in re: janet rose roth, 9th cir. bap (2013)

7/25/2019 In re: Janet Rose Roth, 9th Cir. BAP (2013)

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1 Pur suant t o Fed. R. Bankr. P. 8012, af t er not i ce t o t hepar t i es, t he Panel by or der ent er ed J ul y 3, 2012, unani mousl ydet er mi ned af t er exami nat i on of t he br i ef s and r ecor d t hat or alar gument was not needed.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

I n r e: ) BAP No. AZ- 11- 1233- RnPaKi )

J ANET ROSE ROTH, ) Bk. No. 09- 00317- RJ H )

Debt or . ) Adv. No. 10- 0764- RJ H______________________________)

)J ANET ROSE ROTH, )

)Appel l ant , ) v. ) O P I N I O N

)EDUCATI ONAL CREDI T MANAGEMENT )CORPORATI ON, ) ) )

Appel l ee. ) )

______________________________)

Submi t t ed Wi t hout Or al Ar gument on September 20, 20121

Fi l ed - Apr i l 16, 2013

Appeal f r om t he Uni t ed St at es Bankrupt cy Cour tf or t he Di st r i ct of Ar i zona

Honor abl e Randol ph J . Hai nes, Bankrupt cy J udge, Pr esi di ng _________________________________

Appear ances: Appel l ant J ane Rose Rot h on br i ef ;J ul i e K. Swedback, Esq. on br i ef f or appel l ee

Educat i onal Cr edi t Management Corporat i on. _________________________________

FILED

APR 16 2013

SUSAN M SPRAUL, CLU.S. BKCY. APP. PANOF THE NINTH CIRCU


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2 Hon. Thomas M. Renn, U. S. Bankr upt cy J udge f or t he Di st r i ctof Or egon, si t t i ng by desi gnat i on.

3 Unl ess ot her wi se i ndi cat ed, al l chapt er , sect i on and r ul er ef er ences ar e t o t he Bankrupt cy Code, 11 U. S. C. 101- 1532, and tt he Federal Rul es of Bankr upt cy Pr ocedur e, Rul es 1001- 9037.

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Bef ore: RENN, 2 PAPPAS and KI RSCHER, Bankr upt cy J udges.

Opi ni on by J udge Renn

Concur r ence by J udge Pappas

RENN, Bankr upt cy J udge:

Thi s pro se appeal ar i ses f r om a j udgment r ender ed af t er

t r i al i n an adver sary pr oceedi ng whi ch except ed f r om di schar ge unde

11 U. S. C. 523( a) ( 8) 3 Debt or J anet Rot h s ( Debt or ) st udent l oan

debt t o Educat i onal Cr edi t Management Corporat i on ( ECMC) . We

REVERSE and REMAND./ / /

/ / /

/ / /

/ / /

/ / /

/ / /

/ / /

/ / /

/ / /

/ / /

/ / /


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4 Debt or asks us to r evi ew al l appel l ant s exhi bi t s submi t t ed

t hr oughout [ t he adver sary pr oceedi ng bel ow] . Apl t . s Openi ng Br .at 6. However , her excer pt of r ecor d does not i ncl ude al l of t hoseexhi bi t s. Never t hel ess, we have exer ci sed our di scr et i on t o t akej udi ci al not i ce of t he el ect r oni c r ecor d i n t he adver sar y, as wemake r easonabl e al l owance f or pr o se l i t i gant s and const r ue thei rpaper s l i ber al l y. Ozenne v. Bendon ( I n r e Ozenne) , 337 B. R. 214,218 ( 9t h Ci r . BAP 2006) ; see al so O Rour ke v. Seaboar d Sur . Co. ( I nr e E. R. Feger t , I nc. ) , 887 F. 2d 955, 957- 58 ( 9t h Ci r . 1989) ( cour tmay t ake j udi ci al not i ce of bankrupt cy case bel ow) . We have not ,however , consi dered document s t hat nei t her we nor t he par t i es havei dent i f i ed as par t of t he t r i al cour t r ecor d. Ki r shner v. Uni den

Corp. of Am. , 842 F. 2d 1074, 1077- 78 ( 9t h Ci r . 1988) . For exampl e,Debt or has adduced t wo pages of account st atement s, Apl t . ER at 17-18, wi t h l i ne- i t ems she ar gues i ndi cat e vol unt ee [ si c] payment s, on t he FFELP Loans, whi ch she f ound [ post t r i al ] di ggi ng t hr oughol d st udent l oan f i l es. Apl t . Openi ng Br . at 4. Those accountst atement s have not been consi dered.

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I. FACTS4

From 1989 t o 1995 Debt or t ook out t hi r t een f eder al l y

guarant eed st udent l oans t otal i ng over $33, 000 under t he Federal

Fami l y Educat i onal Loan Progr am ( FFELP Loans) t o f und her

at t endance at Mesa Communi t y Col l ege and Ar i zona St ate Uni ver si t y.

I n addi t i on t o t he FFELP Loans, Debt or al so took out f i ve di r ect

l oans admi ni st er ed by t he U. S. Depar t ment of Educat i on ( DOE) .

Dur i ng her at t endance at school , Debt or st udi ed communi cat i ons,

i nf or mat i on technol ogy, and educat i on, but she never gr aduat ed as af ami l y i ssue necessi t at ed her qui t t i ng t he pr ogr ams.

Debt or s empl oyment hi st ory i s l ong and var i ed. She has

worked f or ext ended per i ods as an i nf ormat i on management cl erk f or

t he U. S. Def ense Depar t ment , a t i cket i ng count er cl er k f or sever al


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ai r l i nes, an i nf or mat i on t echnol ogy t echni ci an f or a col l ect i on of

used car deal er shi ps, an admi ni st r at i ve assi st ant f or Ar i zona St at e

Uni ver si t y, and a gover nment cont r act anal yst f or t he Veter ans

Admi ni st r at i on. Her l ast j ob was as a cake decor at or f or Wal - Mar t .

She has of t en wor ked mor e t han one j ob at t he same t i me t o make end

meet . I n 2008, her adj ust ed gr oss i ncome was $34, 789. I n 2009, i t

was $40, 098.

Debt or made no vol unt ar y payment s on t he FFELP Loans. She

def aul t ed on t hr ee of t hem i n 1998, and on t he r est i n 2001. Pr e-def aul t she was el i gi bl e f or f or ebear ances. At one poi nt , she

t est i f i ed she sent paper wor k t o Chi cago r egar di ng a f or ebear ance,

but she never hear d back and never f ol l owed up. Ot her t han t hat

at t empt , she di d not seek any def erment s or f orebear ances. Nei t her

di d she make any ef f or t s t o rest r uct ur e the l oans t o reduce t he

payment s or ot her wi se modi f y t hei r t er ms. She t est i f i ed t hat bef or

she f i l ed bankrupt cy, she di d not know whom t o cal l t o obt ai n a

modi f i cat i on.

For a t i me t he DOE admi ni st r at i vel y gar ni shed her wages.

Debt or t est i f i ed she was unaware she had t wo l enders and pr esumed

t he col l ect i on act i vi t y per t ai ned t o t he FFELP Loans. I t appear s a

some poi nt one or more of ECMC s predecessors- i n- i nt erest at t empt ed

t o al so garni sh Debt or s wages but , because t he DOE had a cont i nui n

garni shment i n pl ace or she was unempl oyed, t hose at t empts were

unsuccessf ul . I t al so appear s t hat at cer t ai n t i mes Debt or s

f eder al and st at e t ax r ef unds wer e of f set agai nst her st udent l oan


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obl i gat i ons. The r ecor d, however , i s uncl ear as t o whet her t hose

of f sets wer e i ni t i at ed by the DOE ( or i t s agent s) or by ECMC s

pr edecessor s. I t i s cl ear f r om t he r ecor d t hat Debt or was unabl e t

i dent i f y whi ch l oans r ecei ved payment s or even that t wo l ender s wer

i nvol ved i n admi ni st er i ng t he var i ous l oans.

