in evidence show that Debtor received many collection notices from A AFSA Data Corporation @ ( A AFSA @ ) with a Post Office address in Utica, New York, directing her to send payments to A SALLIE MAE C/O AFSA @ at a Post Office Box in Milwaukee, Wisconsin. On March 3, 1999, ECMC wrote to Debtor about a delinquent student loan, pointing out the availability of deferment or forbearance or consolidation, and asking that Debtor contact A AFSA DATA CORPORATION @ at an address and telephone number in Long Beach, California; the letter stated two addresses for ECMC, one in St. Paul, Minnesota and one in Richmond, Virginia.

The documents in evidence also show that Debtor = s attorney wrote to many entities at many addresses in an effort to stop collection attempts. On February 15, 1999, Debtor = s attorney sent a letter to AFSA at the Utica address, saying that A the account you purchased from @ CSAC had been discharged in bankruptcy, enclosing a copy of the judgment against CELP/CALIF STUDENT LOANS, stating that A your attempts to collect on this obligation are wilful and in complete violation of the discharge injunction @ , and asking for immediate response. On March 16, 1999, Debtor = s attorney again wrote to AFSA at the Utica address, saying that notice of the loan being discharged in bankruptcy was given a month ago and warning that further collection efforts would cause a motion to be filed in the Bankruptcy Court for willful violation of the discharge. On May 27, 1999, Debtor = s attorney wrote to AFSA at the Utica address, at the Long Beach address given in ECMC= s letter, and at the Milwaukee address given in AFSA = s notices to be used for payment; the letter stated that Debtor had filed a Chapter 13 petition on July 18, 1990, A You were listed as a creditor thereon @ , and A The law requires you to desist from contacting the debtor at any time @ . On June 1, 1999, Debtor = s attorney sent a copy of the judgment against CELP/CALIF STUDENT LOANS by facsimile transmission to A Bill Crane - A.F.S.A. @ , stating no address. On June 22, 1999, Debtor = s attorney sent a copy of the judgment against CELP/CALIF STUDENT LOANS by facsimile transmission to AFSA at the Long Beach address, A ATTN: BANKRUPTCY UNIT @ , along with a copy of a notice to Debtor dated June 7, 1999 from AFSA; the notice stated that the loan was not discharged in bankruptcy because the Chapter 13 case had been filed within seven years of the loan = s repayment period. On June 22, 1999, Debtor = s attorney sent a copy of the judgment against CELP/CALIF STUDENT LOANS by facsimile transmission to A STUDENT LOAN COLLECTIONS @ at the St. Paul address stated in ECMC = s letter of March 3, 1999, A ATTN: Jim Votel @ .

Peggy Helms testified that she is a paralegal in ECMC = s legal department and has been with the firm since April 1999. She said that ECMC is a guarantor under the Federal Family Education Loan Program created and authorized by Title IV of the Higher Education Act; the entities participating in the Program include lenders, guarantors, and the Department of Education. ECMC is the holder of two promissory notes signed by Debtor, one for $2,500 and one for $7,500. The original lender on each note was Great Western Savings and the original guarantor on each note was CSAC, which was the guarantor designated by the Department of Education for the state of California;2 each note refers to CSAC throughout the document, including a section in bold type on the second page of each note stating that CSAC was to be notified by the borrower if a bankruptcy petition was filed. ECMC acquired Debtor = s notes from CSAC on May 16, 1996, and held them until it arranged in October 1998 for the notes to be A repurchased @ by the Student Loan Marketing Association, a lender that is separate from ECMC ; in September 1999, ECMC reacquired the notes from Student Loan Marketing Association so that ECMC could investigate Debtor = s attorney = s claims about the bankruptcy discharge. Ms. Helms explained that AFSA, which had been sending notices to Debtor, is a A servicer @ that services student loans for lenders; they do not perform services for ECMC because ECMC is not a lender. She acknowledged that, once ECMC acquired Debtor= s notes from CSAC, ECMC received a file from AFSA about the loans, but she did not know when that file was received by ECMC. Ms. Helms said that ECMC did not engage in collection activity prior to October 1998. After that, ECMC made several telephone calls to Debtor (most of which were not answered) and sent the March 1999 letter about alternatives to default; at some point, ECMC referred the account to a collection agent but recalled the account in July 1999 in response to Debtor = s attorney = s letter to Mr. Votel. According to Ms. Helms, the first notice of Debtor = s bankruptcy that ECMC received was the June 22, 1999 facsimile transmission from Debtor = s attorney to the attention of Jim Votel at A STUDENT LOAN COLLECTIONS @ in St. Paul -- that letter enclosed a copy of a judgment determining a student loan owed by Debtor to be dischargeable, but the judgment was not against ECMC. Ms. Helms said that she does not know what A CELP @ stands for, but she has been told that it is a processing center staffed by Electronic Data Systems.

