Eleventh Amendment Does Not Bar Bankruptcy Courts' In Rem Jurisdiction Over The Bankruptcy Estate

The United States Supreme Court recently held, in Tennessee Student Assistance Corp. v. Hood, 124 S.Ct. 1905, 541 U.S. ___ (2004), that a proceeding initiated by a debtor to determine the dischargeability of a student loan debt owed to a State is not a suit against a State for purposes of sovereign immunity under the Eleventh Amendment. Accordingly, the bankruptcy court's jurisdiction to discharge the debt owed to the State was upheld. The Court left unresolved the issue of whether Congress has the power to abrogate State sovereign immunity under the Eleventh Amendment through its power to establish uniform bankruptcy laws, as set forth in Article I, ß8, cl. 4 of the Constitution. The United States Court of Appeals for the Sixth Circuit previously held that States ceded their immunity from suits in bankruptcy in the Constitutional Convention, and Congress therefore had the authority to validly abrogate that immunity pursuant to the Bankruptcy Clause when it enacted 11 U.S.C. ß106(a).1

Notably, for students of the Court's ongoing State sovereign immunity jurisprudence, Justices Souter and Ginsberg concurred in the Court's opinion but noted that in so doing they did not implicitly approve of the Court's holding in Seminole Tribe of Fla. v. Florida.2 Justices Thomas and Scalia dissented from the Court's opinion, insisting that the Bankruptcy Clause did not empower Congress to abrogate State sovereign immunity.3

Attempting to Discharge Guaranteed Student Loan Debt in Bankruptcy: ß523(a)(8)

Between July 1988 and February 1990, Pamela Hood, a Tennessee resident, signed promissory notes for loans guaranteed by the Tennessee Student Assistance Corporation ("TSAC"). In February 1999, Hood filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Western District of Tennessee. Sallie Mae Service, Inc. ("Sallie Mae"), the original holder of Hood's student loan debt, submitted a proof of claim for the debt. TSAC, however, did not participate in the original bankruptcy. Sallie Mae later assigned its proof of claim to TSAC. In June 1999, the Bankruptcy Court granted Hood a general discharge pursuant to 11 U.S.C. ß727(a). But Hood did not list her student loans in the bankruptcy, and the general discharge did not cover them.4

In September 1999, Hood reopened her bankruptcy petition to seek discharge of her student loan debt as an "undue hardship" pursuant to Bankruptcy Code ß523(a)(8). As required by the Federal Rules of...