Roth v. Educational Credit Management Corp. (In Re Roth) , 490 B.R. 908 ( 2013 )


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  •                                                                   FILED
    APR 16 2013
    SUSAN M SPRAUL, CLERK
    1                                                               U.S. BKCY. APP. PANEL
    OF THE NINTH CIRCUIT
    2
    3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
    4                        OF THE NINTH CIRCUIT
    5   In re:                        )       BAP No. AZ-11-1233-RnPaKi
    )
    6   JANET ROSE ROTH,              )       Bk. No. 09-00317-RJH
    )
    7                      Debtor.    )       Adv. No. 10-0764-RJH
    ______________________________)
    8                                 )
    JANET ROSE ROTH,              )
    9                                 )
    Appellant, )
    10                 v.              )       O P I N I O N
    )
    11   EDUCATIONAL CREDIT MANAGEMENT )
    CORPORATION,                  )
    12                                 )
    )
    13                       Appellee. )
    )
    14   ______________________________)
    15            Submitted Without Oral Argument on September 20, 20121
    16                           Filed - April 16, 2013
    17               Appeal from the United States Bankruptcy Court
    for the District of Arizona
    18
    Honorable Randolph J. Haines, Bankruptcy Judge, Presiding
    19                    _________________________________
    20   Appearances:     Appellant Jane Rose Roth on brief;
    Julie K. Swedback, Esq. on brief for appellee
    21                    Educational Credit Management Corporation.
    _________________________________
    22
    23
    24
    1
    25           Pursuant to Fed. R. Bankr. P. 8012, after notice to the
    parties, the Panel by order entered July 3, 2012, unanimously
    26   determined after examination of the briefs and record that oral
    argument was not needed.
    1   Before:     RENN,2 PAPPAS and KIRSCHER, Bankruptcy Judges.
    2   Opinion by Judge Renn
    Concurrence by Judge Pappas
    3
    4   RENN, Bankruptcy Judge:
    5             This pro se appeal arises from a judgment rendered after
    6   trial in an adversary proceeding which excepted from discharge under
    7   11 U.S.C. § 523(a)(8)3 Debtor Janet Roth’s (“Debtor”) student loan
    8   debt to Educational Credit Management Corporation (“ECMC”).     We
    9   REVERSE and REMAND.
    10   ///
    11   ///
    12   ///
    13   ///
    14   ///
    15   ///
    16   ///
    17   ///
    18   ///
    19   ///
    20   ///
    21
    22         2
    Hon. Thomas M. Renn, U. S. Bankruptcy Judge for the District
    23   of Oregon, sitting by designation.
    24         3
    Unless otherwise indicated, all chapter, section and rule
    references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and to
    25   the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
    26
    -2-
    1                                  I. FACTS4
    2            From 1989 to 1995 Debtor took out thirteen federally
    3   guaranteed student loans totaling over $33,000 under the Federal
    4   Family Educational Loan Program (“FFELP Loans”) to fund her
    5   attendance at Mesa Community College and Arizona State University.
    6   In addition to the FFELP Loans, Debtor also took out five direct
    7   loans administered by the U.S. Department of Education (“DOE”).
    8   During her attendance at school, Debtor studied communications,
    9   information technology, and education, but she never graduated as a
    10   family issue necessitated her quitting the programs.
    11            Debtor’s employment history is long and varied.   She has
    12   worked for extended periods as an information management clerk for
    13   the U.S. Defense Department, a ticketing counter clerk for several
    14
    15        4
    Debtor asks us to review “all appellant’s exhibits submitted
    16   throughout [the adversary proceeding below].” Aplt.’s Opening Br.
    at 6. However, her excerpt of record does not include all of those
    17   exhibits. Nevertheless, we have exercised our discretion to take
    judicial notice of the electronic record in the adversary, as “we
    18   make reasonable allowance for pro se litigants and construe their
    19   papers liberally.” Ozenne v. Bendon (In re Ozenne), 
    337 B.R. 214
    ,
    218 (9th Cir. BAP 2006); see also O’Rourke v. Seaboard Sur. Co.(In
    20   re E.R. Fegert, Inc.), 
    887 F.2d 955
    , 957-58 (9th Cir. 1989)(court
    may take judicial notice of bankruptcy case below). We have not,
    21   however, considered documents that neither we nor the parties have
    identified as part of the trial court record. Kirshner v. Uniden
    22
    Corp. of Am., 
    842 F.2d 1074
    , 1077-78 (9th Cir. 1988). For example,
    23   Debtor has adduced two pages of account statements, Aplt. ER at 17-
    18, with line-items she argues indicate “voluntee [sic] payments,”
    24   on the FFELP Loans, which she found [post trial] “digging through
    old student loan files.” Aplt. Opening Br. at 4. Those account
    25   statements have not been considered.
    26
    -3-
    1   airlines, an information technology technician for a collection of
    2   used car dealerships, an administrative assistant for Arizona State
    3   University, and a government contract analyst for the Veterans
    4   Administration.   Her last job was as a cake decorator for Wal-Mart.
    5   She has often worked more than one job at the same time to make ends
    6   meet.   In 2008, her adjusted gross income was $34,789.   In 2009, it
    7   was $40,098.
    8           Debtor made no voluntary payments on the FFELP Loans.    She
    9   defaulted on three of them in 1998, and on the rest in 2001.     Pre-
    10   default she was eligible for forebearances.   At one point, she
    11   testified she sent paperwork to Chicago regarding a forebearance,
    12   but she never heard back and never followed up.   Other than that
    13   attempt, she did not seek any deferments or forebearances.      Neither
    14   did she make any efforts to restructure the loans to reduce the
    15   payments or otherwise modify their terms.   She testified that before
    16   she filed bankruptcy, she did not know whom to call to obtain a
    17   modification.
    18           For a time the DOE administratively garnished her wages.
    19   Debtor testified she was unaware she had two lenders and presumed
    20   the collection activity pertained to the FFELP Loans.     It appears at
    21   some point one or more of ECMC’s predecessors-in-interest attempted
    22   to also garnish Debtor’s wages but, because the DOE had a continuing
    23   garnishment in place or she was unemployed, those attempts were
    24   unsuccessful.   It also appears that at certain times Debtor’s
    25   federal and state tax refunds were offset against her student loan
    26
    -4-
    1   obligations.    The record, however, is unclear as to whether those
    2   offsets were initiated by the DOE (or its agents) or by ECMC’s
    3   predecessors.   It is clear from the record that Debtor was unable to
    4   identify which loans received payments or even that two lenders were
    5   involved in administering the various loans.
    6           At present, Debtor suffers from several chronic medical
    7   conditions including a thyroid condition, diabetes, macular
    8   degeneration, cataracts, high cholesterol, and depression.    Some of
    9   her medical conditions required surgery.   Debtor has also incurred
    10   serious shoulder, knee, and wrist injuries that have limited her
    11   activities.    All of her medical ills necessitate many medical
    12   appointments, which in some instances have precluded eligibility for
    13   new employment.   Although hampered by her ailments, Debtor feels she
    14   is not totally disabled from working unless her “sight goes and . .
    15   . [she] can’t read.”   [Trial Tr. (April 27, 2011) 42:22].
    16           On January 8, 2009, Debtor filed for Chapter 7 relief pro se.
    17   On April 27, 2010, she commenced an adversary proceeding in the
    18   bankruptcy court seeking to have both the FFELP and DOE Loans
    19   discharged.    Shortly thereafter, the FFELP Loans were assigned to
    20   ECMC.   As of January 5, 2011, the aggregate balance on the FFELP
    21   Loans was at least $95,403.86.   Based on an administrative discharge
    22   of the DOE loans, the DOE was dismissed from the adversary
    23   proceeding pursuant to an order entered June 1, 2010.
    24           From July 2009 to January 2011, Debtor applied unsuccessfully
    25   for over 280 federal jobs.   She concentrated on this employment
    26
    -5-
    1   sector, because she had previously been a federal employee and
    2   believed she had preferential rehiring rights.    She also applied for
    3   non-federal positions.    She testified that she’s worked for forty-
    4   five years and wanted to find a job, although it would only be
    5   justified to do so if it paid above minimum wage.    She further
    6   testified that if her discharge was denied, she might either enroll
    7   in the income-based repayment plan discussed below, or remain
    8   unemployed.
    9            Approximately six months after the adversary proceeding was
    10   filed, ECMC sent Debtor information and an application to
    11   administratively discharge her FFELP debt based on total and
    12   permanent disability.    Debtor did not apply because she did not
    13   consider herself sufficiently disabled.    Approximately three months
    14   later, ECMC advised Debtor she was eligible under the federal
    15   William D. Ford program to consolidate all thirteen of her FFELP
    16   loans and participate in the “income-based repayment plan” (“IBRP”).
    17   The IBRP requires the borrower to make a twenty-five-year commitment
    18   to dedicate on a monthly basis 1/12th of fifteen percent of the
    19   amount her average gross income exceeds 150% of the federal poverty
    20   level for the debtor’s family size.5    34 C.F.R. § 685.221.   The plan
    21
    22        5
    The IBRP should be distinguished from the “Income Contingent
    23   Repayment Program” (“ICRP”), 34 C.F.R. § 685.209(a), another
    repayment plan offered under the Ford program and referenced in many
    24   student loan cases. E.g., Braun v. Sallie Mae (In re Braun),
    
