T I Federal Credit Union v. DelBonis

UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT

No. 95-1702

T I FEDERAL CREDIT UNION,

Plaintiff, Appellee,

v.

JOHN CARL DELBONIS,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Reginald C. Lindsay, U.S. District Judge]

Before

Torruella, Chief Judge,

Bownes, Senior Circuit Judge,

and Stahl, Circuit Judge.

Theodore J. Koban for appellant.

Paul F. Lorincz, with whom Coogan, Smith, Bennett, McGahan,

Lorincz & Jacobi were on brief for appellee.

December 18, 1995

BOWNES, Senior Circuit Judge. This appeal by
BOWNES, Senior Circuit Judge.

defendant-appellant John Carl DelBonis, a chapter 7 debtor,

concerns the dischargeability of educational loans under 11

U.S.C. 523 (a)(8). The District Court for the District of

Massachusetts reversed a bankruptcy court order granting

DelBonis summary judgment. Debtor's appeal from that

decision asks us to do two things: reverse the district

court's holding that federal credit unions are nonprofit

organizations and hold that educational loans issued to him

by creditor-appellee TI Federal Credit Union are, therefore,

dischargeable in bankruptcy. We deny both requests.

Instead, we affirm the result achieved by the

district court -- that debtor's loans are nondischargeable --

and elect not to reach the issue of federal credit unions'

nonprofit status. Because our conclusion that federal credit

unions qualify as government units within the meaning of 11

U.S.C. 523(a)(8) provides a sufficient legal basis for

upholding the district court's order, we reserve the issue of

whether such organizations qualify as nonprofit organizations

within the meaning of that statute for another day.

Jurisdiction of this appeal stems from 28 U.S.C. 158(d).

I. THE FACTS
I. THE FACTS

Financial difficulties caused defendant-appellant

John Carl DelBonis ("DelBonis") to file for bankruptcy under

Chapter 7 of the Bankruptcy Code on September 20, 1993.

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DelBonis's Chapter 7 application, which he filed in the

Eastern District of Massachusetts, listed, inter alia,

educational loans he obtained on behalf of his wife and

children as debts to be discharged. The loans, from which

DelBonis obtained no direct personal benefit and on which he

is the sole obligor, were acquired from the Texas Instrument

Federal Credit Union, ("TIFCU") while DelBonis was employed

at Texas Instruments, Inc. DelBonis's employment with Texas

Instruments, Inc., one of nine institutional members of

TIFCU, terminated in November, 1992.

Chartered on May 9, 1960, pursuant to the Federal

Credit Union Act, 12 U.S.C. 1751 et seq., TIFCU is a

federal credit union and has its principal place of business

in Attleboro, Massachusetts. Like most federal credit

unions, TIFCU provides a variety of credit, savings, and

financial counseling services to its members. Loans --

educational; home equity; residential real estate; and member

business -- however, represent TIFCU's primary investment.

Cf. National Credit Union Administration, Office of

Examination and Insurance, Federal Credit Union Handbook 11

(1988). Because TIFCU is a federal credit union, its loan

activities are heavily regulated by the National Credit Union

Administration ("NCUA"). See generally 12 C.F.R. Ch. VII (1-

1-95 Edition). NCUA exists within the executive branch of

the federal government and was established in 1970 to

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"prescrib[e] rules and regulations for the organization and

operation of federal credit unions . . . ." Federal Credit

Union Handbook, supra, at 2.

DelBonis took out his first educational expense

loan with TIFCU on December 27, 1985, for the sum of

$3,500.00. TIFCU advanced the loans as part of a special

educational loan program. The program, which was not

federally guaranteed, had several attractive features. It

made loans at low interest rates, gave borrowers longer

repayment periods, and allowed loans to be aggregated in

maximum amounts greater than those permitted under personal

loan programs.

One of the most appealing features of TIFCU's

educational loan program was that it enabled borrowers to

simultaneously borrow additional funds and refinance

outstanding balances on previous loans. DelBonis took

advantage of this feature on numerous occasions. Under the

requirements of the loan program, the proceeds from each

transaction were paid directly to the educational institution

DelBonis specified.

During the period spanning December 27, 1985 to

January 4, 1991, DelBonis turned to TIFCU sixteen times for

assistance in meeting his family's educational needs. Each

time TIFCU responded by granting him the funds he requested.

In fact, TIFCU advanced a total of $43,114.87 in loan

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proceeds on DelBonis's behalf. DelBonis ultimately asked and

was permitted to consolidate these loans into a single

promissory note for $39,064.46, payable over ten years, with

interest at 9.6% per annum. A principal balance of

$32,618.27 is currently due on that amount.

II. THE PROCEEDINGS BELOW
II. THE PROCEEDINGS BELOW

On December 3, 1993, nine months after DelBonis

filed for Chapter 7 bankruptcy and, thereby, sought to avoid

repayment of his loan debt, TIFCU initiated a bankruptcy

court adversary proceeding. TIFCU requested a determination

as to whether 11 U.S.C. 523(a)(8) rendered the educational

loans issued to DelBonis nondischargeable in bankruptcy.

TIFCU argued that its status as a nonprofit required a

finding of nondischargeability under the statute.

Six months after the adversary proceedings began,

the parties submitted an Agreed Statement of Fact to the

bankruptcy court. That document included the erroneous

stipulation that "TIFCU is not a governmental unit . . . ."

Agreed Statement of Fact at 2. DelBonis filed a motion for

summary judgment on June 6, 1994, almost immediately after

the Agreed Statement of Fact was filed with the bankruptcy

court. His summary judgment motion raised two issues bearing

on 11 U.S.C. 523 (a)(8)'s applicability in this case: 1)

whether TIFCU is a nonprofit institution; and 2) whether

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debtor's loans became due within the seven-year period

prescribed by 11 U.S.C. 523(a)(8).

The bankruptcy court granted summary judgment on

the first issue and, based on its analysis, did not reach the

second issue. The bankruptcy court found that "loans

incurred to educate members of a debtor's family qualify as

educational loans within the meaning of 11 U.S.C.

523(a)(8)." In re DelBonis, 169 B.R. 1, 2 (Bankr. D. Mass.

1994). It ruled, however, that federal credit unions are not

nonprofit organizations entitled to Section 523(a)(8)

protection because they are comprised of member-shareholders

and are authorized to issue dividends to such members. Id.

The bankruptcy court found that nonprofit organizations do

not possess such characteristics. Id. at 3-4. The

bankruptcy court acknowledged that TIFCU's suit raised a

novel issue of law and, therefore, denied debtor's requests

for fees and costs. Id. at 4.

TIFCU appealed the bankruptcy court's decision on

June 28, 1994 and filed a Motion to Amend the Agreed

Statement of Fact on the ground that it included a

stipulation erroneously denying TIFCU's legal status as a

government unit. The bankruptcy court denied TIFCU's Motion

to Amend on July 11, 1994. TIFCU subsequently filed a new

Notice of Appeal challenging both the bankruptcy court's

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summary judgment order and denial of the Motion to Amend the

Agreed Statement of Fact.