At pr esent , Debt or suf f er s f r om sever al chr oni c medi cal

condi t i ons i ncl udi ng a t hyr oi d condi t i on, di abet es, macul ar

degener at i on, cat ar act s, hi gh chol est er ol , and depr essi on. Some of

her medi cal condi t i ons r equi r ed sur ger y. Debt or has al so i ncur r edser i ous shoul der , knee, and wr i st i nj ur i es t hat have l i mi t ed her

act i vi t i es. Al l of her medi cal i l l s necessi t at e many medi cal

appoi nt ment s, whi ch i n some i nst ances have pr ecl uded el i gi bi l i t y f o

new empl oyment . Al t hough hamper ed by her ai l ment s, Debt or f eel s sh

i s not t ot al l y di sabl ed f r om wor ki ng unl ess her si ght goes and . .

. [ she] can t r ead. [ Tr i al Tr . ( Apr i l 27, 2011) 42: 22] .

On J anuar y 8, 2009, Debt or f i l ed f or Chapt er 7 r el i ef pr o se.

On Apr i l 27, 2010, she commenced an adver sar y proceedi ng i n t he

bankrupt cy cour t seeki ng t o have bot h t he FFELP and DOE Loans

di schar ged. Shor t l y t her eaf t er , t he FFELP Loans wer e assi gned t o

ECMC. As of J anuary 5, 2011, t he aggr egate bal ance on t he FFELP

Loans was at l east $95, 403. 86. Based on an admi ni st r at i ve di schar g

of t he DOE l oans, t he DOE was di smi ssed f r omt he adver sar y

pr oceedi ng pur suant t o an order ent ered J une 1, 2010.

From J ul y 2009 t o J anuar y 2011, Debt or appl i ed unsuccessf ul l y

f or over 280 f ederal j obs. She concent r ated on t hi s empl oyment


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The I BRP shoul d be di st i ngui shed f r om t he I ncome Cont i ngentRepayment Progr am ( I CRP) , 34 C. F. R. 685. 209( a) , anotherr epayment pl an of f ered under t he Ford pr ogr am and r ef erenced i n manyst udent l oan cases. E. g. , Br aun v. Sal l i e Mae ( I n r e Br aun) ,2012 WL 5199163 at *8 (Bankr . E. D. Va. Oct ober 19, 2012) ( compar i ngt he I BRP and I CRP) .

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sect or , because she had pr evi ousl y been a f ederal empl oyee and

bel i eved she had pr ef er ent i al r ehi r i ng r i ght s. She al so appl i ed f o

non- f eder al posi t i ons. She t est i f i ed t hat she s wor ked f or f or t y-

f i ve year s and want ed t o f i nd a j ob, al t hough i t woul d onl y be

j ust i f i ed t o do so i f i t pai d above mi ni mum wage. She f ur t her

t est i f i ed t hat i f her di schar ge was deni ed, she mi ght ei t her enr ol l

i n t he i ncome- based r epayment pl an di scussed bel ow, or r emai n

unempl oyed.

Appr oxi matel y si x mont hs af t er t he adver sar y pr oceedi ng wasf i l ed, ECMC sent Debt or i nf or mat i on and an appl i cat i on t o

admi ni st r at i vel y di schar ge her FFELP debt based on t ot al and

per manent di sabi l i t y. Debt or di d not appl y because she di d not

consi der her sel f suf f i ci ent l y di sabl ed. Appr oxi mat el y t hr ee mont hs

l at er , ECMC advi sed Debt or she was el i gi bl e under t he f eder al

Wi l l i am D. For d pr ogr am t o consol i dat e al l t hi r t een of her FFELP

l oans and par t i ci pat e i n t he i ncome- based r epayment pl an ( I BRP)

The I BRP r equi r es t he bor r ower t o make a t went y- f i ve- year commi t ment

t o dedi cat e on a mont hl y basi s 1/ 12t h of f i f t een per cent of t he

amount her average gr oss i ncome exceeds 150% of t he f ederal pover t y

l evel f or t he debt or s f ami l y si ze. 5 34 C. F. R. 685. 221. The pl an


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6 Under t he pr esent I nt er nal Revenue Code, t hi s f or gi veness ofdebt woul d be t axabl e i ncome, 26 U. S. C. 61( a) ( 12) , except t o t he

ext ent t he debt or was, at t hat t i me, i nsol vent . 26 U. S. C. 108( a) ( 1) ( B) , ( a) ( 3) , ( d) ( 3) .

7 See Br unner v. N. Y. St at e Hi gher Educ. Ser vs. , I nc. ( I n r eBr unner ) , 831 F. 2d 395, 396 ( 2d Ci r . 1987) , af f g and adopt i ng 46B. R. 752, 756 ( S. D. N. Y. 1985) .

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t er m woul d be t went y- f i ve year s; t her eaf t er , any r emai ni ng bal ance

woul d be f or gi ven. 34 C. F. R. 685. 221( f ) . 6 Because Debt or s

i ncome di d not exceed t he f eder al pover t y l evel , her i ni t i al mont hl y

I BRP payment woul d have been zer o, and woul d have remai ned so unt i l

t he 150% i ncome t hr eshol d was met . Debt or underst ood t he t erms and

condi t i ons of t he I BRP but di d not appl y f or i t , r easoni ng she coul

do so at any t i me, even i f t he bankr upt cy cour t deni ed di schar ge of

her st udent l oans, and t hat her ener gy was best put t oward r egai ni n

her heal t h so she coul d get back t o work. When t he adversar ypr oceedi ng was t r i ed on Apr i l 27, 2011, Debt or was s i xty- f our year s

ol d, unempl oyed, and had no dependent s. Her onl y i ncome was soci al

secur i t y of $774 per mont h. Despi t e l i vi ng f r ugal l y, her mont hl y

expenses r egul ar l y exceeded her i ncome.

I n r eachi ng i t s deci si on t o except t he FFELP Loans f r om

Debt or s di schar ge, t he bankrupt cy cour t appl i ed t he Br unner 7 test,

whi ch has t hr ee pr ongs. The cour t had no t r oubl e concl udi ng Debt or

had met t he f i r st t wo pr ongs. That i s, t he evi dence showed t hat ,

based on her cur r ent i ncome and expenses, she coul d not mai nt ai n a

mi ni mal st andar d of l i vi ng i f f or ced t o r epay the FFELP Loans, and,


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f ur t her , addi t i onal ci r cumst ances i ndi cat ed i t was mor e l i kel y t han

not t hat her f i nanci al di f f i cul t i es woul d per si st f or a si gni f i cant

por t i on of t he Loans r epayment per i od. [ Tr i al Tr . at 58: 20- 59: 16]

The cour t , however , st r uggl ed wi t h Br unner s t hi r d prong,

whi ch, as di scussed i n det ai l bel ow, r equi r es t hat a debt or make

good f ai t h ef f or t s t o r epay t he l oans. I t agr eed t hat Debt or s

par t i ci pat i on i n t he I BRP was not r equi r ed t o f i nd good f ai t h,

because i mposi ng such a r equi r ement woul d r epl ace r i ght s gi ven unde

523( a) ( 8) wi t h t hose of an admi ni st r at i ve r emedy. [ I d. at 61: 2-17] . Fur t her , i n exami ni ng past ef f or t s, t he cour t quest i oned

whet her good f ai t h pl ayed a r ol e at al l when t he evi dence i ndi cat ed

t hat , even assumi ng best or good f ai t h ef f or t s, Debt or coul d never

have pai d t he FFELP Loans i n f ul l and i n f act , not wi t hst andi ng such

ef f or t s, woul d st i l l be f aced wi t h a bal ance t hat was an undue

har dshi p t o pay. [ I d. at 59: 17- 60: 16] . Despi t e such concer ns,

however , t he cour t f el t const r ai ned by Ni nt h Ci r cui t pr ecedent whi c

i t f el t r equi r ed consi der at i on of past ef f or t s t o r educe t he bal anc

of t he st udent l oan debt . Thus, t he cour t concl uded t hat Debt or s

l ack of vol unt ar y payment s, and her l ack of ef f or t s t o r enegot i at e,

obt ai n a f or ebear ance, or obt ai n a di sabi l i t y di schar ge, t i pped t he

good f ai t h bal ance away f r om her . [ I d. at 60: 17- 24] .

