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.
-2-
2
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
-3-
3
"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
-4-
4
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
-5-
5
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
-6-
6
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
-7-
7
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
-8-
8
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
-9-
9
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,
-10-
10
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
-11-
11
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
-12-
12
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
-13-
13
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,
-14-
14
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
-15-
15
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
-16-
16
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
-17-
17
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
-18-
18
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
-19-
19
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?
-20-
20
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.
-21-
21
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
-22-
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
-23-
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,
-24-
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
-25-
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
-26-
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
-27-
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
-28-
28
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
-29-
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
-30-
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
-31-
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
-32-
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
-33-
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.
-34-
34
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
-35-
35
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
-36-
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
-37-
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
-38-
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
-39-
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
-40-
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
-41-
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
-42-
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
-43-
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.
-44-
44