The Bankruptcy Court in Indiana denied the student loan creditor’s motion to compel arbitration of the debtor’s dischargeability proceeding under Code § 523(a)(8). The Roth court reasoned that the issue of dischargeability was a core matter and therefore the court had the discretion to not enforce the arbitration provision in the debtor’s promissory note if the court found that arbitration would conflict with the purposes and policies of the Bankruptcy Code.
The court concluded that allowing an arbitrator to determine dischargeability created an inherent conflict with the Bankruptcy Code because it would remove an essential function of bankruptcy law from bankruptcy courts. Really, the court declared, it was more than inherent conflict. Allowing arbitration of dischargeability–the central purpose of the Bankruptcy Code–would effectively allow parties to contractually overrule the application of federal bankruptcy law. Bankruptcy without the discharge was like a car without an engine: a useful tool rendered ineffective. The court said it was unwilling to do that.
In re Roth, 2018 WL 6039099 (Bankr. S.D. Ind., Nov. 16, 2018)