II. JURISDICTION

The bankrupt cy cour t had j ur i sdi ct i on over t hi s proceedi ng

under 28 U. S. C. 1334 and 157( b) ( 2) ( I ) . We have j ur i sdi ct i on

under 28 U. S. C. 158( b) .


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8 Cont r ary t o Rul e 8006, Debt or di d not submi t a st atement ofi ssues on appeal . However , her openi ng and suppl ement al br i ef s

suf f i ci ent l y i dent i f y t he i ssues. ECMC has responded t o t hosei ssues and has cl ai med no pr ej udi ce f r om t he l ack of t he Rul e 8006st at ement . Fur t her , based on t he br i ef s and t he r ecor d, we ar e ablt o compl et el y under st and t he i ssues. Debt or may t her ef ore gof or war d wi t hout a separ at e Rul e 8006 st at ement . Ger t sch v. J ohnson& J ohnson, Fi n. Cor p. ( I n r e Ger t sch) , 237 B. R. 160, 166 ( 9t h Ci r .BAP 1999) .

9 As r ef er enced above, t he f i r st t wo pr ongs r equi r e a showi ng:

( 1) t hat t he debt or cannot mai nt ai n, based on

cur r ent i ncome and expenses, a mi ni mal st andar d of l i vi ng f or her sel f and herdependent s i f f or ced t o r epay t he l oans; and ( 2)t hat addi t i onal ci r cumst ances exi st i ndi cat i ngt hat t hi s st at e of af f ai rs i s l i kel y t o pers i s t

( cont i nued. . .

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III. ISSUE

Whether t he bankr upt cy cour t err ed i n concl udi ng t hat Debt or

f ai l ed t o make a good f ai t h ef f or t t o r epay her st udent l oans. 8

IV. STANDARD OF REVIEW

Under 523( a) ( 8) , st udent l oans are except ed f r om t he

di schar ge a debt or r ecei ves i n bankr upt cy unl ess r epayi ng t hose

l oans woul d i mpose an undue hardshi p on t he debt or and the debt or

dependent s. I n Uni t ed St udent Ai d Funds v. Pena ( I n r e Pena) ,

155 F. 3d 1108, 1112 ( 9t h Ci r . 1998) , t he Ni nt h Ci r cui t adopt ed t het hr ee- pr onged t est set out i n Br unner , 831 F. 2d at 396, t o det er mi n

whether t he undue hardshi p st andard has been met . The l ast of t hos

pr ongs r equi r es t he cour t t o determi ne whether t he debt or made goo

f ai t h ef f or t s t o r epay t he l oans. I d. 9 The pr i mar y i ssue i n t hi s


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9( . . . cont i nued)f or a si gni f i cant por t i on of t he r epaymentper i od of t he st udent l oans.

I d.

10 Under Fed. R. App. P. 32. 1 and 9t h Ci r . BAP Rul e 8013-1( c) ( 2) , Bl ackbi r d may be ci t ed f or i t s per suasi ve, but notpr ecedent i al , val ue.

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appeal i s whet her t he bankrupt cy cour t er r ed i n r eachi ng i t s

concl usi on on t he good f ai t h pr ong. A t hr eshol d quest i on i s unde

what st andar d shoul d t hat det er mi nat i on be r evi ewed. I n l i ght of

seemi ngl y cont r adi ct or y l anguage i n Ni nt h Ci r cui t pr ecedent , we

publ i sh t hi s opi ni on t o cl ar i f y t he appr opr i at e st andar d of r evi ew.

What i s cl ear f r om t he casel aw i s t hat t he ul t i mat e undue

har dshi p det er mi nat i on i s r evi ewed de novo, as i t r equi r es a

det er mi nat i on of t he l egal ef f ect of t he bankrupt cy cour t s

f i ndi ngs regar di ng t he st udent s ci r cumst ances. Educ. Cr edi t MgmtCor p. v. Mason ( I n r e Mason) , 464 F. 3d 878, 881 ( 9t h Ci r .

2006) ( quot i ng Ri f i no v. Uni t ed St at es ( I n r e Ri f i no) , 245 F. 3d 1083

1087 n. 2 ( 9t h Ci r . 2001) ) . Mor e par t i cul ar l y, t he undue har dshi p

det er mi nat i on i s a mi xed quest i on of f act and l aw. Hedl und v. Educ

Res. I nst . I nc. , 468 B. R. 901, 906 ( D. Or . 2012) ; Educ. Cr edi t Mgmt

Cor p. v. Frushour ( I n r e Frushour ) , 433 F. 3d 393, 398 ( 4t h Ci r .

2005) ; Educ. Cr edi t Mgmt . Cor p. v. Bl ackbi r d ( I n r e Bl ackbi r d) , 200

WL 8444793 at *3 ( 9th Ci r . BAP 2008) . 10 A mi xed quest i on of l aw

and f act occur s when t he hi st or i cal f act s ar e est abl i shed; t he r ul e

of l aw i s undi sput ed . . . ; and t he i ssue i s whet her t he f act s


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sat i sf y t he l egal r ul e. Mur r ay v. Bammer ( I n r e Bammer ) , 131 F. 3d

788, 792 ( 9t h Ci r . 1997) . Because [ m] i xed quest i ons . . . r equi r e

consi der at i on of l egal concept s and t he exer ci se of j udgment about

t he val ues t hat ani mat e l egal pr i nci pl es, t hey ar e r evi ewed de

novo. I d. De novo r evi ew i s i ndependent and gi ves no def erence t o

t he t r i al cour t s concl usi on. War f i el d v. Sal azar ( I n r e Sal azar ) ,

465 B. R. 875, 878 ( 9t h Ci r . BAP 2012) .

I t i s al so cl ear t hat t he bankr upt cy cour t s det er mi nat i ons

of t he hi st or i cal f act s under l yi ng i t s undue har dshi p det er mi nat i onar e r evi ewed f or cl ear er r or . Educ. Cr edi t Mgmt . Cor p. v. Howe ( I n

r e Howe) , 319 B. R. 886, 888 ( 9t h Ci r . BAP 2005) . The cl ear er r or

st andar d appl i es t o i mpl i ed as wel l as expr ess f act ual f i ndi ngs.

Ti ghe v. Val enci a ( I n r e Guadar r ama) , 284 B. R. 463, 477 ( C. D. Cal .

2002) . Revi ew f or cl ear er r or i s si gni f i cant l y def er ent i al .

Baker v. Mer eshi an ( I n r e Mer eshi an) , 200 B. R. 342, 345 ( 9t h Ci r .

BAP 1996) . The appel l at e cour t shoul d not r ever se unl ess i t i s l ef

wi t h a def i ni t e and f i r m convi ct i on t hat a mi st ake has been

commi t t ed. I d. ( i nt er nal quot at i on omi t t ed) . The r evi ewi ng cour t

may not r everse si mpl y because i t i s convi nced i t woul d have deci de

t he case di f f er ent l y. I d. Wher e t her e ar e t wo per mi ssi bl e vi ews

of t he evi dence, t he f act f i nder s choi ce bet ween t hem cannot be

cl ear l y er r oneous. I d. ( i nt er nal quot at i on omi t t ed) . Fur t her , t h

r evi ewi ng cour t must gi ve due r egar d t o t he oppor t uni t y of t he

bankrupt cy cour t t o j udge t he cr edi bi l i t y of wi t nesses. Rul e 8013;

Thi ar a v. Spycher Br os. ( I n r e Thi ar a) , 285 B. R. 420, 427 ( 9th Ci r .


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11 Li kewi se, i n Bl ackbi r d, an unpubl i shed memorandum, weexpr essl y hel d t hat r evi ew of t he good f ai t h pr ong i s de novo. 2008WL 8444793 at *3.

- 12-

BAP 2002) . Thi s def er ence i s al so gi ven t o i nf er ences dr awn by t h

. . . [ bankr upt cy] cour t . I d.