ECMC = s trial brief states that ECMC has written off Debtor = s loan, which ECMC = s attorney confirmed in oral argument. Debtor does not contend that ECMC (or anyone) ever actually collected any part of the loan.



Debtor = s complaint alleges that ECMC = s collection efforts violated ' 524, which provides, inter alia, that a Chapter 7 discharge

operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset any [discharged] debt as a personal liability of the debtor ....

Debtor = s student loan was not automatically discharged by the filing of her bankruptcy petition, and Debtor does not contend that it was. At the time relevant here, ' 523(a)(8) provided that a student loan of this kind is excepted from discharge unless:

(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor = s dependents.

Accordingly, a student loan such as Debtor = s would not be discharged unless Debtor showed that she would suffer undue hardship from having to pay it. Bankruptcy Rule 7001(6), applicable to the facts presented here, provided that determination of dischargeability must be sought by means of a complaint in an adversary proceeding. The burden was upon the Debtor to seek and obtain a judicial determination that her student loan debt was within the scope of her bankruptcy discharge.

Debtor did file a complaint in 1992 to determine her student loan to be dischargeable due to hardship, and she received a judgment so providing. However, neither the complaint nor the judgment was against ECMC, and both the complaint and the judgment identified the particular debt that was determined dischargeable, only by naming the creditor to which the debt was owed. That creditor was the defendant named in the complaint and in the judgment as A CELP/CALIF STUDENT LOANS @ .

Ms. Helms testified without contradiction that: (1) there is no record of CELP/CALIF STUDENT LOANS ever having held any interest in Debtor = s loan; (2) the debt had been owed at various times to various lenders and/or guarantors and/or servicers and/or collectors, but none of them was CELP/CALIF STUDENT LOANS and none of them was shown to have ever used the Post Office Box in Los Angeles to which Debtor served her complaint for determination of dischargeability; (3) ECMC acquired Debtor = s loan from CSAC and not from CELP/CALIF STUDENT LOANS; (4) ECMC did not attempt collection on behalf of CELP/CALIF STUDENT LOANS; and (5) CELP/CALIF STUDENT LOANS is not a guarantor authorized by the Federal Family Education Loan Program under which Debtor = s loan was granted, and is nothing but a A processing center @ .

Since ' 523(a)(8) provides that loans such as Debtor = s are not discharged unless a court issues a judgment determining them to be dischargeable, Debtor must rely on the judgment issued in her 1992 adversary proceeding in order to accomplish discharge of her loan. However, that judgment only discharges her from having to pay a student loan debt owed to CELP/CALIF STUDENT LOANS, and Debtor has not established that ECMC = s collection attempts were directed at any such loan. Rather, ECMC = s collection attempts were based on a loan originally made by Great Western Savings and guaranteed by CSAC, which ECMC acquired from CSAC -- Debtor has no judgment determining the loan held by ECMC to be dischargeable, and the result is that the loan was not discharged and ECMC was therefore not prohibited by the discharge injunction of ' 524 from attempting to collect it.

Debtor = s trial brief argues that In re Bernal , 207 F.3d 595 (9th Cir. 2000) applies here. That case holds that an assignee is bound by a default judgment against its assignor. However, the case is not applicable to the facts of this case, because the default judgment is against CELP/CALIF STUDENT LOANS , which has not been shown to be ECMC = s assignor (or predecessor of any kind, or principal, or affiliate, etc.). From the record before the Court, it appears that CELP/CALIF STUDENT LOANS does not exist at all as a legal entity but, even if it does, it has not been shown to have been in the A chain of title @ for the loan held by ECMC and at least some such connection is required in order for Bernal to apply.

