United States District Court, D. South Carolina
from the United States Bankruptcy Court For the District of
South Carolina (Hon. John E. Waites)
ORDER AND OPINION
Margaret B. Seymour Senior United States District Judge
an appeal of an order awarding attorney's fees with
respect to a motion to enforce a bankruptcy plan. A
bankruptcy court has the power to hold a litigant in contempt
and sanction it for violating the court's orders pursuant
to 11 U.S.C. § 105(a), which provides:
court may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this
title. No. provision of this title providing for the raising
of an issue by a party in interest shall be construed to
preclude the court from, sua sponte, taking any action or
making any determination necessary or appropriate to enforce
or implement court orders or rules, or to prevent an abuse of
LaDeidra Antoinette Berry (“Debtor”) is obligated
on student loans held by the United States Department of
Education (“DOE”) and served by Appellant
Pennsylvania Higher Education Assistance Agency
(“PHEAA”), d/b/a FedLoan Servicing. Debtor was
enrolled in an income-driven repayment (“IDR”)
plan, which allows a borrow to make payments based on income;
and the Public Service Loan Forgiveness (“PSLF”)
program, which provides for forgiveness of student loan debt
for borrowers employed full time in public service positions.
March 25, 2016, Debtor filed for relief under Chapter 13 of
the Bankruptcy Code. Debtor's proposed Chapter 13 plan
provided for Debtor to pay PHEAA directly, rather than
through the bankruptcy trustee. Debtor had made 43 qualifying
pre-petition payments toward the 120 qualifying payments
required under the PSLF. Debtor's intent was to maintain
her student loan payments under the IDR plan and PSLF program
in order to continue to accrue the benefits of that
arrangement. The Honorable John E. Waites entered an order
confirming the plan on May 9, 2016.
placed Debtor's loan in administrative forbearance, as
required by applicable law. On June 14, 2016, PHEAA filed a
proof of claim on behalf of DOE in the amount of $97, 009.87.
However, PHEAA discontinued applying Debtor's payments in
accordance with the IDR plan and PSLF program. Counsel for
Debtor contacted PHEAA, and was informed that Debtor was not
eligible for the PSLF program until the bankruptcy was
concluded. PHEAA further informed counsel that, because the
loan was in administrative forbearance, any payments made
were voluntary and not considered to be qualifying payments
under the PSLF.
October 3, 2016, Debtor filed an amended Chapter 13 plan that
provided, in relevant part:
F. Student Loan Claims: As indicated on Schedule J, the
Debtor will pay this creditor directly; this creditor will
not share in the pro rata distribution from the Trustee:
FedLoan Servicing [PHEAA]. If this claim is filed by any
other entity or account number, Debtor will be responsible to
notify the Trustee or Trustee may make disbursements on the
claim pursuant to IV.E. above. Debtor agrees that if she
signs a certification of plan completion, she will be
certifying that all contractual payments that come due to
this creditor have been made through the date of
The debtor is not seeking nor does this Plan provide for any
discharge, in whole or in part, of her student loan
The Debtor shall be allowed to seek enrollment, or to
maintain any pre-petition enrollment, in any applicable
income-driven repayment (“IDR”) plan with the
U.S. Department of Education and/or other student loan
servicers, guarantors, etc. (collectively referred to
hereafter as “Ed”), including but not limited to
the Public Service Loan Forgiveness program, without
disqualification due to her bankruptcy. Any direct payments
made by the Debtor to Ed since the filing of her petition
shall be applied to any IDR plan in which the Debtor was
enrolled pre-petition, including but not limited to the
Public Service Loan Forgiveness program.
Ed shall not be required to allow enrollment in any IDR
unless the Debtor otherwise qualifies for such plan.
The Debtor may, if necessary and desired, seek a
consolidation of her student loans by separate motion and
subject to subsequent court order.
ECF No. 2-6, 5.
bankruptcy judge entered an order confirming the amended plan
on January 20, 2017.