To summar i ze, t he ul t i mat e undue har dshi p det er mi nat i on i s

r evi ewed de novo because i t i s a mi xed quest i on of f act and l aw, an

t he f act ual f i ndi ngs r egar di ng t he ci r cumst ances under pi nni ng t hat

det er mi nat i on ar e r evi ewed f or cl ear er r or . What i s not so cl ear i

t he st andar d of r evi ew t o be appl i ed t o t he t hr ee i ndi vi dual Br unne

pr ongs. Ar e t hey f act ual det er mi nat i ons r evi ewed f or cl ear er r or o

mi xed quest i ons revi ewed de novo? I n Pa. Hi gher Educ. Ass i st anceAgency v. Bi r r ane ( I n r e Bi r r ane) , 287 B. R. 490 ( 9t h Ci r . BAP 2002)

wi t hout di scussi ng t he i ssue, we hel d, at l east by i mpl i cat i on, t ha

t he Br unner pr ongs ar e mi xed quest i ons ent i t l ed t o de novo r evi ew.

I d. at 500- 501 ( bankrupt cy cour t di d not commi t an er r or of l aw i n

appl yi ng pr ong one t o t hose f act ual f i ndi ngs, but i t di d er r as a

mat t er of l aw i n appl yi ng pr ongs t wo and t hr ee) . Bi r r ane has

subsequent l y been f ol l owed f or t hi s pr oposi t i on. See, e. g. ,

Hedl und, 468 B. R. at 913. 11 These hol di ngs, however , do not end t he

i nqui r y as t hey must be squar ed wi t h l anguage i n Pena, Ri f i no, and

Mason. I n each of t hose cases, whi l e acknowl edgi ng t he ul t i mat e

undue hardshi p determi nat i on i s a quest i on of l aw r evi ewed de novo,

t he cour t never t hel ess used cl ear er r or l anguage i n i t s anal ysi s


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12 Appl yi ng . . . [t he Br unner ] t est ,t he bankr upt cy cour t di d not cl ear l y er r i n f i ndi ng t hat( 1) t he Penas coul d not mai nt ai n a mi ni mal st andard ofl i vi ng and r epay t hei r st udent l oans, ( 2) t hei runf or t unat e f i nanci al si t uat i on was l i kel y t o cont i nue f oa subst ant i al por t i on of t he r epayment per i od, and ( 3)t hey made a good- f ai t h at t empt t o pay t he l oans.

Pena, 155 F. 3d at 1114 (emphasi s added) .

We concl ude t hat t he bankr upt cy cour t di d notcl ear l y er r i n f i ndi ng t hat Ri f i no' s st andar d of

l i vi ng woul d f al l bel ow a mi ni mal l evel i f shewer e r equi r ed t o r epay her st udent l oans.

. . . .

[ W] e hol d t hat t he bankrupt cy cour t cl ear l yer r ed i n concl udi ng t hat Ri f i no' s ci r cumst ancesar e l i kel y t o per s i st f or a s i gni f i cant por t i onof t he repayment per i od of her st udent l oans.

Ri f i no, 245 F. 3d at 1088- 89 ( emphasi s added) .

[ W] e concl ude that t he bankrupt cy cour t cl ear l yerr ed i n f i ndi ng t hat Mason demonst r ated goodf ai t h ef f or t s t o r epay hi s l oans.

Mason, 464 F. 3d at 885 ( emphasi s added) .

- 13-

of t he i ndi vi dual Br unner pr ongs. 12 Because t he t wo posi t i ons

( i . e. , de novo ( mi xed quest i on) r evi ew of t he ul t i mat e undue

har dshi p det er mi nat i on and cl ear er r or r evi ew of t he i ndi vi dual

pr ongs) ar e i nher ent l y cont r adi ct or y, we ar e cal l ed t o det er mi ne

whi ch one must yi el d. We hol d t hat i t must be t he l at t er .

The t hree Br unner prongs ar e not el ement s a cour t t hrows i nto

a vi al , and t hen mi xes and spi ns t o ar r i ve at an amal gam cal l ed


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- 14-

undue har dshi p. Rat her , t hey ar e st and- al one r equi r ement s.

Fai l ur e t o pr ove any one pr ecl udes di schar ge. Car nduf f v. U. S.

Dep t of Educ. ( I n r e Car nduf f ) , 367 B. R. 120, 127 ( 9t h Ci r . BAP

2007) . Thus, i f t he ul t i mat e undue har dshi p det er mi nat i on i s

r evi ewed de novo because i t i s a mi xed quest i on, and mi xed quest i on

i nvol ve t he exer ci se of j udgment about t he val ues t hat ani mat e

l egal pr i nci pl es, Bammer , 131 F. 3d at 792 ( emphasi s added) , i t must

t hen f ol l ow t hat t he thr ee i ndependent pr ongs ar e al so mi xed

quest i ons requi r i ng de novo r evi ew. I f not , and t hey i nst ead ar esi mpl y f act ual det er mi nat i ons, t he revi ewi ng cour t , upon f i ndi ng no

cl ear err or as t o each pr ong, woul d be bound t o uphol d t he

bankrupt cy cour t as t o t he ul t i mat e undue har dshi p det er mi nat i on.

Such a mechani cal appl i cat i on of t he pr ongs, however , woul d negate

t he r evi ewi ng cour t s abi l i t y t o exer ci se j udgment .

Our concl usi on i s but t r essed by pr ecedent out si de the Ni nt h

Ci r cui t . Most cour t s whi ch have di r ect l y addr essed t he i ssue,

i ncl udi ng t he Thi r d and Four t h Ci r cui t Cour t s of Appeal s, have hel d

t hat each Br unner pr ong i s revi ewed de novo. E. g. , Educ. Cr edi t

Mgmt . Corp. v. Mosko ( I n r e Mosko) , 515 F. 3d 319, 324 ( 4t h Ci r .

2008) ; Br i ght f ul v. Pa. Hi gher Educ. Assi st ance Agency ( I n r e

Br i ght f ul ) , 267 F. 3d 324, 327 ( 3d Ci r . 2001) ; Educ. Cr edi t Mgmt .

Cor p. v. Cur i st on, 351 B. R. 22, 27 ( D. Conn. 2006) ; But see Kr i eger

v. Educ. Cr edi t Mgmt . Cor p. , 2013 WL 1442305 at *2 ( 7t h Ci r . Apr i l

10, 2013) .


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13 Pr i or t o t he t r i al , Debt or st i pul at ed t hat t he l oans i nquest i on wer e educat i onal l oans as cont empl at ed i n 523( a) ( 8) .[ J oi nt Pr e- t r i al St at ement , Adv. Doc. #59 at 6: 4- 5] . Thebankr upt cy cour t t hen gr ant ed ECMC s mot i on f or part i al summaryj udgment on t hi s i ssue. Debt or has not chal l enged t hi s r ul i ng onappeal .

Debt or al so st i pul at ed t hat t he l oans had an out st andi ngaggr egat e bal ance of no l ess t han $95, 403. 86 as of J anuary 5, 2011.[ I d. at 6: 6- 7] . On summary j udgment t he bankr upt cy cour t hel d t hatt he aggr egate pr i nci pal amount of t he debt was $33, 160, whi chaccr ued annual i nt er est at a mi ni mum of 3. 28% on each of t het hi r t een l oans si nce t hey wer e or i gi nal l y di sbur sed. Al t houghsomewhat di sj oi nt ed, Debt or s br i ef s coul d be const r ued t o chal l engt he amount of t he aggr egat e debt . At t r i al , ECMC s wi t ness J ul i eSwedback comput ed i t at $95, 890. 20 as of Apr i l 26, 2011. However ,

t he par t i es di d not seek l i qui dat i on of t he debt as a cont est edi ssue. [ I d. at 6: 26] . Fur t her , t he bankr upt cy cour t di d notl i qui dat e t he debt i n ei t her i t s par t i al summar y j udgment or i t sj udgment denyi ng di schar ge. Nei t her par t y ar gues t hi s was er r or .Thus, f or pur poses of t hi s appeal , we need not concer n oursel ves

( cont i nued. . .

- 15-

Ret ur ni ng t o t he appeal at bar , t he mai n i ssue i s whet her

Debt or met her bur den of pr oof on Br unner s good f ai t h pr ong. We

wi l l r evi ew t he f act ual under pi nni ngs of t hat det er mi nat i on under

t he def er ent i al cl ear er r or st andar d, but wi l l conduct a non-

def er ent i al de novo r evi ew of t he bankrupt cy cour t s ul t i mat e good

f ai t h concl usi on.