    2012 WL 5199163
    at *8 (Bankr. E.D. Va. October 19, 2012)(comparing
    25   the IBRP and ICRP).
    26
    -6-
    1   term would be twenty-five years; thereafter, any remaining balance
    2   would be forgiven.    34 C.F.R. § 685.221(f).6   Because Debtor’s
    3   income did not exceed the federal poverty level, her initial monthly
    4   IBRP payment would have been zero, and would have remained so until
    5   the 150% income threshold was met.      Debtor understood the terms and
    6   conditions of the IBRP but did not apply for it, reasoning she could
    7   do so at any time, even if the bankruptcy court denied discharge of
    8   her student loans, and that her energy was best put toward regaining
    9   her health so she could get back to work.     When the adversary
    10   proceeding was tried on April 27, 2011, Debtor was sixty-four years
    11   old, unemployed, and had no dependents.     Her only income was social
    12   security of $774 per month.    Despite living frugally, her monthly
    13   expenses regularly exceeded her income.
    14            In reaching its decision to except the FFELP Loans from
    15   Debtor’s discharge, the bankruptcy court applied the Brunner7 test,
    16   which has three prongs.    The court had no trouble concluding Debtor
    17   had met the first two prongs.    That is, the evidence showed that,
    18   based on her current income and expenses, she could not maintain a
    19   minimal standard of living if forced to repay the FFELP Loans, and,
    20
    21        6
    Under the present Internal Revenue Code, this forgiveness of
    22   debt would be taxable income, 26 U.S.C. § 61(a)(12), except to the
    extent the debtor was, at that time, insolvent. 26 U.S.C.
    23   § 108(a)(1)(B),(a)(3),(d)(3).
    24        7
    See Brunner v. N.Y. State Higher Educ. Servs., Inc. (In re
    Brunner), 
    831 F.2d 395
    , 396 (2d Cir. 1987), aff’g and adopting 46
    
    25 B.R. 752
    , 756 (S.D.N.Y. 1985).
    26
    -7-
    1   further, additional circumstances indicated it was more likely than
    2   not that her financial difficulties would persist for a significant
    3   portion of the Loans’ repayment period.     [Trial Tr. at 58:20-59:16].
    4          The court, however, struggled with Brunner’s third prong,
    5   which, as discussed in detail below, requires that a debtor make
    6   “good faith” efforts to repay the loans.    It agreed that Debtor’s
    7   participation in the IBRP was not required to find good faith,
    8   because imposing such a requirement would replace rights given under
    9   § 523(a)(8) with those of an administrative remedy.     [Id. at 61:2-
    10   17].   Further, in examining past efforts, the court questioned
    11   whether good faith played a role at all when the evidence indicated
    12   that, even assuming best or good faith efforts, Debtor could never
    13   have paid the FFELP Loans in full and in fact, notwithstanding such
    14   efforts, would still be faced with a balance that was an “undue
    15   hardship” to pay.   [Id. at 59:17-60:16].    Despite such concerns,
    16   however, the court felt constrained by Ninth Circuit precedent which
    17   it felt required consideration of past efforts to reduce the balance
    18   of the student loan debt.   Thus, the court concluded that Debtor’s
    19   lack of voluntary payments, and her lack of efforts to renegotiate,
    20   obtain a forebearance, or obtain a disability discharge, tipped the
    21   good faith balance away from her.   [Id. at 60:17-24].
    22                               II. JURISDICTION
    23          The bankruptcy court had jurisdiction over this proceeding
    24   under 28 U.S.C. §§ 1334 and 157(b)(2)(I).      We have jurisdiction
    25   under 28 U.S.C. § 158(b).
    26
    -8-
    1                                  III. ISSUE
    2            Whether the bankruptcy court erred in concluding that Debtor
    3   failed to make a good faith effort to repay her student loans.8
    4                           IV. STANDARD OF REVIEW
    5            Under § 523(a)(8), student loans are excepted from the
    6   discharge a debtor receives in bankruptcy unless repaying those
    7   loans would “impose an undue hardship on the debtor and the debtor’s
    8   dependents.”    In United Student Aid Funds v. Pena (In re Pena),
    9   
    155 F.3d 1108
    , 1112 (9th Cir. 1998), the Ninth Circuit adopted the
    10   three-pronged test set out in 
    Brunner, 831 F.2d at 396
    , to determine
    11   whether the undue hardship standard has been met.       The last of those
    12   prongs requires the court to determine whether the debtor made “good
    13   faith efforts to repay the loans.”      Id.9   The primary issue in this
    14
    8
    15           Contrary to Rule 8006, Debtor did not submit a statement of
    issues on appeal. However, her opening and supplemental briefs
    16   sufficiently identify the issues. ECMC has responded to those
    issues and has claimed no prejudice from the lack of the Rule 8006
    17   statement. Further, based on the briefs and the record, we are able
    to completely understand the issues. Debtor may therefore go
    18
    forward without a separate Rule 8006 statement. Gertsch v. Johnson
    19   & Johnson, Fin. Corp. (In re Gertsch), 
    237 B.R. 160
    , 166 (9th Cir.
    BAP 1999).
    20
    9
    As referenced above, the first two prongs require a showing:
    21
    (1)that the debtor cannot maintain, based on
    22
    current income and expenses, a “minimal”
    23               standard of living for herself and her
    dependents if forced to repay the loans; and (2)
    24               that additional circumstances exist indicating
    that this state of affairs is likely to persist
    25                                                            (continued...)
    26
    -9-
    1   appeal is whether the bankruptcy court erred in reaching its
    2   conclusion on the “good faith” prong.      A threshold question is under
    3   what standard should that determination be reviewed.       In light of
    4   seemingly contradictory language in Ninth Circuit precedent, we
    5   publish this opinion to clarify the appropriate standard of review.
    6              What is clear from the caselaw is that the ultimate undue
    7   hardship determination is reviewed de novo, as it requires a
    8   determination of the “legal effect of the bankruptcy court’s
    9   findings regarding the student’s circumstances.”      Educ. Credit Mgmt.
    10   Corp. v. Mason (In re Mason), 
    464 F.3d 878
    , 881 (9th Cir.
    11   2006)(quoting Rifino v. United States (In re Rifino), 
    245 F.3d 1083
    ,
    12   1087 n.2 (9th Cir. 2001)).      More particularly, the undue hardship
    13   determination is a mixed question of fact and law.      Hedlund v. Educ.
    14   Res. Inst. Inc., 
    468 B.R. 901
    , 906 (D. Or. 2012); Educ. Credit Mgmt.
    15   Corp. v. Frushour (In re Frushour), 
    433 F.3d 393
    , 398 (4th Cir.
    16   2005); Educ. Credit Mgmt. Corp. v. Blackbird (In re Blackbird), 2008
    
