Carpenter’s Apprentice Training Costs Non-Dischargeable as “Student Loans,” Even Though No Loans Were Made

20 Apr Carpenter’s Apprentice Training Costs Non-Dischargeable as “Student Loans,” Even Though No Loans Were Made

In re Kesler, 2009 WL 650421 (Bky.S.D.Ill. March 9, 2009), held that $29,118.18 in carpenter’s apprentice training costs were non-dischargeable as “educational loans” within the meaning of section 523(a)(8) of the bankruptcy law. The bankruptcy court rejected the debtor’s argument that because no actual monetary loans were ever made to him, his obligation to pay for the apprenticeship training he had received was not a student loan.

The debtor had received carpentry training from the Indiana/Kentucky Regional Council of Carpenters Joint Apprenticeship and Training Committee (JATC), a non-profit institution. He signed five separate agreements to repay the cost of his training through either on the job credits, or by paying immediately in cash if he obtained employment as a carpenter with an employer who was not a signatory to the JATC program.

After the debtor began working for a non-signatory carpentry firm, the JATC sued the debtor, seeking payment for the costs of his apprenticeship. The JATC was awarded a judgment by an Indiana state court. The debtor made $1,800.00 in payments toward the judgment, then filed chapter 7 bankruptcy shortly afterward. The JATC asked the bankruptcy court to rule that the apprentice costs were non-dischargeable as educational loans.

First, the bankruptcy court rejected the debtor’s claim that the Employment Retirement Income Security Act (ERISA) barred the JATC from obtaining monetary damages against him. The debtor had failed to raise ERISA as a defense in the state court lawsuit, and it was too late for him to bring it up now, under principles of res judicata.

Second, the bankruptcy court held that it was not necessary for funds to change hands in order for an obligation to repay the costs of apprenticeship training to be non-dischargeable under section 523(a)(8). It was also not necessary for the training to have been offered by an institution of higher learning. It was only necessary that an educational loan agreement existed between the debtor and the JATC. Accordingly, the apprenticeship costs were student loans that only could be discharged upon a showing of “undue hardship,” which had not been raised by the debtor as an issue in the case.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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