V. DISCUSSION

Under 523( a) ( 8) , t he l ender has t he i ni t i al bur den t o

est abl i sh t he exi st ence of t he debt and t hat t he debt i s aneducat i onal l oan wi t hi n t he st at ut e s par amet er s. Lavy v. U. S.

Dep t of Educ. ( I n r e Lavy) , 2008 WL 4964721 at *3 ( Bankr . W. D.

Wash. Nov. 14, 2008) . ECMC has met t hose bur dens. 13 The bur den


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13( . . . cont i nued)wi t h t he exact amount of debt , and may, even di sr egardi ng MsSwedback s t est i mony, r el y i n our anal ysi s on Debt or s st i pul at i ont hat t he debt was at l east $95, 403. 86 as of J anuar y 5, 2011,appr oxi mat el y f our mont hs bef or e t r i al .

14 Whi l e ECMC, as t he pr evai l i ng par t y at t r i al , coul d have,wi t hout cr oss- appeal , def ended t he bankrupt cy cour t s j udgment on

any gr ound i t pr oper l y rai sed bel ow, Val enci a, 284 B. R. at 477, i thas chosen not t o chal l enge t he bankr upt cy cour t s concl usi ons as tt he f i r st t wo pr ongs.

15 The good- f ai t h r equi r ement f ul f i l l s t hepur pose behi nd t he adopt i on of sect i on523( a) ( 8) . Br unner , 46 B. R. at 75455. Sect i on523( a) ( 8) was a r esponse t o a r i si ng i nci denceof consumer bankr upt ci es of f ormer st udent smot i vat ed pr i mar i l y t o avoi d payment ofeducat i on l oan debt s. I d. , ( quot i ng t heRepor t of t he Commi ssi on on t he Bankr upt cy Laws

of t he Uni t ed St at es, House Doc. No. 93137, Pt .I , 93d Cong. , 1st Sess. ( 1973) at 140 n. 14) .Thi s sect i on was i ntended t o f or est al l st udent s. . . f r om abusi ng t he bankr upt cy syst em. I d.

( cont i nued. . .

- 16-

t hen shi f t s t o t he debt or , I d. , t o pr ove al l t hr ee Br unner pr ongs,

Ri f i no, 245 F. 3d at 1087- 88, by a pr eponder ance of t he evi dence.

Nys v. Educ. Cr edi t Mgmt . Cor p. v. Nys ( I n r e Nys) , 308 B. R. 436,

441 ( 9t h Ci r . BAP 2004) , af f d on ot her gr ounds, 446 F. 3d 938 ( 9t h

Ci r . 2006) . The bankrupt cy cour t hel d t hat Debt or met Br unner s

f i r st t wo pr ongs but f ai l ed t o pr ove t he t hi r d. The onl y i ssue on

appeal i s whet her i t s concl usi on as t o pr ong t hr ee was i n er r or . 14

As noted, under Br unner s t hi r d pr ong, a debt or must make

good f ai t h ef f or t s t o r epay the st udent l oans.

15

Good f ai t h i s


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15( . . . cont i nued)Pena, 153 F. 3d at 1111.

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measured by t he debt or ' s ef f ort s t o obt ai n empl oyment , maxi mi ze

i ncome, and mi ni mi ze expenses. Mason, 464 F. 3d at 884 ( i nt ernal

quot at i on omi t t ed) . Cour t s wi l l al so consi der a debt or ' s ef f or t - -

or l ack t her eof - - t o negot i at e a r epayment pl an, I d. ( i nt er nal

quot at i on omi t t ed) , as t hi s i s an i mpor t ant i ndi cat or of good

f ai t h. Bi r r ane, 287 B. R. at 499. However , f ai l ur e t o negot i at e o

accept an al t er nat i ve r epayment pl an i s not di sposi t i ve. Educ.

Cr edi t Mgmt . Cor p. v. J or gensen ( I n r e J or gensen) , 479 B. R. 79, 89

n. 4 ( 9t h Ci r . BAP 2012) ( debt or s f ai l ur e t o accept ECMC s Gr aduat eRepayment Opt i on was not de f act o evi dence of a l ack of good

f ai t h) . Any of f er ed r epayment pl an s t er ms, dur at i on, and

consequences need t o be exami ned. Carnduf f , 367 B. R. at 136- 37.

These consequences i ncl ude f uture t ax l i abi l i t y and negat i ve cr edi t

rat i ngs . I d.

Cour t s al so exami ne: 1) whether t he debt or has made any

payment s on t he l oan pr i or t o f i l i ng f or di schar ge, J or gensen, 479

B. R. at 89, al t hough a hi st ory of maki ng or not maki ng payment s i s

by i t sel f , not di sposi t i ve[ , ] Mason, 464 F. 3d at 884 ( i nt er nal

ci t at i on omi t t ed) ; 2) whet her t he debt or has sought def erment s or

f or ebear ances, East v. Educ. Cr edi t Mgmt . Cor p. ( I n r e East ) , 270

B. R. 485, 495 ( Bankr. E. D. Cal . 2001) ; 3) t he t i mi ng of t he debt or

at t empt t o have t he l oan di schar ged, Educ. Cr edi t Mgmt . Corp. v.

DeGr oot ( I n r e DeGr oot ) , 339 B. R. 201, 214 ( D. Or . 2006) ; and 4)


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16 I n her cl osi ng argument , Debt or st ated t hat even t hough shemade $40, 000 [ i n 2009] , she st i l l had obl i gat i ons, i ncl udi ng amort gage, and st i l l had chi l dr en at home, whi ch i s why she worked

j ob and a hal f . [ Tr i al Tr . at 57: 24- 58: 3] . She f ur t her st at ed i nar gument t hat she had f our ki ds [ she] . . . had t o suppor t whenshe moved t o Ar i zona. [ I d. at 58: 7- 8] . We have not consi der edt hese st at ement s i n our f act ual anal ysi s. Uni t ed St at es v.Lazarenko, 564 F. 3d 1026, 1037 ( 9t h Ci r . 2009) ( st at ement s i nargument are not evi dence) .

- 18-

whet her t he debt or s f i nanci al condi t i on r esul t ed f r om f act or s

beyond her r easonabl e cont r ol , Bi r r ane, 287 B. R. at 500, as a debt o

may not wi l l f ul l y or negl i gent l y cause her own def aul t . I d. The

good f ai t h obl i gat i on cont i nues even af t er an adver sary pr oceedi n

i s f i l ed t o det er mi ne t he di schar geabi l i t y of t he st udent l oan debt

I d.

Exami ni ng t he f actors, Debt or di d not make any vol unt ary

payment s. However , l ack of even mi ni mal vol unt ary payment s i s not

l ack of good f ai t h i f t he debt or di d not have t he f i nanci alwherewi t hal t o make t hem. Engl and v. Uni t ed St ates ( I n r e Engl and)

264 B. R. 38, 48 ( Bankr . D. I daho 2001) ; Hur l ey v. St udent Loan Acq.

Aut h. of Ar i z. , et . al . , ( I n r e Hur l ey) , 258 B. R. 15, 25- 26 ( Bankr .

D. Mont . 2001) . Whi l e t he bankr upt cy cour t f ound Debt or was abl e t

make payment s i n t he f ew good earni ng years she had [2008 and

2009] , 16 [ Tr i al Tr . at 60: 12- 14] , i t made no f i ndi ngs as t o how much

t hose payment s woul d have been. The r ecor d, however , i s compl ete

enough f or us t o f i nd t hat any payment woul d have been modest as i t

i s uncont r over t ed Debt or has never had si gni f i cant i ncome above

necessary expenses. Veal v. Am. Home Mor t g. Ser vi ci ng, I nc. ( I n r e


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- 19-

Veal ) , 450 B. R. 897, 919 ( 9t h Ci r . BAP 2011) ( an appel l at e panel may

conduct r evi ew i f a compl ete underst andi ng of t he i ssues may be

obt ai ned f r om t he r ecor d as a whol e or i f t her e can be no genui ne

di sput e about omi t t ed f i ndi ngs) . Fur t her , i mpl i ed i n t he cour t s

f i ndi ngs as t o 2008 and 2009 i s a f i ndi ng, whi ch we wi l l not

di st ur b, t hat , except f or t hose year s, Debt or was unabl e t o make

vol unt ary payment s. See J ohnson Sw. , I nc. v. Habert Energy Corp.