    17 WL 8444793
    at *3 (9th Cir. BAP 2008).10     “A mixed question of law
    18   and fact occurs when the historical facts are established; the rule
    19   of law is undisputed . . .; and the issue is whether the facts
    20
    9
    (...continued)
    21                 for a significant portion of the repayment
    22                 period of the student loans.
    23   
    Id. 24 10 Under
    Fed. R. App. P. 32.1 and 9th Cir. BAP Rule 8013-
    1(c)(2), Blackbird may be cited for its persuasive, but not
    25   precedential, value.
    26
    -10-
    1   satisfy the legal rule.”    Murray v. Bammer (In re Bammer), 
    131 F.3d 2
      788, 792 (9th Cir. 1997).      Because “[m]ixed questions . . . require
    3   consideration of legal concepts and the exercise of judgment about
    4   the val ues that animate legal principles,” they are reviewed de
    5   novo.    
    Id. De novo review
    is independent and gives no deference to
    6   the trial court’s conclusion.     Warfield v. Salazar (In re Salazar),
    7   
    465 B.R. 875
    , 878 (9th Cir. BAP 2012).
    8            It is also clear that the bankruptcy court’s determinations
    9   of the historical facts underlying its undue hardship determination
    10   are reviewed for clear error.     Educ. Credit Mgmt. Corp. v. Howe (In
    11   re Howe), 
    319 B.R. 886
    , 888 (9th Cir. BAP 2005).      The clear error
    12   standard applies to implied as well as express factual findings.
    13   Tighe v. Valencia (In re Guadarrama), 
    284 B.R. 463
    , 477 (C.D. Cal.
    14   2002).    Review for clear error is “significantly deferential.”
    15   Baker v. Mereshian (In re Mereshian), 
    200 B.R. 342
    , 345 (9th Cir.
    16   BAP 1996).     The appellate court should not reverse unless it is left
    17   with “a definite and firm conviction that a mistake has been
    18   committed.”    
    Id. (internal quotation omitted).
       The reviewing court
    19   may not reverse simply because it is convinced it would have decided
    20   the case differently.    
    Id. “Where there are
    two permissible views
    21   of the evidence, the fact finder’s choice between them cannot be
    22   clearly erroneous.”    
    Id. (internal quotation omitted).
       Further, the
    23   reviewing court must give due regard to the opportunity of the
    24   bankruptcy court to judge the credibility of witnesses.     Rule 8013;
    25   Thiara v. Spycher Bros. (In re Thiara), 
    285 B.R. 420
    , 427 (9th Cir.
    26
    -11-
    1   BAP 2002).     “This deference is also given to inferences drawn by the
    2   . . . [bankruptcy] court.”     
    Id. 3 To summarize,
    the ultimate undue hardship determination is
    4   reviewed de novo because it is a mixed question of fact and law, and
    5   the factual findings regarding the circumstances underpinning that
    6   determination are reviewed for clear error.     What is not so clear is
    7   the standard of review to be applied to the three individual Brunner
    8   prongs.     Are they factual determinations reviewed for clear error or
    9   mixed questions reviewed de novo?      In Pa. Higher Educ. Assistance
    10   Agency v. Birrane (In re Birrane), 
    287 B.R. 490
    (9th Cir. BAP 2002),
    11   without discussing the issue, we held, at least by implication, that
    12   the Brunner prongs are mixed questions entitled to de novo review.
    13   
    Id. at 500-501 (bankruptcy
    court did not commit an error of law in
    14   applying prong one to those factual findings, but it did err as a
    15   matter of law in applying prongs two and three).     Birrane has
    16   subsequently been followed for this proposition.     See, e.g.,
    17   
    Hedlund, 468 B.R. at 913.11
       These holdings, however, do not end the
    18   inquiry as they must be squared with language in Pena, Rifino, and
    19   Mason.     In each of those cases, while acknowledging the ultimate
    20   undue hardship determination is a question of law reviewed de novo,
    21   the court nevertheless used “clear error” language in its analysis
    22
    23
    24        11
    Likewise, in Blackbird, an unpublished memorandum, we
    expressly held that review of the good faith prong is de novo. 2008
    
    25 WL 8444793
    at *3.
    26
    -12-
    1   of the individual Brunner prongs.12       Because the two positions
    2   (i.e., de novo (mixed question) review of the ultimate undue
    3   hardship determination and clear error review of the individual
    4   prongs) are inherently contradictory, we are called to determine
    5   which one must yield.     We hold that it must be the latter.
    6             The three Brunner prongs are not elements a court throws into
    7   a vial, and then mixes and spins to arrive at an amalgam called
    8
    12
    9                Applying . . . [the Brunner] test,
    the bankruptcy court did not clearly err in finding that
    10                (1) the Penas could not maintain a minimal standard of
    living and repay their student loans, (2) their
    11                unfortunate financial situation was likely to continue for
    12                a substantial portion of the repayment period, and (3)
    they made a good-faith attempt to pay the loans.
    13
    