April 27, 2017, Debtor filed a motion to enforce. Debtor
asserted that she had continued making payments directly to
PHEAA, but that no post-petition payments had been applied to
the PSLF program. Debtor argued that PHEAA's forced
suspension of her participation in the PSLF program was in
violation of the amended plan and constituted discrimination
in violation of 11 U.S.C. § 525(c)(1). ECF No. 2-8. The
parties resolved the matter, which resolution was
memorialized in a consent order filed by the bankruptcy judge
on August 29, 2017. The consent order provided that all
post-petition student loan payments made by Debtor would be
applied to her IDR plan and PSLF program and that her loan
balance would be recalculated. The order further provided
that Debtor had not waived her right to attorney's fees.
The consent order was signed by counsel for Debtor, DOE, and
PHEAA. ECF No. 2-15.
September 28, 2017, Debtor moved for attorney's fees
against DOE pursuant to the Equal Access to Justice Act
(“EAJA”), 28 U.S.C. § 2412(d); and against
PHEAA under 11 U.S.C. § 105. With respect to PHEAA,
Debtor asserted that its pre-litigation and post-litigation
conduct violated the bankruptcy judge's order confirming
the Debtor's Chapter 13 plan. Debtor argued that the
bankruptcy judge possessed power under § 105 to sanction
where it is necessary to prevent abuse of the judicial
system. ECF No. 2-16, 1-4.
bankruptcy judge held a hearing on October 26, 2017, at which
he was informed that Debtor had incurred attorney's fees
of approximately $12, 574.00, not including fees for time
expended on the hearing. Tr. of Hearing, ECF No. 8-3, 6. The
bankruptcy judge further was informed that DOE had settled
with Debtor for $6, 000.00, and that she sought the balance
of attorney's fees from PHEAA. Id. at 6-9.
PHEAA asserted that the confirmed plan was contrary to law,
that being the requirement that student loans in bankruptcy
must be placed in forbearance. Tr. of Hearing, ECF No. 8-2,
92; see 34 C.F.R § 682.402(f)(2). Relying on United
Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260
(2010), PHEAA argued that the confirmation order was void, so
that PHEAA was not required to conform to the terms of the
Chapter 13 plan or confirmation order. Id.
PHEAA stated that it had no record of having received the
amended plan, and that, in any event, PHEAA had received no
guidance from DOE as to applying income-based repayment plan
(“IBR”) payments to a student loan in forbearance.
Id. at 94-95.
hearing, PHEAA called Katelynn Marie Bias, manager of the
bankruptcy and disability document processing unit at PHEAA,
to testify. ECF No. 8-3, 11. Ms. Bias testified that the
contract and Common Manual between DOE and PHEAA required PHEAA,
as appropriate, to place loans into bankruptcy status,
prepare the proof of claim, and assist in defending the loan
against a bankruptcy discharge. Id. at 15. Ms. Bias
testified that payments received when a loan is in bankruptcy
status are applied to interest and principal. Id. at
20. Ms. Bias testified that DOE had given no directive with
regard to income-driven repayment, income based repayment, or
public service loan forgiveness. Id. at 22.
According to Ms. Bias, PHEAA has no authority to appear in
court on behalf of DOE, to file an objection to a bankruptcy
plan on behalf of DOE, or to retain lawyers and appear in
court to make arguments with regard to a bankruptcy plan.
Id. at 25. Ms. Bias testified that her office had
received the initial Chapter 13 plan, but had never received
the amended plan. Ms. Bias also testified that, had her
office received the amended Chapter 13 plan, someone would
have reached out to DOE for guidance as to how to handle
Debtor's request for the IBR plan and PSLF program.
Id. at 32.
for Debtor argued that Debtor repeatedly had contacted PHEAA
in an attempt to have her student loans qualified for the IBR
plan and PSLF program, but repeatedly was told by PHEAA via
both telephone and correspondence that any payments made
could not be applied toward these programs because she was in
bankruptcy. Id. at 45. Counsel stated that it had
taken a great deal of effort to obtain the August 29, 2017
consent order. Counsel also informed the ...