( I n r e J ohnson Sw. , I nc. ) , 205 B. R. 823, 827 ( N. D. Tex. 1997) ( A

r evi ewi ng cour t may assume t hat t he t r i al cour t made an i mpl i edf i ndi ng consi st ent wi t h i t s gener al hol di ng so l ong as t he i mpl i ed

f i ndi ng i s suppor t ed by t he evi dence. ) . I ndeed, t hi s i nabi l i t y ma

have been due t o t he DOE s ongoi ng gar ni shment s and t he t ax ref und

of f set s. At l east one cour t has hel d t hat maki ng payment s t hr ough

gar ni shment or of f set s wi t h t he debt or s consent demonst r at es good

f ai t h. Hami l t on v. U. S. Dep t of Educ. ( I n r e Hami l t on) , 361 B. R.

532, 558 ( Bankr. D. Mont . 2007) . I n t hi s r egar d, Debt or t est i f i ed

she di d not r eal i ze she had t wo separate l enders and assumed t he

FFELP l oans wer e bei ng pai d t hr ough t hese f or ced col l ect i on ef f or t s

The bankrupt cy cour t made no expr ess f i ndi ngs as t o Debt or s overal

credi bi l i t y or her credi bi l i t y on t hi s par t i cul ar poi nt . However ,

i t di d accept Debt or s t est i mony rel evant t o pr ongs one and t wo, an

t hus we can i nf er t he cour t t hought Debt or gener al l y cr edi bl e.

Haber t Ener gy Cor p. , 205 B. R. at 827. Gi ven t hi s i nf er ence,

Hami l t on s r at i onal e shoul d al so appl y t o Debt or s good f ai t h, even


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i f mi st aken, bel i ef she was payi ng ECMC s predecessor t hr ough f or ce

col l ect i on.

The bankrupt cy cour t f ound Debt or made no ef f or t t o obt ai n

f or ebear ances, appar ent l y di scount i ng her t est i mony t hat at one

poi nt she mai l ed f orebear ance paperwork t o Chi cago but never hear d

anyt hi ng af t er war ds. Gi ven t he t est i mony s l ack of det ai l , we wi l l

not set asi de t hi s f i ndi ng as cl ear l y er r oneous.

Debt or has admi t t ed she di d not at t empt t o negot i ate a

payment pl an or make any ef f or t t o appl y f or an admi ni st r at i vedi schar ge when pr esent ed wi t h t hat opt i on. I n mi t i gat i on of such

f ai l ur es, Debt or t est i f i ed t hat pr epet i t i on she di d not know

r est r uct ur i ng ar r angement s wer e avai l abl e. Even wer e t hi s t r ue, t h

evi dence shows Debt or t o be an i nt el l i gent per son who, i f unsure

about avai l abl e r est r uct ur i ng opt i ons, had t he sophi st i cat i on t o

make appr opr i at e i nqui r i es. Her f ai l ur e t o do so was wi t hi n her

r easonabl e cont r ol . Bi r r ane, 287 B. R. at 500.

Whi l e the bankrupt cy cour t made no det ai l ed f i ndi ngs as t o

t he t i mi ng of t he bankrupt cy, t he evi dence was uncont r adi ct ed t hat

Debt or s at t empt t o di schar ge her st udent l oans came at l east a

decade af t er t hey went i nt o r epayment , and thus t here was no r ush

t o t he cour t house. Cf . Br unner , 831 F. 2d at 397 ( decl i ni ng t o f i n

good f ai t h when debt or f i l ed adver sar y pr oceedi ng seeki ng di schar ge

wi t hi n a mont h of when her l oans f i r st became due) .

Li kewi se t he bankr upt cy cour t made no expr ess f i ndi ngs on

Debt or s ef f ort s t o obt ai n empl oyment , maxi mi ze i ncome, and mi ni mi ze


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- 21-

expenses. However , i n hol di ng f or her on Br unner s f i r st and secon

pr ongs, t he cour t necessar i l y f ound t hat , at l east goi ng f or war d,

Debt or had mi ni mi zed her expenses and maxi mi zed her ear ni ng

pot ent i al . Bi r r ane, 287 B. R. at 496 ( mi ni mi zed cur r ent expenses ar

par t of f i r st pr ong) ; I n r e Nys, 446 F. 3d at 947 ( maxi mi zed i ncome

pot ent i al ( whi ch subsumes possi bi l i t y of obt ai ni ng mor e l ucr at i ve

empl oyment ) part of second pr ong) . Gi ven t he evi dence on Debt or s

f r ugal i t y, educat i on, age, heal t h, ear ni ng pot ent i al , and desi r e t o

wor k, t hese f i ndi ngs ar e not cl ear l y er r oneous. As t o Debt or shi st or i cal ef f or t s, ECMC does not di sput e t hem. I n any event , t he

r ecor d i s suf f i ci ent l y devel oped t o al l ow us a compl et e

under st andi ng, Veal , 450 B. R. at 919, and upon our r evi ew, t he

pr eponder ance of t he evi dence i ndi cat es Debt or : 1) r emai ned f ul l - t i m

empl oyed unt i l shor t l y bef or e she f i l ed Chapt er 7, of t en wor ki ng t w

j obs; 2) used her j ob ski l l s as product i vel y as she coul d; and 3)

l i ved f rugal l y, al l i ndi cat i ng hi s tor i cal good f ai t h ef f ort s t o

obt ai n empl oyment , maxi mi ze i ncome, and mi ni mi ze expenses.

Thus, t o sum up t he f act ual f i ndi ngs under l yi ng t he good

f ai t h anal ysi s, Debt or made good f ai t h ef f or t s t o obt ai n empl oyment

maxi mi ze i ncome, and mi ni mi ze expenses. Fur t her , she di d not come

t o bankrupt cy cour t seeki ng di schar ge unt i l many year s af t er t he

l oans wer e i n r epayment st at us. I n cont r ast , she made no f ul l or

even par t i al vol unt ar y payment s despi t e bei ng abl e t o do so i n

sel ect year s. However , t hi s def i ci ency i s mi t i gat ed somewhat by he

good f ai t h bel i ef i n ot her year s t hat t he FFELP Loans wer e bei ng


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pai d t hr ough gar ni shment s and t ax of f sets. Fur t her , she di d not

seek f orebear ances. However , a f orebear ance woul d merel y have

def er r ed payment , and, gi ven Debt or s l i mi t ed f i nances, woul d not

have mater i al l y i mpr oved her pr ospect s t o pay on her l oans. She

al so di d not submi t an appl i cat i on t o admi ni st r at i vel y di schar ge t h

l oan, cl ai mi ng she di d not meet t he el i gi bi l i t y r equi r ement s f or

t hat pr ogr am. That cl ai m has not been cont r adi ct ed, and we wi l l not

hol d agai nst her t he f ai l ur e t o engage i n a f ut i l e exer ci se.

Fi nal l y and per haps of most si gni f i cance, Debt or r ef used t oenr ol l i n t he I BRP. I n l i ght of Ni nt h Ci r cui t casel aw, we cannot

di scount t hi s r ef usal . I n f act , i t has of t en t i pped t he good f ai t h

bal ance agai nst a debt or . See, e. g. , Mason, 464 F. 3d at 885

( f ai l ur e t o enr ol l i n t he I CRP) ; Bi r r ane, 287 B. R. at 500 ( same) .

The quest i on i s whet her , i n l i ght of Debt or s i ndi vi dual

ci r cumst ances, Ri f i no, 245 F. 3d 1087 n. 2, i t shoul d do so her e. Th

evi dence and t he bankrupt cy cour t s f i ndi ngs show t hat not onl y

woul d Debt or cur r ent l y not be requi r ed t o make a payment under t he

I BRP, but i t i s mor e pr obabl e than not she woul d never be requi r ed

t o make a payment . Gi ven t hat f or ecast , whi ch i s not cl ear l y

er r oneous, we concl ude t hat Debt or s r ef usal t o par t i ci pat e i n t he

I BRP shoul d not be wei ghed agai nst her , especi al l y gi ven her age,

poor heal t h, and l i mi t ed i ncome or pr ospect s.