    Pena, 155 F.3d at 1114
    (emphasis added).
    14
    We conclude that the bankruptcy court did not
    15
    clearly err in finding that Rifino's standard of
    16                living would fall below a minimal level if she
    were required to repay her student loans.
    17
    . . . .
    18
    19                [W]e hold that the bankruptcy court clearly
    erred in concluding that Rifino's circumstances
    20                are likely to persist for a significant portion
    of the repayment period of her student loans.
    21
    
    Rifino, 245 F.3d at 1088-89
    (emphasis added).
    22
    23                [W]e conclude that the bankruptcy court clearly
    erred in finding that Mason demonstrated good
    24                faith efforts to repay his loans.
    25   
    Mason, 464 F.3d at 885
    (emphasis added).
    26
    -13-
    1   “undue hardship.”    Rather, they are stand-alone requirements.
    2   Failure to prove any one precludes discharge.     Carnduff v. U.S.
    3   Dep’t of Educ. (In re Carnduff), 
    367 B.R. 120
    , 127 (9th Cir. BAP
    4   2007).    Thus, if the ultimate undue hardship determination is
    5   reviewed de novo because it is a mixed question, and mixed questions
    6   involve “the exercise of judgment about the values that animate
    7   legal principles,” 
    Bammer, 131 F.3d at 792
    (emphasis added), it must
    8   then follow that the three independent prongs are also mixed
    9   questions requiring de novo review.      If not, and they instead are
    10   simply factual determinations, the reviewing court, upon finding no
    11   clear error as to each prong, would be bound to uphold the
    12   bankruptcy court as to the ultimate undue hardship determination.
    13   Such a mechanical application of the prongs, however, would negate
    14   the reviewing court’s ability to “exercise judgment.”
    15            Our conclusion is buttressed by precedent outside the Ninth
    16   Circuit.    Most courts which have directly addressed the issue,
    17   including the Third and Fourth Circuit Courts of Appeals, have held
    18   that each Brunner prong is reviewed de novo.      E.g., Educ. Credit
    19   Mgmt. Corp. v. Mosko (In re Mosko), 
    515 F.3d 319
    , 324 (4th Cir.
    20   2008); Brightful v. Pa. Higher Educ. Assistance Agency (In re
    21   Brightful), 
    267 F.3d 324
    , 327 (3d Cir. 2001); Educ. Credit Mgmt.
    22   Corp. v. Curiston, 
    351 B.R. 22
    , 27 (D. Conn. 2006); But see Krieger
    23   v. Educ. Credit Mgmt. Corp., 
    2013 WL 1442305
    at *2 (7th Cir. April
    24   10, 2013).
    25
    26
    -14-
    1             Returning to the appeal at bar, the main issue is whether
    2   Debtor met her burden of proof on Brunner’s good faith prong.        We
    3   will review the factual underpinnings of that determination under
    4   the deferential clear error standard, but will conduct a non-
    5   deferential de novo review of the bankruptcy court’s ultimate good
    6   faith conclusion.
    7                                 V. DISCUSSION
    8             Under § 523(a)(8), the lender has the initial burden to
    9   establish the existence of the debt and that the debt is an
    10   educational loan within the statute’s parameters.     Lavy v. U.S.
    11   Dep’t of Educ. (In re Lavy), 
    2008 WL 4964721
    at *3 (Bankr. W.D.
    12   Wash. Nov. 14, 2008).     ECMC has met those burdens.13   The burden
    13
    13
    Prior to the trial, Debtor stipulated that the loans in
    14
    question were educational loans as contemplated in § 523(a)(8).
    15   [“Joint Pre-trial Statement,” Adv. Doc. #59 at 6:4-5]. The
    bankruptcy court then granted ECMC’s motion for partial summary
    16   judgment on this issue. Debtor has not challenged this ruling on
    appeal.
    17           Debtor also stipulated that the loans had an “outstanding
    18   aggregate balance of no less than $95,403.86 as of January 5, 2011.”
    [Id. at 6:6-7]. On summary judgment the bankruptcy court held that
    19   the aggregate principal amount of the debt was $33,160, which
    accrued annual interest at a minimum of 3.28% on each of the
    20   thirteen loans since they were originally disbursed. Although
    21   somewhat disjointed, Debtor’s briefs could be construed to challenge
    the amount of the aggregate debt. At trial, ECMC’s witness Julie
    22   Swedback computed it at $95,890.20 as of April 26, 2011. However,
    the parties did not seek liquidation of the debt as a contested
    23   issue. [Id. at 6:26]. Further, the bankruptcy court did not
    liquidate the debt in either its partial summary judgment or its
    24
    judgment denying discharge. Neither party argues this was error.
    25   Thus, for purposes of this appeal, we need not concern ourselves
    (continued...)
    26
    -15-
    1   then shifts to the debtor, 
    Id., to prove all
    three Brunner prongs,
    2   
    Rifino, 245 F.3d at 1087-88
    , by a preponderance of the evidence.
    3   Nys v. Educ. Credit Mgmt. Corp. v. Nys (In re Nys), 
    308 B.R. 436
    ,
    4   441 (9th Cir. BAP 2004), aff’d on other grounds, 
    446 F.3d 938
    (9th
    5   Cir. 2006).     The bankruptcy court held that Debtor met Brunner’s
    6   first two prongs but failed to prove the third.     The only issue on
    7   appeal is whether its conclusion as to prong three was in error.14
    8             As noted, under Brunner’s third prong, a debtor must make
    9   good faith efforts to repay the student loans.15    “Good faith is
    10
    13
    11         (...continued)
    with the exact amount of debt, and may, even disregarding Ms
    12   Swedback’s testimony, rely in our analysis on Debtor’s stipulation
    that the debt was at least $95,403.86 as of January 5, 2011,
    13
    approximately four months before trial.
    14        14
    While ECMC, as the prevailing party at trial, could have,
    15   without cross-appeal, defended the bankruptcy court’s judgment on
    any ground it properly raised below, 
    Valencia, 284 B.R. at 477
    , it
    16   has chosen not to challenge the bankruptcy court’s conclusions as to
    the first two prongs.
    17
    15
    18                The “good-faith” requirement fulfills the
    purpose behind the adoption of section
    19                523(a)(8). 
    Brunner, 46 B.R. at 754–55
    . Section
    523(a)(8) was a response to “a ‘rising incidence
    20                of consumer bankruptcies of former students
    21                motivated primarily to avoid payment of
    education loan debts.’ ” 
    Id., (quoting the 22
                   Report of the Commission on the Bankruptcy Laws
    of the United States, House Doc. No. 93–137, Pt.
    23                I, 93d Cong., 1st Sess. (1973) at 140 n. 14).
    This section was intended to “forestall students
    24
    . . . from abusing the bankruptcy system.” 
    Id. 25 (continued...) 26
                                            -16-
    1   measured by the debtor's efforts to obtain employment, maximize
    2   income, and minimize expenses.”     
    Mason, 464 F.3d at 884
    (internal
    3   quotation omitted).     “Courts will also consider a debtor's effort--
    4   or lack thereof--to negotiate a repayment plan,” 
    Id. (internal 5 quotation
    omitted), as this is an “important indicator of good
    6   faith.”     
    Birrane, 287 B.R. at 499
    .    However, failure to negotiate or
    7   accept an alternative repayment plan is not dispositive.      Educ.
    8   Credit Mgmt. Corp. v. Jorgensen (In re Jorgensen), 
    479 B.R. 79
    , 89
    9   n.4 (9th Cir. BAP 2012)(debtor’s failure to accept ECMC’s “Graduate
    10   Repayment Option” was not de facto evidence of a lack of good
    11   faith).     Any offered repayment plan’s terms, duration, and
    12   consequences need to be examined.       
    Carnduff, 367 B.R. at 136-37
    .
    13   These consequences include future tax liability and negative credit
    14   ratings.     
    Id. 15 Courts also
    examine: 1) whether the debtor has made any
    16   payments on the loan prior to filing for discharge, Jorgensen, 
    479 17 B.R. at 89
    , “although a history of making or not making payments is,
    18   by itself, not dispositive[,]” 
    Mason, 464 F.3d at 884
    (internal
    19   citation omitted); 2) whether the debtor has sought deferments or
    20   forebearances, East v. Educ. Credit Mgmt. Corp. (In re East), 270
    