During oral argument, Debtor = s attorney explained that, in preparing the 1992 complaint for determination of dischargeability, he relied upon a motion to allow claims that had been filed by the Chapter 13 trustee, which listed claims filed in the bankruptcy case. According to counsel, the trustee = s motion listed the proof of claim filed for Debtor = s student loan as having been filed by CELP/CALIF STUDENT LOANS with an address of P. O. Box 2068 in Los Angeles. Debtor used that information from that motion to state the name of the defendant in the complaint for determination of dischargeability and in the default judgment issued upon the complaint; he used the address shown in that motion to serve the defendant with the complaint and with the application for entry of default. Unfortunately, that name and that address appear only on an attachment to the proof of claim that was filed for Debtor= s student loan, clearly identified as the place to which checks should be mailed -- the front of the proof of claim plainly identifies the claimant as CSAC (i.e., the original guarantor of Debtor = s notes and the entity from which ECMC later acquired Debtor = s loan), with an address in Sacramento. Debtor = s attorney pointed out in oral argument that he was never provided with a copy of the proof of claim, but only with the motion to allow claims -- his reliance upon the motion is understandable, especially since his office is in Monterey, some distance from the Clerk = s office where the claims are on file. But the fact remains that ECMC did nothing to cause Debtor = s counsel = s detrimental reliance upon the trustee = s motion in attempting to prepare a complaint against the claimant.3 Indeed, Debtor herself should have been able to give her attorney copies of the promissory notes that she signed, which name CSAC as the guarantor and instruct that notice of bankruptcy be given to CSAC -- if the dischargeability judgment had been against CSAC, it may well have bound ECMC as CSAC = s successor. In fact, had Debtor = s attorney prepared the complaint using the name and address that he put in the bankruptcy schedules, judgment would have been against AFSA (the servicing agent for CSAC) and a judgment against the agent of ECMC = s predecessor may well have bound ECMC.

Debtor argues that ECMC should be considered to have been upon inquiry notice that Debtor = s loan had been discharged, because of the many letters from Debtor = s attorney to AFSA, which had handled collections for CSAC before ECMC acquired the loan and whose file was at some point turned over to ECMC. But Debtor does not explain just what it was that ECMC was supposed to be on notice to inquire about. As discussed above, Debtor appears to concede that the student loan was not automatically discharged when Debtor = s bankruptcy discharge was issued, so any knowledge by AFSA of Debtor = s bankruptcy case that might properly be imputable to ECMC would merely be knowledge of a bankruptcy discharge that did not affect Debtor = s student loan without a separate judgment of dischargeability. Debtor = s attorney did send copies of the dischargeability judgment to AFSA many times and finally sent one to ECMC as well, but that judgment was against CELP/CALIF STUDENT LOANS , which had never been involved with either AFSA or ECMC or CSLC (AFSA = s principal and ECMC = s predecessor) -- putting AFSA or ECMC on notice that Debtor had a judgment against an entity that was a stranger to them, concerning a loan that was not identified by the judgment, imparts no notice of anything. Finally, as discussed above, the dischargeability judgment does not , as a matter of law, operate to discharge Debtor of any loan owed to anyone other than the named defendant ( CELP/CALIF STUDENT LOANS ) or those in privity with such defendant.


Debtor = s position is a sympathetic one. It is obvious from the evidence in this matter that student loans go through many hands at many different stages of their existence, and the most diligent debtor or attorney may not be able to pin down exactly who holds the loan at any given moment. The Court believes Debtor= s testimony about the effect that constant collection efforts and an impaired credit rating had upon her for over a decade after she filed bankruptcy. With respect to the collection efforts, no actual collections were ever made and the attempts must have ceased once ECMC decided to write off the debt, but that does not mean that the efforts were not very distressing while they lasted. Insofar as the credit rating is concerned, ECMC = s counsel agreed at trial to use their best efforts to have negative reports withdrawn to the extent that it is within their control, but Debtor has clearly suffered the consequences of the reports in the meantime.

Nevertheless, there is no evidence that ECMC is or was the predecessor, successor, agent, principal, affiliate, or representative of the defendant named in Debtor = s dischargeability judgment. Accordingly, the debt held by ECMC was never discharged and efforts to collect an undischarged debt did not violate the discharge injunction of ' 524.

Counsel for ECMC shall submit a form of judgment in favor of ECMC, after review as to form by counsel for Debtor.





1 Unless otherwise noted, all references are to the version of Title 11, United States Codes, that applied to bankruptcy cases filed on July 18, 1990.

2 According to Ms. Helms, the Program includes no guarantor called A CELP/CALIFORNIA STUDENT LOANS @ . Ms. Helms also testified that she reviewed all documents in ECMC = s files to see who held any right, title, or interest in Debtor = s notes before ECMC acquired them, and A CELP/CALIFORNIA STUDENT LOANS @ never appeared as the holder of any interest in the notes and was not in the A chain of title @ for the loan acquired by ECMC.

3 ECMC did not even acquire Debtor = s loan until 1996, and the dischargeability complaint was filed in 1992.




CANB DocumentsNorthern District of California