Pot ent i al l y di sast r ous t ax consequences coul d awai t her at

t he t er mi nat i on of t he twent y- f i ve year payment per i od or coul d

awai t her est ate and t hus her hei r s upon her death. Per haps more


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concr etel y, we see no r eal pur pose i n maki ng Debt or j ump t hr ough th

hoops of appl yi ng f or , and enr ol l i ng i n, t he I BRP and t hen r epor t i n

her i ncome every year . The I BRP was set up t o al l ow bor r owers t o

pay an af f or dabl e amount t owar d r et i r ement of t hei r st udent l oan

debt . However , when absol ut el y no payment i s f or ecast , t he l aw

shoul d not i mpose negat i ve consequences f or f ai l i ng t o si gn up f or

t he pr ogr am. Thi s i s consi st ent wi t h t he gener al maxi m t hat t he l aw

does not r equi r e a par t y t o engage i n f ut i l e act s. Ohi o v. Rober t s

448 U. S. 56, 74 ( 1980) , abr ogated on other gr ounds, Cr awf ord v.Washi ngt on, 541 U. S. 36 (2004) . Congr ess coul d not have i nt ended

such a l engthy, empty commi t ment as a r equi r ement f or a

determi nat i on of undue hardshi p.

VI. CONCLUSION

I n t he end, we must , i n our de novo revi ew, wei gh t he

bankrupt cy cour t s f act ual f i ndi ngs ( whi ch wer e not cl ear l y

er r oneous) and our own f i ndi ngs ( gi ven the compl et eness of t he

r ecor d) i n exer ci s[ i ng] [ our ] . . . j udgment about t he val ues t hat

ani mat e, Bammer , 131 F. 3d at 792, good f ai t h ef f or t s t o r epay.

Al t hough a cl ose case, i n consi der i ng al l t he f act or s, we concl ude

Debtor has met her bur den. We t heref or e REVERSE and REMAND t hi s

mat t er t o t he bankrupt cy cour t wi t h i nst r uct i ons t hat i t ent er

j udgment di schar gi ng t he FFELP Loans.

Concur r ence begi ns on next page.

/ / /


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- 1-

PAPPAS, Bankr upt cy J udge, Concur r i ng:

Gi ven t he bankrupt cy cour t s f act f i ndi ngs r egar di ng Debt or s

di smal f i nanci al hi st or y and ci r cumst ances, and appl yi ng a de novo

st andar d of r evi ew, I concur t hat t he bankrupt cy cour t er r ed i n

decl i ni ng t o gr ant a har dshi p di schar ge of t he st udent l oan debt t o

Debt or under 523( a) ( 8) . However , because I underst and how t he

bankr upt cy cour t f el t r est r i ct ed by pr ecedent i n r eachi ng i t s

deci si on, I wr i t e separ at el y t o hi ghl i ght t hat t he anal ysi s r equi r eby Pena/ Br unner t o determi ne the exi st ence of an undue hardshi p i s

t oo nar r ow, no l onger r ef l ect s r eal i t y, and shoul d be r evi sed by th

Ni nt h Ci r cui t when i t has the oppor t uni t y t o do so. Put si mpl y, i n

t hi s er a, bankr upt cy cour t s shoul d be f r ee t o consi der t he t ot al i t y

of a debt or s ci r cumst ances i n deci di ng whet her a di schar ge of

st udent l oan debt f or undue har dshi p i s war r ant ed.

Congr ess has never def i ned t he ci r cumst ances const i t ut i ng t he

sort of undue har dshi p j ust i f yi ng t he di schar ge of an educat i onal

debt under 523( a) ( 8) , appar ent l y pr ef er r i ng t hat bankrupt cy cour t

cr af t a wor ki ng def i ni t i on. Whi l e i t mi ght have been appr opr i at e

and hel pf ul when adopt ed, r espect f ul l y, t he Br unner t est f or

det er mi ni ng undue har dshi p i s t r ul y a r el i c of t i mes l ong gone.

Br unner was deci ded by t he Second Ci r cui t i n 1987 to

i mpl ement t he or i gi nal st udent l oan har dshi p di schar ge except i on

i ncl uded i n a st i l l - new Bankrupt cy Code. Br unner v. N. Y. St at e

Hi gher Educ. Ser v. Cor p. , 831 F. 2d 395, 396 ( 2d Ci r . 1987) . That


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- 2-

ear l y ver si on of 523( a) ( 8) pr ovi ded t hat a debt or s st udent l oan

debt coul d not be di schar ged unl ess ei t her i t f i r st became due f i ve

year s bef or e t he dat e of t he bankrupt cy f i l i ng or except i ng such

debt f r om di scharge woul d i mpose an undue hardshi p on t he debt or an

t he debt or s dependent s. I mpor t ant l y, i n t hose days, wi t hout r egar

t o t he debt or s cur r ent f i nances, i f a st udent l oan had not been

col l ect ed wi t hi n t he f i ve year s af t er i t became due, Congr ess

di r ect ed t hat i t woul d be di schar ged i n t he st udent s bankrupt cy

case.Br unner t ypi f i ed t he sor t of st udent l oan di schar ge cases

encount er ed by bankrupt cy cour t s at t hat t i me. The debt or sought t

di schar ge $9, 000 i n st udent l oans i n a bankrupt cy case f i l ed j ust a

f ew mont hs af t er she obt ai ned her mast er s degr ee, i mmedi atel y af t e

t he gr ace per i od bef ore payment s became due expi r ed, af t er onl y a

f ew mont hs of unempl oyment , and havi ng made no ef f or t s t o pay

anythi ng on t he l oans. Br unner v. N. Y. St at e Hi gher Educ. Ser v.

Cor p. ( I n r e Br unner ) , 46 B. R. 752, 753 ( S. D. N. Y. 1985) , af f d, 831

F. 2d 394 ( 2d Ci r . 1987) . Not sur pr i si ngl y, i n addi t i on t o

ar t i cul at i ng i t s now- f amous t est , t he Br unner cour t hel d t hat t he

debt or had not made a case f or an undue hardshi p di scharge i n par t

because, gi ven her ci r cumst ances, she had not made a good f ai t h

ef f or t t o r epay t he modest debt . 831 F. 2d at 396- 97.

I n 1990, Congr ess amended 523( a) ( 8) , si gni f i cant l y

expandi ng t he di schar ge except i on t o appl y t o more t han j ust

educat i onal l oans t o i ncl ude any educat i onal benef i t ,


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- 3-

schol ar shi p, or st i pend payment . Cr i me Cont r ol Act of 1990, Pub.

L. No. 101- 647 ( 1990) . The di schar ge except i on was f ur t her wi dened

t o encompass any obl i gat i on t hat f i r st became due more than 7 year

( excl usi ve of any extensi on of t he r epayment per i od) bef or e t he dat

of f i l i ng of t he [ bankr upt cy] pet i t i on. I d. Thi s was t he ver si on

of t he Code appl i ed by t he Ni nt h Ci r cui t when i t adopt ed the Br unne

t est f or undue har dshi p i n I n r e Pena i n 1998. Uni t ed St udent Ai d

Funds, I nc. v. Pena ( I n r e Pena) , 155 F. 3d 1108, 1112 ( 9t h Ci r .

1998) .I n I n r e Pena, t he cour t af f i r med t he gr ant of a har dshi p

di schar ge of t he debt or s $9, 300 i n st udent l oans used t o acqui r e

t echni cal t r ai ni ng t hat t he cour t descr i bed as usel ess t o hi m i n

obt ai ni ng empl oyment . 155 F. 3d at 1110. Moreover , Mr s. Pena

suf f er ed f r om a chr oni c ment al di sabi l i t y, t he debt or s i ncome was

i nadequat e t o pay t hei r nor mal l i vi ng expenses, and ther e was no

evi dence t hat t hei r s i t uat i on woul d i mpr ove i n t he f ut ur e. Under

t hese f act s, and appl yi ng t he Br unner f act or s ( or any ot her t est ,

f or t hat mat t er ) , t he deci si on t o gr ant t he debt or s a har dshi p

di schar ge of t he st udent l oans i s cer t ai nl y def ensi bl e.