    21 B.R. 485
    , 495 (Bankr. E.D. Cal. 2001); 3) the timing of the debtor’s
    22   attempt to have the loan discharged, Educ. Credit Mgmt. Corp. v.
    23   DeGroot (In re DeGroot), 
    339 B.R. 201
    , 214 (D. Or. 2006); and 4)
    24
    15
    25         (...continued)
    
    Pena, 153 F.3d at 1111
    .
    26
    -17-
    1   whether the debtor’s financial condition resulted from factors
    2   beyond her reasonable control, 
    Birrane, 287 B.R. at 500
    , as a debtor
    3   may not willfully or negligently cause her own default.      
    Id. The 4 “good
    faith” obligation continues even after an adversary proceeding
    5   is filed to determine the dischargeability of the student loan debt.
    6   
    Id. 7 Examining the
    factors, Debtor did not make any voluntary
    8   payments.      However, lack of even minimal voluntary payments is not
    9   lack of good faith if the debtor did not have the financial
    10   wherewithal to make them.      England v. United States (In re England),
    11   
    264 B.R. 38
    , 48 (Bankr. D. Idaho 2001); Hurley v. Student Loan Acq.
    12   Auth. of Ariz., et. al., (In re Hurley), 
    258 B.R. 15
    , 25-26 (Bankr.
    13   D. Mont. 2001).      While the bankruptcy court found Debtor was able to
    14   make payments in the “few good earning years” she had [2008 and
    15   2009],16 [Trial Tr. at 60:12-14], it made no findings as to how much
    16   those payments would have been.      The record, however, is complete
    17   enough for us to find that any payment would have been modest as it
    18   is uncontroverted Debtor has never had significant income above
    19   necessary expenses.      Veal v. Am. Home Mortg. Servicing, Inc. (In re
    20
    16
    21           In her closing argument, Debtor stated that even though she
    made $40,000 [in 2009], she still had obligations, including a
    22   mortgage, and still had children at home, which is why “she worked a
    job and a half.” [Trial Tr. at 57:24-58:3]. She further stated in
    23   argument that she had “four kids [she] . . . had to support” when
    she moved to Arizona. [Id. at 58:7-8]. We have not considered
    24
    these statements in our factual analysis. United States v.
    25   Lazarenko, 
    564 F.3d 1026
    , 1037 (9th Cir. 2009) (statements in
    argument are not evidence).
    26
    -18-
    1   Veal), 
    450 B.R. 897
    , 919 (9th Cir. BAP 2011) (an appellate panel may
    2   conduct review if a complete understanding of the issues may be
    3   obtained from the record as a whole or if there can be no genuine
    4   dispute about omitted findings).    Further, implied in the court’s
    5   findings as to 2008 and 2009 is a finding, which we will not
    6   disturb, that, except for those years, Debtor was unable to make
    7   voluntary payments.   See Johnson Sw., Inc. v. Habert Energy Corp.
    8   (In re Johnson Sw., Inc.), 
    205 B.R. 823
    , 827 (N.D. Tex. 1997)(“A
    9   reviewing court may assume that the trial court made an implied
    10   finding consistent with its general holding so long as the implied
    11   finding is supported by the evidence.”).    Indeed, this inability may
    12   have been due to the DOE’s ongoing garnishments and the tax refund
    13   offsets.   At least one court has held that making payments through
    14   garnishment or offsets with the debtor’s consent demonstrates good
    15   faith.   Hamilton v. U.S. Dep’t of Educ. (In re Hamilton), 
    361 B.R. 16
      532, 558 (Bankr. D. Mont. 2007).    In this regard, Debtor testified
    17   she did not realize she had two separate lenders and assumed the
    18   FFELP loans were being paid through these forced collection efforts.
    19   The bankruptcy court made no express findings as to Debtor’s overall
    20   credibility or her credibility on this particular point.    However,
    21   it did accept Debtor’s testimony relevant to prongs one and two, and
    22   thus we can infer the court thought Debtor generally credible.
    23   Habert Energy 
    Corp., 205 B.R. at 827
    .     Given this inference,
    24   Hamilton’s rationale should also apply to Debtor’s good faith, even
    25
    26
    -19-
    1   if mistaken, belief she was paying ECMC’s predecessor through forced
    2   collection.
    3         The bankruptcy court found Debtor made no effort to obtain
    4   forebearances, apparently discounting her testimony that at one
    5   point she mailed forebearance paperwork to Chicago but never heard
    6   anything afterwards.   Given the testimony’s lack of detail, we will
    7   not set aside this finding as clearly erroneous.
    8         Debtor has admitted she did not attempt to negotiate a
    9   payment plan or make any effort to apply for an administrative
    10   discharge when presented with that option.   In mitigation of such
    11   failures, Debtor testified that prepetition she did not know
    12   restructuring arrangements were available.    Even were this true, the
    13   evidence shows Debtor to be an intelligent person who, if unsure
    14   about available restructuring options, had the sophistication to
    15   make appropriate inquiries.   Her failure to do so was within her
    16   reasonable control.    
    Birrane, 287 B.R. at 500
    .
    17         While the bankruptcy court made no detailed findings as to
    18   the timing of the bankruptcy, the evidence was uncontradicted that
    19   Debtor’s attempt to discharge her student loans came at least a
    20   decade after they went into repayment, and thus there was no “rush
    21   to the courthouse.”    Cf. 
    Brunner, 831 F.2d at 397
    (declining to find
    22   good faith when debtor filed adversary proceeding seeking discharge
    23   within a month of when her loans first became due).
    24         Likewise the bankruptcy court made no express findings on
    25   Debtor’s efforts to obtain employment, maximize income, and minimize
    26
    -20-
    1   expenses.    However, in holding for her on Brunner’s first and second
    2   prongs, the court necessarily found that, at least going forward,
    3   Debtor had minimized her expenses and maximized her earning
    4   potential.   
    Birrane, 287 B.R. at 496
    (minimized current expenses are
    5   part of first prong); In re 
    Nys, 446 F.3d at 947
    (maximized income
    6   potential (which subsumes possibility of obtaining more lucrative
    7   employment) part of second prong).   Given the evidence on Debtor’s
    8   frugality, education, age, health, earning potential, and desire to
    9   work, these findings are not clearly erroneous.   As to Debtor’s
    10   historical efforts, ECMC does not dispute them.   In any event, the
    11   record is sufficiently developed to allow us a complete
    12   understanding, 
    Veal, 450 B.R. at 919
    , and upon our review, the
    13   preponderance of the evidence indicates Debtor: 1)remained full-time
    14   employed until shortly before she filed Chapter 7, often working two
    15   jobs; 2) used her job skills as productively as she could; and 3)
    16   lived frugally, all indicating historical good faith efforts to