On appeal, the district court reversed the

bankruptcy court's grant of summary judgment. It held that

federal credit unions qualify as nonprofit organizations

under Section 523(a)(8) and issued a detailed opinion

outlining the legal and policy-based justifications for such

a classification. Id. at 5. Our decision in La Caisse

Populaire Ste. Marie v. United States, 563 F.2d 505 (1st Cir.

1977), defining a credit union as "a democratically

controlled, cooperative, nonprofit society organized for the

purpose of encouraging thrift and self-reliance among its

members . . . ," was cited as support for the district

court's reversal. Id. at 4-5 (quoting La Caisse Populaire

Ste. Marie v. United States, 563 F.2d 505, 509 (1st Cir.

1977). La Caisse held that state credit unions are entitled

to general income tax exemption under Section 501(c)(14)(A)

of the Internal Revenue Code. Because the ground on which it

based its decision independently warranted a finding that

debtor's loans are nondischargeable, the district court

deemed it unnecessary to "reach the question whether [the

bankruptcy court judge] should have allowed the appellant's

motion to amend its agreed statement of facts regarding . . .

[TIFCU's] status as a federal instrumentality." Id. at 5.

III. THE STATUTE
III. THE STATUTE

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Resolution of this case, as the following

discussion reveals, requires us to consider a gaggle of

statutes and statutory issues. Questions about the status of

federal credit unions implicate the Federal Credit Union Act,

12 U.S.C. 1751 et seq., bankruptcy law, and the federal

income tax code. See 26 U.S.C. 501. Because the

possibilities for confusion run high, we think it important

to clearly set out the terms of 11 U.S.C. 523(a)(8), the

statute on the basis of which TIFCU initiated the adversary

proceeding. In relevant part, 11 U.S.C. 523 (a)(8)

provides:

(a) A discharge under section 727, 1141,
1228(a), 1228(b) or 1328(b) of this title
does not discharge an individual debtor
from any debt --

(8) for an educational benefit
overpayment or loan made, insured or
guaranteed by a government unit, or made
under any program funded in whole or in
part by a governmental unit or nonprofit
institution, or for an obligation to
repay funds received as an educational
benefit,scholarship or stipend, unless --
(A) such loan, benefit, scholarship, or
stipend overpayment first became due more
than 7 years (exclusive of any applicable
suspension of the repayment period)
before the date of the filing of the
petition; or (B) excepting such debt from
discharge under this paragraph will
impose an un-due hardship on the debtor
and the debtor's dependents.

In summary, Section 523(a)(8) offers two

alternatives for adjudicating educational loans issued by a

federal credit union nondischargeable. First, it provides

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that educational loans or benefit overpayments are

nondischargeable, if issued in whole or in part by an agency

qualifying as a nonprofit organization. Second, the statute

also makes loans issued, insured, or guaranteed by

governmental units nondischargeable. A debtor's loans, thus,

are nondischargeable if they fall within the parameters of

either provision.

Congress delineates only two exceptions to this

nondischargeability policy. A demonstration that the

educational loan, benefit, scholarship, or stipend at issue

in the case first became due more than seven years before the

filing of the bankruptcy petition excepts a debtor from the

statute. Finally, evidence that nondischargeability will

impose an undue hardship on debtor or debtor's dependents

provides a basis for circumventing nondischargeability. The

hardship alleged, however, must be undue and attributable to

truly exceptional circumstances, such as illness or the

existence of an unusually large number of dependents. In re

Lohman, 79 B.R. 576, 581 (Bankr. D. Vt. 1987).

Thus far, this case has primarily traveled down the

analytical path carved out by Section 523(a)(8)'s nonprofit

organization provision. In the adversary proceeding

conducted before the bankruptcy court, TIFCU's principal

argument for nondischargeability of DelBonis's loans was that

it qualified as a nonprofit organization within the meaning

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of 11 U.S.C. 523 (a)(8). Similarly, both the bankruptcy

court and the district court, albeit with different results,

focused solely on whether federal credit unions are

nonprofits.

A reasonable basis for assuming such an analytical

tack exists, to be sure. Numerous other courts have fixed

their nondischargeability analyses on questions pertaining to

the, oftentimes, fine distinctions between nonprofit and for-

profit entities. Unfortunately, a reading of their decisions

suggests that no clear consensus on these questions has been

reached. See In re Roberts, 149 B.R. 547 (Bankr. C.D.Ill.

1993) ("[I]t is not disputed that the Credit Union is a

nonprofit institution."); TI Federal Credit Union, 183 B.R.

at 1; Compare with In re Sinclair-Ganos, 133 B.R. 382 (Bankr.

W.D. Mich. 1991) ("[T]his court holds that a credit union is

not a nonprofit institution under 11 U.S.C. section 523

(a)(8)); and In re Simmons, 175 B.R. 624 (Bankr. E.D.Va.

1994) ("[T]he credit union in the case at bar is not a

nonprofit institution within the scope of section 523

(a)(8)"). Disagreements over whether courts should

concentrate on an organization's articulated purpose,

specific financial activities, or competitiveness with other

for-profit institutions in making nonprofit status

determinations abound. Compare TI Federal Credit Union, 183

B.R. at 1 with In re DelBonis, 169 B.R. 1 and In re Roberts,

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149 B.R. at 547. Consequently, no clear test for

"determining when a nonprofit institution is -- or is not --

a nonprofit institution under section 523 (a)(8) of the

Bankruptcy Code" has been formulated. In re Roberts, 149

B.R. at 551; see also 18 Am. Jur. 2d, Corporations 32 at

827 ("The words 'profit' or 'nonprofit' have no definite

meaning or general application . . . .").

In light of this discord, we are satisfied that the

district court's focus on whether federal credit unions are

nonprofits was misplaced. Sound judicial policy counsels

against deciding complicated legal issues where a clear,

principled, alternative basis for reaching the same result

exists. Cf. Walmac Co. v. Issacs, 220 F.2d 108, 113 (1st

Cir. 1955). TIFCU's appeal of the bankruptcy court's denial

of its Motion to Amend the Agreed Statement of Fact gave the

district court an opportunity to decide this case under 11

U.S.C. 523 (a)(8)'s government unit provision. That

provision provides us with a principled, alternative basis

for affirming the district court's nondischargeability order.

Unlike the nonprofit provision, the government unit

prong of the Section 523(a)(8) is unambiguous and not

particularly difficult to interpret. In re Pelkowski, 990

F.2d 737, 741-42 (3rd Cir. 1993). And the law establishes

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that federal credit unions perform important governmental

purposes and operate as federal instrumentalities.

IV. DISCUSSION
IV. DISCUSSION

Before addressing the substantive issues underlying

our conclusion that federal credit unions are government

units within the meaning of Section 523(a)(8), we must

confront the threshold issue of whether the question of

TIFCU's status as a government unit is properly before us.

We, therefore, begin our discussion by evaluating the

procedural propriety of our deciding this case on that basis.

