## Facts

- Sandra Ann Chambers attended a public university from 1993 to May 1999 and incurred tuition and related fees billed to an open student account.
- She left an unpaid balance of $1,118.77 plus interest and did not execute a separate loan or credit agreement for the tuition charges.
- In October 1999, she filed a Chapter 7 bankruptcy case listing the university as an unsecured creditor; the case was a no-asset case.
- Chambers received a bankruptcy discharge in January 2000.
- After discharge, the university refused to release her transcripts and records, asserting the tuition debt was nondischargeable under 11 U.S.C. § 523(a)(8).
- Chambers filed an adversary proceeding seeking a declaration that the tuition debt was discharged.
- The bankruptcy court granted summary judgment for Chambers; the district court affirmed; the university appealed.

## Issues

1. Whether unpaid tuition and fees owed to a public university, arising from an open student account without a separate contemporaneous loan or credit agreement, constitute a nondischargeable “educational loan” under 11 U.S.C. § 523(a)(8).
2. Whether such unpaid charges fall within § 523(a)(8)’s clause covering an “obligation to repay funds received as an educational benefit, scholarship or stipend.”

## Decision

- The Seventh Circuit affirmed the judgment for Chambers.
- The court held the unpaid tuition debt was dischargeable because it was not an “educational loan” within § 523(a)(8).
- The court also held the debt did not qualify as an “obligation to repay funds received as an educational benefit” because Chambers did not receive “funds” from the university.

## Legal Principles

- Exceptions to discharge under the Bankruptcy Code are construed narrowly in favor of the debtor.
- For § 523(a)(8), a “loan” requires either (a) a transfer of funds, or (b) a separate agreement extending credit that is reached prior to or contemporaneous with the provision of educational services.
- An unpaid tuition balance on an open account, without a separate contemporaneous loan or credit agreement, is a “mere unpaid debt” rather than a nondischargeable educational loan.
- The phrase “obligation to repay funds received as an educational benefit” requires receipt of money; receipt of educational services alone is insufficient.
- Statutory interpretation should avoid readings that render other terms superfluous; interpreting “funds received” to cover all unpaid tuition would largely nullify the statute’s distinct reference to “loan.”

## Conclusion

The court held that a student’s unpaid tuition and fees owed to a public university on an open account, absent a separate contemporaneous loan or credit agreement and absent any receipt of funds, are not excepted from discharge under § 523(a)(8) and therefore are discharged in Chapter 7.


In re Chambers, 348 F.3d 650 (7th Cir. 2003)