    17   obtain employment, maximize income, and minimize expenses.
    18         Thus, to sum up the factual findings underlying the good
    19   faith analysis, Debtor made good faith efforts to obtain employment,
    20   maximize income, and minimize expenses.   Further, she did not come
    21   to bankruptcy court seeking discharge until many years after the
    22   loans were in repayment status.   In contrast, she made no full or
    23   even partial voluntary payments despite being able to do so in
    24   select years.   However, this deficiency is mitigated somewhat by her
    25   good faith belief in other years that the FFELP Loans were being
    26
    -21-
    1   paid through garnishments and tax offsets.   Further, she did not
    2   seek forebearances.   However, a forebearance would merely have
    3   deferred payment, and, given Debtor’s limited finances, would not
    4   have materially improved her prospects to pay on her loans.     She
    5   also did not submit an application to administratively discharge the
    6   loan, claiming she did not meet the eligibility requirements for
    7   that program.   That claim has not been contradicted, and we will not
    8   hold against her the failure to engage in a futile exercise.
    9         Finally and perhaps of most significance, Debtor refused to
    10   enroll in the IBRP.   In light of Ninth Circuit caselaw, we cannot
    11   discount this refusal.   In fact, it has often tipped the good faith
    12   balance against a debtor.   See, e.g., 
    Mason, 464 F.3d at 885
    13   (failure to enroll in the ICRP); 
    Birrane, 287 B.R. at 500
    (same).
    14   The question is whether, in light of Debtor’s individual
    15   circumstances, Rifino, 
    245 F.3d 1087
    n.2, it should do so here.       The
    16   evidence and the bankruptcy court’s findings show that not only
    17   would Debtor currently not be required to make a payment under the
    18   IBRP, but it is more probable than not she would never be required
    19   to make a payment.    Given that forecast, which is not clearly
    20   erroneous, we conclude that Debtor’s refusal to participate in the
    21   IBRP should not be weighed against her, especially given her age,
    22   poor health, and limited income or prospects.
    23         Potentially disastrous tax consequences could await her at
    24   the termination of the twenty-five year payment period or could
    25   await her estate and thus her heirs upon her death.   Perhaps more
    26
    -22-
    1   concretely, we see no real purpose in making Debtor jump through the
    2   hoops of applying for, and enrolling in, the IBRP and then reporting
    3   her income every year.   The IBRP was set up to allow borrowers to
    4   pay an affordable amount toward retirement of their student loan
    5   debt. However, when absolutely no payment is forecast, the law
    6   should not impose negative consequences for failing to sign up for
    7   the program. This is consistent with the general maxim that the law
    8   does not require a party to engage in futile acts.   Ohio v. Roberts,
    9   
    448 U.S. 56
    , 74 (1980), abrogated on other grounds, Crawford v.
    10   Washington, 
    541 U.S. 36
    (2004). Congress could not have intended
    11   such a lengthy, empty commitment as a requirement for a
    12   determination of undue hardship.
    13                                VI. CONCLUSION
    14         In the end, we must, in our de novo review, weigh the
    15   bankruptcy court’s factual findings (which were not clearly
    16   erroneous) and our own findings (given the completeness of the
    17   record) in “exercis[ing] [our] . . . judgment about the values that
    18   animate,” 
    Bammer, 131 F.3d at 792
    , “good faith efforts to repay.”
    19   Although a close case, in considering all the factors, we conclude
    20   Debtor has met her burden.   We therefore REVERSE and REMAND this
    21   matter to the bankruptcy court with instructions that it enter
    22   judgment discharging the FFELP Loans.
    23
    24                     Concurrence begins on next page.
    25   ///
    26
    -23-
    1   PAPPAS, Bankruptcy Judge, Concurring:
    2
    3         Given the bankruptcy court’s fact findings regarding Debtor’s
    4   dismal financial history and circumstances, and applying a de novo
    5   standard of review, I concur that the bankruptcy court erred in
    6   declining to grant a hardship discharge of the student loan debt to
    7   Debtor under § 523(a)(8).   However, because I understand how the
    8   bankruptcy court felt restricted by precedent in reaching its
    9   decision, I write separately to highlight that the analysis required
    10   by Pena/Brunner to determine the existence of an undue hardship is
    11   too narrow, no longer reflects reality, and should be revised by the
    12   Ninth Circuit when it has the opportunity to do so.   Put simply, in
    13   this era, bankruptcy courts should be free to consider the totality
    14   of a debtor’s circumstances in deciding whether a discharge of
    15   student loan debt for undue hardship is warranted.
    16         Congress has never defined the circumstances constituting the
    17   sort of undue hardship justifying the discharge of an educational
    18   debt under § 523(a)(8), apparently preferring that bankruptcy courts
    19   craft a working definition.   While it might have been appropriate
    20   and helpful when adopted, respectfully, the Brunner test for
    21   determining undue hardship is truly a relic of times long gone.
    22         Brunner was decided by the Second Circuit in 1987 to
    23   implement the original student loan hardship discharge exception
    24   included in a still-new Bankruptcy Code.   Brunner v. N.Y. State
    25   Higher Educ. Serv. Corp., 
    831 F.2d 395
    , 396 (2d Cir. 1987).     That
    26
    -1-
    1   early version of § 523(a)(8) provided that a debtor’s student loan
    2   debt could not be discharged unless either it first became due five
    3   years before the date of the bankruptcy filing or excepting such
    4   debt from discharge would impose an undue hardship on the debtor and
    5   the debtor’s dependents.   Importantly, in those days, without regard
    6   to the debtor’s current finances, if a student loan had not been
    7   collected within the five years after it became due, Congress
    8   directed that it would be discharged in the student’s bankruptcy
    9   case.
    10           Brunner typified the sort of student loan discharge cases
    11   encountered by bankruptcy courts at that time.   The debtor sought to
    12   discharge $9,000 in student loans in a bankruptcy case filed just a
    13   few months after she obtained her master’s degree, immediately after
    14   the grace period before payments became due expired, after only a
    15   few months of unemployment, and having made no efforts to pay
    16   anything on the loans.   Brunner v. N.Y. State Higher Educ. Serv.
    17   Corp. (In re Brunner), 
    46 B.R. 752
    , 753 (S.D.N.Y. 1985), aff’d, 831
    