The substantive issues underlying our judgment that debtor's

loans are nondischargeable will be discussed thereafter.

A. Stipulations
A. Stipulations

In our judicial system, "[s]tipulations fairly

entered into are favored." Burstein v. United States, 232

F.2d 19, 23 (8th Cir. 1956). Factual stipulations tend to

"expedite a trial and eliminate the necessity of much tedious

proof." Id. As a result, "parties to a lawsuit are free to

stipulate to factual matters." Saviano v. Commissioner of

Internal Revenue, 765 F.2d 643, 645 (7th Cir. 1985). They

are, however, not generally free to extricate themselves from

those stipulations once crafted. Due to the interest in

preserving the efficiency attained through stipulations,

"[t]he general rule . . . [is] that stipulations of attorneys

made during a trial may not be disregarded or set aside at

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will . . . ." Marshall v. Emersons Ltd., 593 F.2d 565, 569

(4th Cir. 1979) (citing Maryland Cas. Co. v. Rickenbaker, 146

F.2d 751, 753 (4th Cir. 1944)); see also 73 Am. Jur. 2d,

Stipulation 1 (1974).

Litigation stipulations can be understood as the

analogue of terms binding parties to a contract. As in

contract law though, rules limiting litigants to trial

stipulations are not absolute. Marshall, 593 F.2d at 569.

Case law is clear that "a stipulation of counsel originally

designed to expedite the trial should not be rigidly adhered

to when it becomes apparent that it may inflict a manifest

injustice upon one of the contracting parties." Id. at 568.

Parties will usually be relieved of their stipulations where

it becomes evident that "the agreement was made under a clear

mistake." Brast v. Winding Gulf Colliery Co., 94 F.2d 179,

180 (4th Cir. 1938).

Relief from erroneous stipulations is especially

favored where the mistake made concerns a legal conclusion.

Saviano, 765 F.2d at 645. "[P]arties may not stipulate to

the legal conclusions to be reached by the court." Id.; see

also Swift & Co. v. Hocking Valley Ry. Co., 243 U.S. 281,

289-90 (1917); O'Connor v. City and County of Denver, 894

F.2d 1210, 1225-26 (10th Cir. 1990)(citing Platt v. United

States, 163 F.2d 165, 168 (10th Cir. 1947)); C.C. Gunn v.

United States, 283 F.2d 358, 364 (8th Cir. 1960); In re

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Dawson, 162 B.R. 329, 334 (Bankr. D. Kan. 1993). Issues of

law are the province of courts, not of parties to a lawsuit,

individuals whose legal conclusions may be tainted by self-

interest. Courts, accordingly, "are not bound to accept as

controlling, stipulations as to questions of law." Estate of

Sanford v. Commissioner, 308 U.S. 39, 51 (1939); accord

Dedham Water Co., Inc. v. Cumberland Farms Dairy, Inc., 972

F.2d 453, 457 (1st Cir. 1992) (citing RCI Northeast Servs.

Div. v. Boston Edison Co., 822 F.2d 199, 203 (1st Cir. 1987);

In re Scheinberg, 132 B.R. 443, 444, aff'd, 134 B.R. 426

(Bankr. D. Kan. 1992).

We review this appeal de novo because we are

persuaded that TIFCU's erroneous stipulation that federal

credit unions are not government units concerned a matter of

law, not of fact. See Compagnie De Reassurance v. New

England Reinsur., 57 F.3d 56, 71 (1st Cir. 1995), cert.

denied, -- S.Ct. --, 64 U.S.L.W. 3250 (Dec. 4, 1995).

Appellate courts review bankruptcy court findings of fact

under the clearly erroneous standard, but subject legal

conclusion drawn by such courts to de novo review. See

Western Auto Supply Co. v. Savage Arms, Inc. (In re Savage

Indus., Inc.), 43 F.3d 714, 719-20, n.8 (1st Cir. 1994); In

re Comer, 723 F.2d 737, 739 (9th Cir. 1984); see also Inwood

Lab., Inc. v. Ives Lab., Inc., 456 U.S. 844, 855 n. 15

(1982)(citing United States v. Singer Mfg. Co., 374 U.S. 174,

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194 n. 9 (1963)); accord Cumpiano v. Banco Santander Puerto

Rico, 902 F.2d 148, 153 (1st Cir. 1990). Whether Congress

meant to include federal credit unions within the meaning of

the term "government unit" has not previously been addressed

by this court, but is, otherwise, a garden-variety legal

question, one courts are regularly called upon to answer. It

primarily requires us to consider not facts, but law and

various legal authorities -- i.e., federal statutes; case

law; and legislative history. To the extent, if at all,

factual considerations enter our analytical picture, it will

be only to help us reach the proper legal conclusion on the

question now before us. TIFCU's erroneous stipulation does

not bind this appeal.

No injustice flows from our decision to relieve

TIFCU from the burden of its erroneous stipulation. See

Marshall, 593 F.2d at 568. Debtor's position, admittedly, is

not aided by our decision to set TIFCU's stipulation aside.

We think it fairly obvious though, that a far greater harm

would be effectuated by allowing that stipulation to stand.

Important federal bankruptcy and loan policies are at stake

in this litigation, not merely DelBonis's personal financial

difficulties, however unfortunate and burdensome they may be.

It was error for the bankruptcy court to refuse to allow

TIFCU to amend the Agreed Statement of Facts.

B. Appeals and Lower Court Error
B. Appeals and Lower Court Error

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Having concluded that the issue of whether federal

credit unions qualify as government units under 11 U.S.C.

523 (a)(8) remains an open issue, we move on to consider a

second, but not unrelated, procedural question: Does the

district court's decision not to evaluate TIFCU's appeal from

the bankruptcy court's denial of its Motion to Amend the

Agreed Statement of Fact preclude us from addressing that

issue? The answer to this question is an unqualified no. A

district court's failure to decide an issue raised by a party

and adequately supported by the facts contained in the record

does not move that issue beyond an appellate court's purview.

Estate of Soler v. Rodriguez, 63 F.3d 45, 53 (1st Cir. 1995)

(citing Willhauck v. Halpin, 953 F.2d 689, 704 (1st Cir.

1991).

In this circuit, "[a]n appellate court is not

limited to the legal grounds relied upon by the district

court, but may affirm on any independently sufficient

grounds." Id.; see also Polyplastics, Inc. v. Transconex,

Inc., 827 F.2d 859, 861 (1st Cir. 1987); Casagrande v.

Agonitsas, 748 F.2d 47, 48 n. 1 (1st Cir. 1984)(per curiam).

