GOLDHABER, Bankruptcy Judge
The provision of 20 U.S.C. § 1087-3 which denies discharge of federally insured student loans in bankruptcy within a five year period beginning on the date of commencement of the repayment period of such loan without a showing of undue hardship is not void as being in conflict with Sections 1(15) and 17a of the Bankruptcy Act.
According to the bankrupt, the definitions of discharge in bankruptcy contained in Sections 1(15) and 17(a) conflict with that provision of 20 U.S.C. § 1087-3 which, though not a part of the Bankruptcy Act, purports to restrict discharge beyond the limits in Sections 14 and 17 of the Act. As such, the bankrupt argued, the conflict should be resolved by declaring 20 U.S.C. § 1087-3 nuil and void and inoperative.
In concluding that § 1087-3 must be upheld, and that Sections 1(15) and 17(a) of the Bankruptcy Act must be regarded as amended by implication to the extent that their language may be regarded as inconsistent with § 1087-3, the Court applied principles of statutory construction. First, the Court noted that when a statute is plainly repugnant to an earlier statute, the later statute controls. Second, the Court looked to the legislative history of § 1087-3 where it is expressly stated that the intent of Congress was to bar an "unintended use of the bankruptcy laws" by prohibiting discharge for a five year period beginning on the date of commencement of the repayment period of such loan. Finally, the Court concluded that the language of § 1087-3 is much more specifically directed to the transaction under review than the possible negative imperatives of Section 1(15) and 17. See Secs. 1(15) at ¶ 2020, 14 at ¶ 2126 and 17a [§ 523] at ¶ 9226.
Bankrupts — Debts Not Affected by Discharge — Student Loans — Due Process
Although a bankrupt's student loan would have been dischargeable under the law in force at the time it was contracted for, it is not violative of due process for bankrupt to be denied the right to discharge by a supervening act of Congress.
The bankrupt argued that her right to a discharge under Section 17a of the Bankruptcy Act became vested at the time of contracting for the loan, and that 20 U.S.C. § 1087-3 which purports to retrospectively deny the right was violative of the Fifth Amendment as a deprivation of property without due process of law.
The Court found that prior case law contradicted bankrupt's contention that because existing law is incorporated by reference into a contract, bankrupt had a vested right to discharge. Further, the Court refused to find a constitutional barrier to retroactive operation of the barrier to discharge. Instead the Court determined that Congress may grant or refuse a discharge to a bankrupt "upon such terms as Congress sees fit to impose. See Sec. 17a [§ 523] at ¶ 9226.
Bankrupts — Debts Not Affected by Discharge — Student Loans — Contract Clause
Limitations on a bankrupt's right to discharge federally insured student loans, provided in 20 U.S.C. § 1087-3, is not a law impairing the obligation of contract in violation of Art. I, § 10 of the United States Constitution. The Contract Clause, by its own terms, applies only to state statutes. No cause of action based on this theory lies against the United States. Further, the right to a discharge is not a constitutionally protected property right, and is therefore outside the scope of protection of the Contract Clause. See Sec. 17a [§ 523] at ¶ 9226.
Bankrupts — Debts Not Affected by Discharge — Student Loans — Equal Protection
The Equal Protection Clause of the 14th Amendment to the United States Constitution is not violated by 20 U.S.C. § 1087-3 which places limitations on a bankrupt's right to discharge federally insured student loans. The bankrupt contended that as § 1087-3 singles out student debtors as a class and unfairly discriminates against them, it is unconstitutional. The Court found that the provision draws a distinction between persons, not based upon any suspect classification, which is rationally related to the achievement of a legitimate governmental purpose — the "preservation of a program that benefits many thousands of borrowers which, if eliminated, would leave students with virtually no institutional source of borrowable funds" and is therefore not violative of the Equal Protection Clause. See Sec. 17a [§ 523] at ¶ 9226.