    18 F.2d 394
    (2d Cir. 1987).   Not surprisingly, in addition to
    19   articulating its now-famous “test,” the Brunner court held that the
    20   debtor had not made a case for an undue hardship discharge in part
    21   because, given her circumstances, she had not made a good faith
    22   effort to repay the modest 
    debt. 831 F.2d at 396-97
    .
    23           In 1990, Congress amended § 523(a)(8), significantly
    24   expanding the discharge exception to apply to more than just
    25   educational “loans” to include any “educational benefit,
    26
    -2-
    1   scholarship, or stipend payment.”    Crime Control Act of 1990, Pub.
    2   L. No. 101-647 (1990).    The discharge exception was further widened
    3   to encompass any obligation “that first became due more than 7 years
    4   (exclusive of any extension of the repayment period) before the date
    5   of filing of the [bankruptcy] petition.”     
    Id. This was the
    version
    6   of the Code applied by the Ninth Circuit when it adopted the Brunner
    7   test for undue hardship in In re Pena in 1998.      United Student Aid
    8   Funds, Inc. v. Pena (In re Pena), 
    155 F.3d 1108
    , 1112 (9th Cir.
    9   1998).
    10            In In re Pena, the court affirmed the grant of a hardship
    11   discharge of the debtor’s $9,300 in student loans used to acquire
    12   technical training that the court described as “useless” to him in
    13   obtaining 
    employment. 155 F.3d at 1110
    .   Moreover, Mrs. Pena
    14   suffered from a chronic mental disability, the debtors’ income was
    15   inadequate to pay their normal living expenses, and there was no
    16   evidence that their situation would improve in the future.     Under
    17   these facts, and applying the Brunner factors (or any other test,
    18   for that matter), the decision to grant the debtors a hardship
    19   discharge of the student loans is certainly defensible.
    20            Over the years, Congress made more changes to § 523(a)(8),
    21   all excepting a broader array of educational obligations from
    22   discharge in bankruptcy.    For example, in 1998, Congress did away
    23   with the requirement that only those student loan debts that were
    24   less than seven years into the repayment period could be excepted
    25   from discharge in bankruptcy.    See Higher Education Amendments of
    26
    -3-
    1   1998, Pub. L. No. 105-244, § 971(a) (1998).   Under this amendment,
    2   student-debtors could no longer hope to discharge even the oldest of
    3   their educational obligations without demonstrating that repayment
    4   would constitute an undue hardship to them or their dependents.
    5         Most recently, in 2005, under pressure from lenders and
    6   lobbyists, Congress expanded the discharge exception to include, for
    7   the first time, private student loans.   Given the geometric
    8   increases in the amount of new and outstanding educational loans,
    9   this change to § 523(a)(8) meant that the pool of potentially
    10   nondischargeable education-related debts was now a truly huge one.
    11         As can be seen, while at one time bankruptcy courts were
    12   required to focus on a debtor’s circumstances only during the five
    13   to seven years after student loans became due, after 1998, the
    14   relevant time for examining whether a debtor had made good faith
    15   efforts to repay a student loan had no limits.   And after the 2005
    16   amendment, the number and kinds of student loan debts potentially
    17   excepted from discharge skyrocketed.
    18         In addition to these significant changes in the statutory
    19   landscape, educational borrowing has also changed drastically since
    20   the Brunner test was formulated and In re Pena adopted it.     Back
    21   then, bankruptcy courts only infrequently dealt with student loan
    22   discharge issues, and as shown by the facts of those cases, the
    23   amounts in controversy were usually modest.   As a practical matter,
    24   if a student loan was excepted from discharge, the debtor could be
    25   expected to repay it within a reasonable time.
    26
    -4-
    1         But things are different now.    Unlike the loans made mostly
    2   to traditional students by local banks and colleges in the 1970s,
    3   today, a variety of lenders now compete to provide “financial
    4   assistance” for a broad assortment of study and training, without
    5   regard to the wisdom of a student’s decision to borrow or their
    6   particular circumstances, and with nary a thought given to the
    7   borrower’s ability to repay the debts.   Today, facing the mammoth
    8   costs of a modern education, nearly all students must borrow heavily
    9   to finance their futures.   Much of that student loan debt is not
    10   incurred to finance a traditional college education, but instead
    11   goes to pay for other types of training, frequently delivered by
    12   “for-profit” companies, which may not significantly improve the
    13   debtor’s chances for employment or substantial earnings.
    14   Astoundingly, today there is nearly $1 trillion in outstanding
    15   educational debt, see Donghoon Lee, Household Debt and Credit:
    16   Student Debt at 2 (Federal Reserve Bank of New York, Feb. 28, 2013),
    17   http://newyorkfed.org/newsevents/mediaadvisory/2013/Lee022813.pdf;
    18   the average student loan balance is close to $25,000, 
    Id. at 7; and
    19   over 12 percent of borrowers owe $50,000 or more.   
    Id. at 6. On
    the
    20   heels of a record recession with high unemployment, it is not
    21   surprising that many of the students who borrowed to finance their
    22   education and training did not complete those programs.    It is also
    23   hardly surprising that the proportion of student loans that are
    24   delinquent is at near-record high levels.   
    Id. at 11 and
    15
    25
    26
    -5-
    1   (explaining that 17 percent of borrowers in repayment programs are
    2   ninety-plus days delinquent).
    3            As with the debtor in this appeal, many outstanding student
    4   loan debts are now decades old, owed by borrowers who never really
    5   had the ability to make substantial payments on the balances.      
    Id. 6 at 4
    (noting that 34 percent of all student loans are 40 years old
    7   or older).    And so, with accruing interest, those loan balances grow
    8   large.    It is also increasingly common that the debtor seeking
    9   bankruptcy relief from student loan debt is not the student but,
    10   instead, a family member or friend who agreed to co-sign or
    11   guarantee the loans.
    12            Unlike in Brunner and Pena, today, bankruptcy courts must
    13   frequently attempt to predict a debtor’s potential to repay a six-
    14   digit educational obligation over his or her entire lifetime.      In
    15   many of those cases, the benefit the debtor received from the
    16   education or training financed with these “loans” may be marginal,
    17   and the balances due to creditors exceed the debtor’s debt-service
    18   abilities.    It would seem that in this new, different environment,
    19   in determining whether repayment of a student loan constitutes an
    20   undue hardship, a bankruptcy court should be afforded flexibility to
    21   consider all relevant facts about the debtor and the subject loans.
    22   But Brunner does not allow it.    In addition to requiring that a
    23   debtor demonstrate a current inability to pay a student loan while
    24   maintaining a minimal standard of living, Brunner mandates that the
    25   debtor show “additional circumstances” to prove that his or her
    26
    -6-
    1   impecunious status will persist into the future.     Brunner, 
    831 F.2d 2
      at 396; 
    Pena, 155 F.3d at 1111
    .     Requiring that a debtor demonstrate
    3   that his or her financial prospects are forever hopeless is an
    4   unrealistic standard.
    5         Brunner’s additional requirement that a debtor show that he
    6   or she has made “good faith efforts” to repay a student loan is also
    7   of little utility in determining true undue hardship.    Of course, as
    8   a matter of statutory construction, this “prong” of the test lacks
    9   any textual basis in the Bankruptcy Code.    As a practical matter,
    10   requiring a debtor to clear this hurdle can condemn the student-
    11   borrower to a lifetime of burdensome debt under one or more of the
    12   creditors’ long-term repayment programs, some of which may span
    13   thirty-to-forty years.   This aspect of the Brunner test also fails
    14   to account for the potentially devastating debt-forgiveness tax
    15   consequences to the debtor resulting from the “successful”
    16   completion of such a program, which is one reason that the repayment
    17   programs are not that popular with borrowers.    At bottom, requiring
    18   debtors to participate in these creditor programs as a condition to
    19   obtaining a bankruptcy discharge simply means that creditors, not
    20   bankruptcy judges, will decide which loans can be repaid, and which
    21   should properly be forgiven.   This is surely not what Congress
    22   intended in enacting § 523(a)(8).
    23   ///
    24   ///
    25   ///
    26
    -7-
    1             The Ninth Circuit should reconsider its adherence to Brunner.
    2   It should instead, like a few other courts,17 craft an undue
    3   hardship standard that allows bankruptcy courts to consider all the
    4   relevant facts and circumstances on a case-by-case basis to decide,
    5   simply, can the debtor currently, or in the near-future, afford to
    6   repay the student loan debt while maintaining an appropriate
    7   standard of living.     This approach could allow the bankruptcy court,
    8   after weighing the facts of each case, to decide that a student-
    9   debtor, whose debt financed training that did not allow him or her
    10   to achieve any significant earnings, to discharge a large loan
    11   balance even in the absence of a debilitating illness or handicap.
    12   It could allow an elderly debtor to escape the burden of decades-old
    13   student loans when her prospects for repayment have disappeared,
    14   even though the debtor has not participated in a repayment plan with
    15   the creditor.     And this hardship test would focus on the
    16   contemporary world of student loan debt, not circumstances that
    17   existed thirty or more years ago.
    18
    19
    20        17
    To be sure, Brunner still predominates in the circuits as
    21   the go-to test for assessing undue hardship. The advantages to the
    more timely and enlightened “totality of circumstances” approach is
    22   explained in the First Circuit BAP’s decision in Bronsdon v. Educ.
    Credit Mgmt. Corp. (In re Bronsdon), 
    435 B.R. 791
    (1st Cir. BAP
    23   2010); see also Long v. Educational Credit Mgmt. Corp. (In re Long),
    