While it is axiomatic that, except in exceptional

circumstances, parties may not surprise appellate courts with

new issues, we do not find ourselves faced with a situation

in which a party has conjured up an issue for appellate

review without first presenting it to the trial court. See

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Johnston v. Holiday Inns, 595 F.2d 890, 894 (1st Cir. 1979);

see also Teamsters, Chauffers, Warehousemen & Helper's Union,

Local No. 59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st

Cir. 1992); McCoy v. Massachusetts Institute of Technology,

950 F.2d 13 (1st Cir. 1991), cert. denied, 504 U.S. 910

(1992) ("It is hornbook law that theories not raised squarely

in the district court cannot be surfaced for the first time

on appeal."). TIFCU raised the issue of its status as a

government instrumentality on two separate occasions. Its

effort to amend the Agreed Statement of Facts and to,

thereby, correct the erroneous legal conclusion that federal

credit unions are not government units, coupled with its

appeal of the bankruptcy court's denial of that motion,

preserved the issue for our review.

TIFCU has fulfilled its obligation to squarely

raise those issues most pertinent to the resolution of its

entire case. See id. We think it worth noting, however,

that we would be able to reach the issue of whether federal

credit unions are governmental units even if TIFCU had done

nothing. Contrary to what debtor might have us believe, the

rule that binds parties to their arguments is not inflexible.

Johnston, 595 F.2d at 894. "[A]ppellate court[s] ha[ve]

discretion, in . . . exceptional case[s], to reach virgin

issues." United States v. La Guardia, 902 F.2d 1010, 1013

(1st Cir. 1990); United States v. Mercedes-Amparo, 980 F.2d

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17, 18-19 (1st Cir. 1992); ; accord Singleton v. Wulff, 428

U.S. 106, 121 (1976); G.D. v. Westmoreland School District,

930 F.2d 942, 950 (1st Cir. 1991) (holding that in

exceptional circumstances appellate courts may review issues

of law inadequately raised at trial); United States v.

Krynicki, 689 F.2d 289, 291-92 (1st Cir. 1989).

Our recent decision, National Ass'n of Social

Workers v. Harwood, No. 95-1090, slip op. at 9 (1st Cir.

November 13, 1995), stands for the proposition that cases

involving important constitutional or governmental issues may

be exceptional and, as such, there should be a full treatment

of all legal issues involved, whether squarely introduced by

the parties or not. See Baybank-Middlesex v. Raylar

Distributors, Inc., No. 95-1623, slip op. at 5 (1st Cir.

November 7, 1995); cf. Lebron v. Nat'l R.R. Passenger Corp.,

115 S. Ct. 961, 965 (1995) (permitting a party to raise an

issue it expressly disavowed and did not raise until after

certiorari was granted)("parties . . . [will] not [be]

limited to the precise arguments they made below"). National

Ass'n of Social Workers addressed the constitutionality of

Rhode Island House of Representatives Rule 45, banning

"lobbyist and lobbying from the floor of the House while the

House is in session . . . ." Id. at 2. The district court

held that Rule 45 violated the free speech clause of the

First Amendment. We reversed the district court, holding

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that legislative immunity thwarted the constitutional attack,

even though that issue had not previously been raised by

either of the parties. We departed from the rule limiting

parties to their lower court arguments because we recognized

the issue presented by the case as important, "of great

public moment." Id. at 11. It implicated matters "as basic

as "federalism, comity, and respect for the independence of

democratic institutions." Id. National Ass'n of Social

Workers makes us doubly certain of the procedural propriety

of deciding this case. The present case fits squarely into

the mold cast by National Ass'n of Social Workers and the

cases we have deemed "exceptional" in the past. See United

States v. La Guardia, 902 F.2d 1010, 1013 (1st Cir. 1990);

United States v. Krynicki, 689 F.2d 289, 291-92 (1st Cir.

1982). We are convinced that a miscarriage of justice would

be worked by a failure to address the governmental status of

federal credit unions because the governmental issues that

question implicates are so important. The continued

viability of educational loan programs and the stability of

federal credit unions impact the health of the national

economy and the country's educational system. As we

indicated in the previous section, whether federal credit

unions qualify as government units under Section 523(a)(8) is

"strictly a question of law" and can be resolved on the basis

of the existing record. La Guardia, 902 F.2d at 1013. It

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requires no additional factfinding or further argument; the

parties are not prejudiced in any way by the lack of another

opportunity to reargue their case.

We think it likely that questions about the

government unit status of federal credit unions will

resurface in future cases, in virtually "identical terms."

Id. The dischargeability of loans under Section 523(a)(8)

continues to be a heavily litigated area. Finally, we are

convinced that the result achieved by the district court was

correct. And "[i]n the review of judicial proceedings . . .

[it] is settled that, if the decision below is correct, it

must be affirmed, although the lower court relied upon a

wrong ground or gave a wrong reason." Helvering v. Gowan,

302 U.S. 238, 245 (1937). We can identify no legitimate

reason to decline to chart the alternative course we see in

this case. Additionally, we are certain that remanding at

this point in the case would be a colossal waste of judicial

resources. See Securities and Exchange Commission v. Chenery

Corporation, 318 U.S. 80, 88 (1943). Nothing would be gained

by asking the district court to reinstate its holding and to

tackle a legal question which falls well within our current

power to formulate. Id. Accordingly, we proceed.

C. Are Federal Credit Unions Federal
C. Are Federal Credit Unions Federal

Instrumentalities?
Instrumentalities?

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The term "government unit," as employed in 11

U.S.C.

523 (a)(8), means: "United States; State; Commonwealth;

District; Territory; municipality; foreign state; department,

agency, or instrumentality of the United States, . . . a

State, a Commonwealth, a District, a Territory, a

municipality, or a foreign state; or other foreign or

domestic government." 11 U.S.C. 101. Legislative history

suggests that Congress intended to "'defin[e] 'government

unit' in the broadest sense." H. Rep. No. 95-595, 95th

Cong., 1st Session (1977), reprinted in App. 2 Collier on

Bankruptcy, pt. II, at 311 (Lawrence P. King, ed., 15th ed.

1995). We think it evident, based on this, that 11 U.S.C.

101 encompasses federal credit unions as federal

instrumentalities, but refrain from making a categorical

holding to that effect at this juncture. The legislative

history indicates that Congress meant to temper its

exhortation to define broadly. According to that history, we

must demonstrate that federal credit unions have an active

relationship with the federal government, that they carry out

some governmental function. Id. "'[I]nstrumentality' does

not include entities that owe their existence to State action

such as the granting of a charter or a license, but that have

no other connection with a State or local government or the

Federal Government. Id.

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Whether federal credit unions are federal

instrumentalities, thus, depends on the types of functions

such organizations perform. We are aware of no settled

process for assessing the governmental character of a

particular function or service. In the area of federal

instrumentality decisions, we lack the advantage of any

bright line rules or tests. Federal Reserve Bank of Boston

v. Comm'r of Corporations and Taxation, 499 F.2d 60, 64 (1st

Cir. 1974); see also United States v. Michigan, 851 F.2d at

806 (citing Dep't of Employment v. United States, 385 U.S.

355, 358-59 (1966) ("[T]here is no simple test for

ascertaining whether an institution is so closely related to

government activity as to become a tax-immune

instrumentality"). As a result, we rest our decision on a

combination of statutory interpretation, case law, and

consideration of the factors relevant to federal

instrumentality determinations.

Perhaps the most "significant factor in determining

whether a particular entity is a federal instrumentality is

whether it performs an important government function."

United States v. Michigan, 851 F.2d 803, 806 (6th Cir. 188);

see also Federal Land Bank v. Bismarck Lumber Co., 314 U.S.

95 (1941). In response to devastating Depression era losses

-- failed banks; high interest rates; diminished credit

opportunities -- Congress created scores of federal

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22

organizations and corporations designed to stabilize the

national economy and pursue other governmental ends. See

generally Lebron, 115 S. Ct. at 969-71 (detailing the history

of federal corporations in the United States and explaining

that even the denial of federal instrumentality status in

enabling legislation is not dispositive in federal

instrumentality determinations); see also Reconstruction

Finance Corporation, 306 U.S. at 391, n.3 (listing federal

credit unions among a list of forty corporations Congress

provided to discharge governmental functions). As part of

this rehabilitative effort, the Congress created federal

credit unions by enacting the Federal Credit Union Act, 12

U.S.C. 1751 et seq., in 1934.

The express purpose of the Federal Credit Union

Act, articulated in its long title, was: "[T]o establish a

Federal Credit Unions System, to establish a further market

for securities of the United States and to make more

available to people of small means credit for provident

purposes through a national system of cooperative credit,

thereby helping to stabilize the credit structure of the

United States." 12 U.S.C. 1751, reprinted in Credit Union

National Association, Inc., Legislative History of the

Federal Credit Union Act: A Study of the Historical

Development From 1934 to 1980 of the Statute Governing

Federal Credit Unions;" see also Branch Bank & Trust v. Nat'l

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23

Credit Union Admin. Bd., 786 F.2d 621, 625-26 (4th Cir.

1986), cert. denied, 479 U.S. 1063 (1987). In effect, the

Federal Credit Union Act created a localized and liberalized

system of federal credit services. It modeled that system on

the strong network of state and local credit unions already

established at the time. That network started functioning in

the early twentieth century, with the occurrence of two

important events, the founding of the first United States-

based credit union, La Caisse Populaire, in 1908 and the

enactment of the first comprehensive credit union statute,

the Massachusetts Credit Union Act, Mass. Gen. L. ch. 171,

1 et seq., in 1909. See La Caisse Populaire, 563 F.2d at

505; J. Moody and G. Fite, The Credit Union Movement:

Origins and Development 1850 to 1980 19-31 (2d ed. 1984).

This history demonstrates that federal credit

unions were intended to perform a variety of governmental

functions. Our research establishes that they still do.

Federal credit unions enable the federal government to make

credit available to millions of working class Americans.

These organizations, often described as "cooperative

association[s] organized . . . for the purpose of promoting

thrift among [their] members and creating a source of credit

for provident or productive purposes, 12 U.S.C. 1752,

provide credit at reasonable rates to millions of individuals

who -- because they lack security or, as recent studies show,

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24

reside in low income areas or in communities primarily

inhabited by racial minorities -- would otherwise be unable

to acquire it. Cf. United States v. Michigan, 851 F. 2d at

806; see also Federal Credit Union Handbook, at iii; Anthony

D. Taibi, Banking, Finance, and Community Economic

Empowerment: Structure, Economic Theory, Procedural Civil

Rights, and Substantive Racial Justice, 107 Harv. L. Rev.

1463 (1994) (describing impact of redlining and credit

discrimination on local communities ). Because large

financial entities generally refuse to extend credit to

individuals without traditionally accepted forms of

collateral, entities offering usurious interest rates are too

often the only other viable source of credit for many working

class people. See Branch Bank & Trust, 786 F.2d at 621

(outlining formation of credit unions in response to entities

offering usurious rates).

Nevertheless, the functions performed by federal

credit unions are not limited to broadening the availability

of credit in the United States. Federal credit unions are

authorized to perform many other governmental functions. To

begin, the Federal Credit Union Act authorizes them to issue

loans and dividends to their members. 12 U.S.C. 1757; see

also 12 U.S.C. 1763. It also authorizes federal credit

unions to invest their funds in obligations of the United

States; invest in securities; or make deposits in national

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25

banks. Id. Indeed, federal credit unions serve as fiscal

agents of the United States and depositories for public

monies. United States v. Maine, 524 F. Supp. at 1059; see

also United States v. Michigan, 635 F. Supp 944, 947

(W.D.Mich. 1985), aff'd, 851 F.2d 803 (6th Cir. 1988); 12

U.S.C. 1767(a) ("Each Federal credit union organized under

this chapter . . . shall act as fiscal agent of the United

States . . . [and] [a]ny Federal credit union . . . shall be

a depository of public money . . . .").

Such functions have properly been regarded as

important governmental functions by other courts. In Smith

v. Kansas City Title & Trust Co., 255 U.S. 180 (1921), the

United States Supreme Court acknowledged that employment as a

fiscal agent of the United States and service as a depository

for public monies fulfilled important government purposes.

255 U.S. at 209-11. Smith exempted farm loans from state

taxation because of the governmental functions federal land

banks performed and, concomitantly, held that Congress acted

within its constitutional authority when it enacted the

Federal Farm Loan Act, 39 Stat. 360, as amended by Jan. 18,

1918, 40 Stat. 431. The Farm Loan Act established federal

land banks and joint-stock land banks. Id.

In the two decades following the Smith decision,

the Court held that federal land banks operated as government

instrumentalities on three separate occasions. See Federal

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26

Land Bank of Columbia S.C. v. Gaines, 290 U.S. 247 (1933);

Federal Land Bank of St. Louis v. Briddy, 295 U.S. 229

(1935); and Federal Land Bank of St. Paul v. Bismarck Lumber

Co., 314 U.S. 95 (1941). In Federal Land Bank of St. Paul v.

Bismarck Lumber Co., 314 U.S. 95 (1941), the Court explained

the reasons for this conclusion and emphasized that federal

land banks performed the important governmental purpose of

extending credit, at low interest rates, to farm borrowers.

314 U.S. at 100. Federal credit unions indisputably provide

a similar service and reach, by definition, a much "broader

cross-section of the nation's citizens." United States v.

Michigan, 851 F.2d at 806.

More recently, in 1988, the Sixth Circuit embraced

the Supreme Court's conclusions about the governmental

importance of extending credit, functioning as a fiscal agent

of the United States, and extending credit at low interest

rates. In United States v. Michigan, 851 F.2d 803 (6th Cir.

1988), the Sixth Circuit found that federal credit unions are

government instrumentalities precisely because they perform

such functions. 851 F.2d at 806-07. The court explained

that, "[b]ecause of the important governmental functions

performed by federal credit unions, . . . we hold that

federal credit unions are federal instrumentalities." Id. at

807. The court then went on to hold that the Supremacy

Clause and 12 U.S.C. 1768 immunize federal credit unions

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27

from state taxation. Id.; see also United States v. Maine,

524 F. Supp. 1056 (D. Me. 1981) (holding that state tax on

federal credit unions violated the Supremacy Clause and the

Federal Credit Unions Act because federal credit unions are

federal instrumentalities).