    322 F.3d 549
    , 554 (8th Cir. 2003) (observing that “fairness and
    24
    equity require each undue hardship case to be examined on the unique
    25   facts and circumstances that surround the particular bankruptcy
    [case].”).
    26
    -8-
    1         As America’s experience in the recent “mortgage crisis”
    2   should have taught us, employing an undue hardship discharge test
    3   that requires those who cannot repay educational loans, most of
    4   which are government-backed, to attempt to do so creates problems
    5   for all.   Under § 523(a)(8), Congress did not draw bright lines, but
    6   instead presumably intended that bankruptcy courts have the
    7   flexibility to make fact-based decisions in individual cases about
    8   the need for student loan debt relief.   Pena/Brunner restricts the
    9   bankruptcy courts’ ability to do so, and its application in the
    10   Ninth Circuit should be reconsidered.
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Document Info

Docket Number: BAP AZ-11-1233-RnPaKi; Bankruptcy 09-00317-RJH; Adversary 10-0764-RJH

Citation Numbers: 490 B.R. 908

Judges: Kirscher, Pappas, Renn

Filed Date: 4/16/2013

Precedential Status: Precedential

Modified Date: 8/6/2023

Authorities (31)

Bronsdon v. Educational Credit Management Corp. (In Re ... , 435 B.R. 791 ( 2010 )

Gertsch v. Johnson & Johnson, Finance Corp. (In Re Gertsch) , 237 B.R. 160 ( 1999 )

Education Credit Management Corp. v. Howe (In Re Howe) , 319 B.R. 886 ( 2005 )

Nys v. Educational Credit Management Corp. (In Re Nys) , 308 B.R. 436 ( 2004 )

Pennsylvania Higher Education Assistance Agency v. Birrane (... , 287 B.R. 490 ( 2002 )

Carnduff v. United States Department of Education (In Re ... , 367 B.R. 120 ( 2007 )

In Re Sandra Jane Frushour, Debtor. Educational Credit ... , 433 F.3d 393 ( 2005 )

Marie Brunner v. New York State Higher Education Services ... , 831 F.2d 395 ( 1987 )

Ozenne v. Bendon (In Re Ozenne) , 337 B.R. 214 ( 2006 )

Thiara v. Spycher Bros. (In Re Thiara) , 285 B.R. 420 ( 2002 )

Warfield v. Salazar (In Re Salazar) , 465 B.R. 875 ( 2012 )

Veal v. American Home Mortgage Servicing, Inc. (In Re Veal) , 450 B.R. 897 ( 2011 )

Baker v. Mereshian (In Re Mereshian) , 200 B.R. 342 ( 1996 )

in-re-patricia-a-brightful-patricia-a-brightful-v-pennsylvania-higher , 267 F.3d 324 ( 2001 )

United States v. Lazarenko , 564 F.3d 1026 ( 2009 )

in-re-rosemary-rifino-debtor-rosemary-rifino-v-united-states-of-america , 245 F.3d 1083 ( 2001 )

In Re Ernest J. Pena Julie Pena, Debtors, United Student ... , 155 F.3d 1108 ( 1998 )

In Re Keith Mason, Debtor, Educational Credit Management ... , 464 F.3d 878 ( 2006 )

In Re: Nanci Anne Long Debtor. Nanci Anne Long v. ... , 322 F.3d 549 ( 2003 )

Educational Credit Management Corp. v. Mosko (In Re Mosko) , 515 F.3d 319 ( 2008 )

View All Authorities »