We appreciate, as debtor pointed out below, that

private institutions deliver many of the services performed

by federal credit unions. In the more than sixty years since

the Federal Credit Union Act's passage, federal credit unions

have, undeniably, increased in number and significantly

expanded the services they provide. Today, these

institutions offer an increasingly complicated and complex

array of financial services. United States v. Michigan, 851

F.2d at 805; see generally Federal Credit Union Handbook,

supra at 11-14.

We firmly reject, however, debtor's argument that

this fact militates against a finding in TIFCU's favor. That

federal credit unions now have the capacity to compete on

quasi-equal footing with other financial institutions does

not alter our conclusion that they perform a predominantly

governmental purpose. We echo the district court's insight

that "the extent to which a federal credit union resembles a

bank should [not] be determinative of the issue before the

court." TI Federal Credit Union, 183 B.R. at 4. We also

note that internal characteristics, such as limitations on

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membership and location, distinguish federal credit unions

from proprietary institutions such as banks. Banks, with few

exceptions, may do business wherever and with whomever they

wish. Federal credit unions, in contrast, must limit their

memberships and, therefore, business operations, to "groups

having a common bond of occupation or association, or to

groups within a well-defined neighborhood, community, or

rural district." 12 U.S.C. 1759.

Finally, we, like our colleagues on the Sixth

Circuit, find two additional features federal credit unions

share conclusive -- tax exemption and governmental

regulation. Congress, in exempting federal credit unions

from federal income taxation, has expressed the view that

federal credit unions serve several unique governmental

purposes and are, therefore, different from banks. Section

501(c)(1)(A) of the Internal Revenue Code provides an

exemption for "[a]ny corporation organized under Act of

Congress which is an instrumentality of the United States . .

. if such corporation is exempt from Federal income taxes

under such Act as amended and supplemented before July 18,

1984 . . . ." 26 U.S.C. section 501(c)(1)(A)(i)." Because

the Federal Credit Union Act expressly provides federal

credit unions an exemption from federal, as well as state,

territorial, or local taxation, federal credit unions fall

within the parameters of this provision. Cf. La Caisse, 563

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29

F.2d at 509; see 12 U.S.C. 1768; see also Rev. Rul. 55-133,

superseded by Rev. Rul. 60-169 ("Federal credit unions are

recognized as instrumentalities of the United States within

the meaning of section 501(c)(1) of the Internal Revenue

Code"); Rev. Rul. 60-169 ("Federal Credit Unions organized

and operated in accordance with the Federal Credit Union Act

are recognized as instrumentalities of the United States

within the meaning of section 501(c)(1) of the Code"); Bruce

R. Hopkins, The Law of Tax-Exempt Organizations 323-24, n. 1

(1983).

This tax exemption strengthens our view that

Congress regards federal credit unions in a special light.

By this, we do not mean to suggest that a necessary

correlation exists between federal instrumentality status and

tax exemption. The Internal Revenue Code itself belies the

value in drawing such an inference, for it also provides an

exemption for state credit unions under Section 501. Yet,

such entities clearly are not federal instrumentalities.

The manner in which Congress exempted federal

credit unions from taxation is, however, significant.

Congress did not treat federal and state credit unions alike;

it addressed federal and state credit unions in entirely

different sections of the Internal Revenue Code. La Caisse,

563 F.2d at 509. State credit unions are exempted under

Section 501(c)(14), whereas, federal credit unions are

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30

exempted under Section 501(c)(1). Id. Section 501(c)(14),

unlike Section 501(c)(1), neither mentions federal

instrumentalities nor draws a direct relationship between the

federal government and the services provided by state credit

unions. These aspects of the tax exemption federal credit

unions receive support our belief that Congress regards

federal credit unions as federal instrumentalities.

The imprimatur Congress places on federal credit

unions by way of tax exemption is not the only additional

feature which convinces us of federal credit unions' special

status. Extensive government regulation further

distinguishes federal credit unions from ordinary proprietary

organizations. The NCUA administers programs and promulgates

regulations for credit union chartering, membership, and

governance in accordance with the Administrative Procedure

Act, 5 U.S.C.A. 551 et seq. See 12 U.S.C. 1752a; see

also 12 C.F.R. 701.1, 708, 709, 710; National Credit Union

Administration, Chartering and Field of Membership Manual

(1994). It promulgates regulations concerning credit

practices, 12 C.F.R. Part 706; dissemination of savings

program information, 12 C.F.R. 707.0-06; payment of

dividends, 12 C.F.R. 707.7; and inter alia, insurance and

group purchasing plans, 12 C.F.R. Part 721. Finally, not

unlike other executive branch agencies, the NCUA issues

revised rulings which provide guidance to credit unions

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31

operating in the field. See 12 C.F.R. Ch. VII (1-1-95

Edition).

The decentralized system in which federal credit

unions operate does not minimize the significance of NCUA's

regulatory acts, the weight to be accorded the Federal Credit

Union Act's careful delineation of federal credit union

powers, or the significance of the other statutes governing

federal credit union activities. See e.g. Truth in Lending

Act, 15 U.S.C. 1601 et seq.; Equal Credit Opportunity Act,

15 U.S.C. 1601 et seq.; Fair Credit Reporting Act, 15

U.S.C. 1681 et seq.; Home Mortgage Disclosure Act, 12

U.S.C. 2801; and the Fair Debt Collection Practices Act, 15

U.S.C. 1692 et seq. Federal credit unions do not, a

fortiori, wield powers akin to those employed by banks

because they are member-owned and authorized, through their

individual boards of directors, to develop guidelines for

their operation or independently make decisions about the

services they provide. Cf. United States v. California Bd.

of Equalization, 2 Ca. State Tax Rep. (CCH), 400-071,

aff'd, 709 F.2d 1518 (9th Cir. 1983). Any suggestion that

they do misses, what the Supreme Court, in Federal Land Bank

v. Bismark, regarded as a fundamental point: "[t]he federal

government is one of delegated powers, and from that it

necessarily follows that any constitutional exercise of its

delegated powers is governmental." 314 U.S. at 102. We

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32

refuse to penalize federal credit unions for successfully

performing the governmental functions assigned them. And,

therefore, we find that increases in the number of federal

credit unions and improvements in federal credit union

services indicate that the Federal Credit Union Act's goal of

providing credit at reasonable rates is being met. See

United States v. Michigan, 851 F.2d at 806.

We hold, moreover, that performance of governmental

functions, exemption from federal tax, and extensive

government regulation are compelling indicia of federal

instrumentality status. In the past, such factors have

persuaded this court to make a finding of government

instrumentality status. In Federal Reserve Bank of Boston v.

Comm'r of Corporations and Taxation of the Commonwealth of

Massachusetts, 499 F.2d 60 (1st Cir. 1974), for example, we

recognized federal reserve banks as federal instrumentalities

on the basis of characteristics shared, in large part, by

federal credit unions. Two characteristics of federal credit

unions, acting as a depository for public monies and serving

as a fiscal agent of the United States, figured prominently

in our analysis. 499 F.2d 60, 62.

Similarly, in United States v. State Tax Comm'n,

481 F.2d 963 (1st Cir. 1973), we concluded that federal

savings and loans associations are federal instrumentalities.

481 F.2d at 969; see also Federal Reserve Bank of Boston, 499

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33

F.2d at 62. That case, like Federal Reserve Bank of Boston

and many of the other cases involving questions of federal

instrumentality status, concerned the validity of state taxes

imposed on federal entities. See, e.g., United States v.

Michigan, 851 F.2d at 803; Keifer and Keifer v.

Reconstruction Finance Corp., 306 U.S. 381, 390 n.3 (1939);

United States v. Maine, 524 F.Supp. at 1056; United States v.

California Bd. of Equalization, 2 Ca. State Tax Rep. (CCH),

400-071, aff'd, 709 F.2d at 1518. We held that a

Massachusetts tax imposed an impermissible burden on federal

savings and loans because it provided a deduction for

governmental institutions that were very similar to federal

loan associations, but not for federal credit loan

associations themselves. 481 F.2d at 963. In reaching our

decision that such organizations are federal

instrumentalities, we noted that federal savings and loans

are federally created banks, chartered and regulated by an

executive branch entity, the Federal Home Loan Board, and

that "they serve the statutory purpose of providing 'local

mutual thrift institutions in which people may invest their

funds and . . . for the financing of homes, . . . [a]

purpose . . . said to affect the welfare of the nation as a

whole." 481 F.2d at 967-78. Federal credit unions have

similar characteristics and purposes.

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In United States v. State Tax Comm'n, we,

admittedly, indulged the argument that credit unions and

federal savings and loans can be distinguished. But, few, if

any, inferences can be drawn from our recognition of such

distinctions because United States v. State Tax Comm'n

involved state, not federal, credit unions. State credit

unions are altogether different entities; unlike federal

credit unions, they are neither chartered under the Federal

Credit Union Act, nor regulated by the NCUA.

It does not, of course, follow that no differences

between federal credit unions and federal savings

institutions exist. The United States Supreme Court has

itself held that federal credit unions and federal loan

associations are "far from identical." First Federal Sav.

and Loan Ass'n of Boston v. State Tax Comm'n, 437 U.S. 255,

260 (1978). The basis for its holding, however, rested on

the assumption that federal credit unions are more closely

tied to the government and its functions than federal loan

associations, not less. As the Court noted when it

considered some of the same issues we addressed in United

States v. State Tax Comm'n: Congress has "long treated

federally chartered credit unions differently [and more

favorably than] . . . federally chartered savings and loan

associations." 437 U.S. at 260. This special treatment is

evident in the tax exemptions exclusively afforded federal

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credit unions and insurance programs designed to protect

federal credit union deposits.

We think it plain that federal credit unions are,

as a general matter, federal instrumentalities. Our

statement in Northeast Federal Credit Union v. Neves, 837

F.2d 531 (1st Cir. 1988), that federal credit unions are not

federal agencies does not detract from this conclusion. The

principles addressed in that case are not directly relevant

here. Furthermore, we make no effort to liken federal credit

unions to government agencies; we are persuaded only that

they are government instrumentalities, lesser in scope and in

responsibility than actual government agencies.

D. Is Treating TIFCU As A Governmental Unit Consistent
D. Is Treating TIFCU As A Governmental Unit Consistent
With the Purposes of the Statute?
With the Purposes of the Statute?

Our analysis in this case does not end with our

conclusion that federal credit unions are government

instrumentalities. We must still resolve whether treating

federal credit unions as federal instrumentalities and, thus,

as government units, is consistent with the purposes of 11

U.S.C. section 523(a)(8). Each instrumentality must be

examined in "light of its governmental role and the wishes of

Congress as expressed in relevant legislation." Federal

Reserve Bank of Boston, 499 F.2d at 64.

It is undisputed that Section 523(a)(8) was enacted

to prevent abuses in student loan programs. In re Pelkowski,

990 F.2d at 742. Its history, which begins in 1976 with its

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36

precursor, Section 439A of the Education Amendments of 1976,

reflects a congressional intent to minimize the opportunities

to use bankruptcy as a way of avoiding repayment of student

loan debts. Id. Section 439A, which limited the

dischargeability of only guaranteed or insured educational

loans, was enacted after the 1973 Commission on the

Bankruptcy Laws of the United States described the incidence

of debtors attempting to discharge educational loan debts in

bankruptcy as "reprehensible" and a "threat to the

continuance of educational loan programs." H.R. Doc. No. 93-

137, 93d. Cong., 1st Sess., Pts. I and II (1973), reprinted

in App. 2 Collier, pt. I, at 176-77; see also Jerome M.

Organ, Good Faith and the Discharge of Educational Loans in

Chapter 13: Forging A Judicial Consensus, 38 Vand. L. Rev.

1087, 1093-97 (1985).

Section 439A was later reconsidered by the House

Subcommittee on Civil and Constitutional Rights, but the

nondischargeability policy contemplated nevertheless became

part of the Bankruptcy Reform Act of 1978 through an

amendment made to H.R. 8200. In re Pelkowski, 990 F.2d at

742. Representative Allen Ertel introduced the amendment

which eventually became Section 523(a)(8), noting that

defaults and delinquencies in federal student loan programs

increased by more than three hundred percent between 1972 and

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37

1976. H.R. No. 95-595, reprinted in App. 2 Collier, pt. II,

at 537. Representative Ertel explained:

[T]hese bankruptcies could easily destroy
the federal student loan programs . . . .
This problem cannot be permitted to
spread nationwide, because destruction of
the student loan programs would operate
to deny the benefits of higher education
to many would-be students who are
otherwise qualified for post-high school
education or training . . . . The
destruction of student loan programs
would represent a tremendous waste of one
of this nation's greatest assets, the
minds and skills of American youth.

Id. Representative Ertel's statements are noteworthy, though

admittedly not conclusive of Congress' intent, In re

Pelkowski, 990 F.2d at 743 (citing Consumer Prod. Safety

Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 118 (1980)),

because they were supported by a number of legislators. Id.

at 742-43. Both Senator DeConcini and Representative Edwards

mentioned the amendment on the floor of their respective

chambers. See id. at 742. On the House floor,

Representative Edwards also explained that "Section 523(a)(8)

represents a compromise between the House bill and the Senate

amendment regarding educational loans." 124 Cong. Rec. p. H

11096, reprinted in App. 3 Collier on Bankruptcy, pt. IX, at

101. Representative Edwards went on to clarify that Section

523(a)(8) would only make educational loans issued by

governmental units or nonprofits nondischargeable and that it

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38

would broaden the bankruptcy laws in effect at the time by

extending coverage to non- federally insured loans. Id.

In its original form, Section 523(a)(8) only

referred to loans acquired from a "governmental unit, or a

nonprofit institution of higher education for an educational

loan." Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92

Stat. 2549 (1978); see also In re Segal, 57 F.3d 342 (3rd

Cir. 1995). This version of the subsection, however, was

short-lived. Congressional efforts to limit the

dischargeability of educational loans by expanding the types

of loans or institutions covered by Section 523(a)(8)

continued after 1978. Amendments made in 1979 rewrote

Section 523(a)(8) to include "educational loan[s] made,

insured, or guaranteed by a government unit or made under any

program funded in whole or in part by a governmental unit or

a nonprofit institution of higher education". Act of August

14, 1979, Pub. L. No. 96-56, 3(1), 93 Stat. 387

(1989)(amending 11 U.S.C. 523(a)(8) (1979).

In 1984, the Bankruptcy Amendment Act of 1984

struck the phrase "of higher education," from Section (a)(8).

P.L. 98-353, section 454(a)(2). This extended the provisions

of that section to all nonprofit loan programs, not merely

those associated with an institution of higher education.

When read together, the 1979 and 1984 amendments made

nondischargeable loans issued pursuant to an educational loan

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39

program operated by a nonprofit organization or a

governmental unit and educational loans acquired from a

commercial financial institution, if such loans were insured

by a governmental unit. See In re Segal, 57 F.3d 342, 346

(3rd Cir. 1995).

Amendments made in 1990, by the Crime Control Act

of 1990, altered Section 523(a)(8) yet another time. They

expanded nondischargeability to encompass educational loans,

as well as educational benefit overpayments and obligations

to repay funds received as an educational benefit,

scholarship or stipend. Crime Control Act of 1990, Pub.L.

101-647, 3621(1), 104 Stat. 4865 (1990)(amending 11 U.S.C.

523(a)(8) (1984)). The 1990 Amendment also made it more

difficult for debtors to take advantage of the exceptions to

nondischargeability. It increased from five to seven the

number of years which must have elapsed between the date an

exception seeking debtor's loans first became due and the

filing of the bankruptcy petition. Id. at section 3621(2).

Viewed against the backdrop of the Bankruptcy Code

as a whole, Section 523(a)(8) and the amendments made to it

are aberrations from the norm. Congress drafted the

Bankruptcy Code to effectuate the "general purpose of

providing debtors with 'a new opportunity in life with a

clear field for future effort, unhampered by the pressure and

discouragement of pre-existing debt.'" In re Alibayata, 178

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40

B.R. 335, 337 (E.D.N.Y. 1995) (quoting Local Loan Co. v.

Hunt, 292 U.S. 234 (1934)). The Code, thus, was intended to

be a mechanism for liberal discharge of debt. Even Chapter

7, the Code section under which debtor currently seeks

relief, reflects that purpose by entitling debtors to "a

discharge of all debts except obligations . . . specifically

except[ed] from discharge." Jerome M. Organ, 'Good Faith'

and the Discharge of Educational Loans in Chapter 13: Forging

A Judicial Consensus, 38 Vand. L. Rev. 1087, 1093 (1985); see

also 11 U.S.C. 727(b). Section 523(a)(8), in contrast,

departs significantly from the liberal dischargeability

policy manifested in the bankruptcy laws. In re Alibayata,

178 B.R. 335, 337 (E.D.N.Y. 1995). From its inception, it

has operated as a limit on code sections such as Chapter 7,

primarily on the theory that the there are some instances in

which a creditor's interest in recovering full payment of

debts outweighs the debtor's interest in a complete fresh

start. See Grogan v. Garner, 498 U.S. 279, 287 (1991).

Thus, whereas the Bankruptcy Code focuses on the impact

financial problems have on individual debtors, Section

523(a)(8) concentrates on the impact individual debtor's have

on future educational debtors and institutional creditors,

particularly unsecured creditors like TIFCU. Cf. In re

Alibatya, 178 B.R. at 337. Section 523(a)(8) sends the clear

message that the interest in ensuring the continued existence

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41

and operation the educational loan programs of government

units and nonprofit organizations supersedes the interest in

minimizing the financial difficulties of individual debtors.

See id.; In re Merchant, 958 F.2d 738, 740 (6th Cir. 1992).

Its purpose, essentially, is to preclude certain educational

loan debtors from taking unfair advantage of the Code's

"fresh start" policy. In re Lohman, 79 B.R. 576, 580 (D. Vt.

1987).

We are convinced that treating federal credit

unions as "government instrumentalities" and, thus,

"government units," is consistent with Section 523(a)(8)'s

discharge-limiting purpose. "By enacting Section 523(a)(8),

Congress sought principally to protect government entities

and nonprofits -- places which lend money or guarantee loans

to individuals for educational purposes -- from bankruptcy

discharge." In re Segal, 57 F.3d at 348. Including federal

credit unions within the universe of entities regarded as

government units under Section 523(a)(8), in accord with this

purpose, reduces opportunities for dischargeability and

minimizes opportunities for fraud.

Without imputing any fraudulent intent to DelBonis,

we point out that narrowly construing the term "government

unit" to exclude federal credit unions would create a

perverse incentive for educational debtors. A definition of

"government unit" which excludes federal credit unions would

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42

encourage debtors to circumvent nondischargeability

provisions by taking all their school loans out with federal

credit unions or, as in the present case, having a family

member do so. Educational loan programs could be decimated

by this and millions of students, individuals probably not

unlike the members of debtor's family who benefitted from his

dealings with TIFCU, would ultimately be precluded from

pursuing opportunities in higher education. See H.R. No. 95-

595, reprinted in App. 2 Collier, pt. II, at 537 (Remarks of

Representative Ertel).

This result clearly would be in conflict with the

legislative goals manifested in Section 523(a)(8). And we

note, though it does not bear directly on our interpretation

of Section 523(a)(8), that it would undermine the Federal

Credit Union Act as well. One of the Federal Credit Union

Act's primary goals is to "make more available to people of

small means credit for provident purposes." 12 U.S.C. 1751

et seq. Allowing educational loans issued by federal credit

unions to be freely discharged in bankruptcy could devastate

many federal credit unions. Because loans comprise the major

part of the federal credit union investments, it would

drastically decrease opportunities for working class people

to obtain credit. Federal credit unions, as mutual thrift

institutions, rely on members like DelBonis to repay the

debts they accrue, even if those debts are incurred on behalf

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43

of a non-member relative. Cf. In re Wilcon, 143 B.R. 4 (D.

Mass. 1992) (holding Section 523(a)(8) includes debt of

parent taken out on behalf of a child).

We think it extremely unlikely that Congress

ascribed a meaning to "government unit" which would frustrate

not one, but two of its legislative enactments. Therefore,

we hold that, federal credit unions are government units

within the purpose and meaning of 11 U.S.C. 523(a)(8).

Absent the applicability of one or both of Section

523(a)(8)'s exceptions, the loans debtor obtained from TIFCU

are nondischargeable. This case is remanded to the

bankruptcy court for a determination of whether either of the

exceptions to Section 523 (a)(8) nondischargeability are

applicable in this case.

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