Over t he years, Congress made more changes t o 523( a) ( 8) ,

al l except i ng a br oader ar r ay of educat i onal obl i gat i ons f r om

di schar ge i n bankr upt cy. For exampl e, i n 1998, Congr ess di d away

wi t h t he r equi r ement t hat onl y t hose st udent l oan debt s t hat wer e

l ess t han seven years i nt o the repayment per i od coul d be except ed

f r om di schar ge i n bankrupt cy. See Hi gher Educat i on Amendments of


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- 4-

1998, Pub. L. No. 105- 244, 971( a) ( 1998) . Under t hi s amendment ,

st udent - debt or s coul d no l onger hope t o di schar ge even t he ol dest o

t hei r educat i onal obl i gat i ons wi t hout demonst r at i ng that r epayment

woul d const i t ut e an undue har dshi p t o t hem or t hei r dependent s.

Most r ecent l y, i n 2005, under pr essure f r om l ender s and

l obbyi st s, Congr ess expanded t he di schar ge except i on t o i ncl ude, f o

t he f i r st t i me, pr i vat e st udent l oans. Gi ven t he geomet r i c

i ncr eases i n t he amount of new and out st andi ng educat i onal l oans,

t hi s change t o 523( a) ( 8) meant t hat t he pool of pot ent i al l ynondi schar geabl e educat i on- r el ated debt s was now a t r ul y huge one.

As can be seen, whi l e at one t i me bankr upt cy cour t s were

r equi r ed t o f ocus on a debt or s ci r cumst ances onl y dur i ng t he f i ve

t o seven year s af t er st udent l oans became due, af t er 1998, t he

r el evant t i me f or exami ni ng whether a debt or had made good f ai t h

ef f or t s t o r epay a st udent l oan had no l i mi t s. And af t er t he 2005

amendment , t he number and ki nds of st udent l oan debt s potent i al l y

except ed f r om di schar ge skyr ocket ed.

I n addi t i on t o t hese si gni f i cant changes i n t he st at ut or y

l andscape, educat i onal bor r owi ng has al so changed dr ast i cal l y si nce

t he Br unner t est was f ormul ated and I n r e Pena adopt ed i t . Back

t hen, bankrupt cy cour t s onl y i nf r equent l y deal t wi t h st udent l oan

di schar ge i ssues, and as shown by t he f act s of t hose cases, t he

amount s i n cont r over sy wer e usual l y modest . As a pr act i cal mat t er ,

i f a st udent l oan was except ed f r om di schar ge, t he debt or coul d be

expect ed t o r epay i t wi t hi n a r easonabl e t i me.


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- 5-

But t hi ngs ar e di f f erent now. Unl i ke t he l oans made most l y

t o t r adi t i onal st udent s by l ocal banks and col l eges i n t he 1970s,

t oday, a var i et y of l ender s now compet e t o pr ovi de f i nanci al

assi st ance f or a br oad assor t ment of st udy and t r ai ni ng, wi t hout

r egar d t o t he wi sdom of a st udent s deci si on t o bor r ow or t hei r

par t i cul ar ci r cumst ances, and wi t h nar y a t hought gi ven t o t he

bor r ower s abi l i t y t o r epay t he debt s. Today, f aci ng t he mammot h

cost s of a moder n educat i on, near l y al l st udent s must borr ow heavi l

t o f i nance t hei r f ut ur es. Much of t hat st udent l oan debt i s noti ncur r ed t o f i nance a t r adi t i onal col l ege educat i on, but i nst ead

goes t o pay f or ot her t ypes of t r ai ni ng, f r equent l y del i ver ed by

f or - pr of i t compani es, whi ch may not si gni f i cant l y i mpr ove the

debt or s chances f or empl oyment or subst ant i al ear ni ngs.

Ast oundi ngl y, t oday t her e i s near l y $1 t r i l l i on i n out st andi ng

educat i onal debt , see Donghoon Lee, Househol d Debt and Cr edi t :

St udent Debt at 2 ( Federal Reser ve Bank of New Yor k, Feb. 28, 2013)

ht t p: / / newyor kf ed. or g/ newsevent s/ medi aadvi sory/ 2013/ Lee022813. pdf ;

t he aver age st udent l oan bal ance i s cl ose to $25, 000, I d. at 7; and

over 12 percent of borr owers owe $50, 000 or more. I d. at 6. On t h

heel s of a r ecor d r ecessi on wi t h hi gh unempl oyment , i t i s not

surpr i si ng t hat many of t he st udent s who bor r owed t o f i nance thei r

educat i on and t r ai ni ng di d not compl et e t hose pr ogr ams. I t i s al so

har dl y sur pr i si ng t hat t he pr opor t i on of st udent l oans t hat ar e

del i nquent i s at near - r ecor d hi gh l evel s. I d. at 11 and 15


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- 6-

( expl ai ni ng t hat 17 percent of borr owers i n r epayment pr ogr ams are

ni net y- pl us days del i nquent ) .

As wi t h t he debt or i n t hi s appeal , many out st andi ng st udent

l oan debt s ar e now decades ol d, owed by bor r owers who never r eal l y

had t he abi l i t y t o make subst ant i al payment s on t he bal ances. I d.

at 4 ( not i ng t hat 34 per cent of al l st udent l oans are 40 year s ol d

or ol der ) . And so, wi t h accrui ng i nt er est , t hose l oan bal ances gr o

l ar ge. I t i s al so i ncr easi ngl y common t hat t he debt or seeki ng

bankrupt cy r el i ef f r om st udent l oan debt i s not t he st udent but ,i nst ead, a f ami l y member or f r i end who agr eed t o co- si gn or

guar ant ee t he l oans.

Unl i ke i n Br unner and Pena, t oday, bankr upt cy cour t s must

f r equent l y at t empt t o pr edi ct a debt or s pot ent i al t o r epay a si x-

di gi t educat i onal obl i gat i on over hi s or her ent i r e l i f et i me. I n

many of t hose cases, t he benef i t t he debt or r ecei ved f r om t he

educat i on or t r ai ni ng f i nanced wi t h t hese l oans may be mar gi nal ,

and t he bal ances due t o credi t or s exceed t he debt or s debt - servi ce

abi l i t i es. I t woul d seem t hat i n t hi s new, di f f er ent envi r onment ,

i n det er mi ni ng whet her r epayment of a st udent l oan const i t ut es an

undue har dshi p, a bankrupt cy cour t shoul d be af f or ded f l exi bi l i t y t

consi der al l r el evant f act s about t he debt or and t he subj ect l oans.

But Br unner does not al l ow i t . I n addi t i on t o r equi r i ng t hat a

debt or demonst r at e a cur r ent i nabi l i t y t o pay a st udent l oan whi l e

mai nt ai ni ng a mi ni mal st andar d of l i vi ng, Br unner mandat es t hat t he

debt or show addi t i onal ci r cumst ances t o pr ove t hat hi s or her


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i mpecuni ous st at us wi l l per si st i nt o t he f ut ur e. Br unner , 831 F. 2d

at 396; Pena, 155 F. 3d at 1111. Requi r i ng t hat a debt or demonst r at

t hat hi s or her f i nanci al pr ospect s ar e f or ever hopel ess i s an

unr eal i st i c st andar d.

Br unner s addi t i onal r equi r ement t hat a debt or show t hat he

or she has made good f ai t h ef f or t s t o r epay a st udent l oan i s al s

of l i t t l e ut i l i t y i n det er mi ni ng t r ue undue har dshi p. Of cour se, a

a mat t er of st at ut or y const r uct i on, t hi s pr ong of t he t est l acks

any t extual basi s i n t he Bankrupt cy Code. As a pr act i cal mat t er ,r equi r i ng a debt or t o cl ear t hi s hur dl e can condemn t he st udent -

borr ower t o a l i f et i me of bur densome debt under one or more of t he

cr edi t ors l ong- t erm r epayment pr ogr ams, some of whi ch may span

t hi r t y- t o- f or t y year s. Thi s aspect of t he Br unner t est al so f ai l s

t o account f or t he pot ent i al l y devast at i ng debt - f or gi veness t ax

consequences t o t he debt or r esul t i ng f r om t he successf ul

compl et i on of such a pr ogr am, whi ch i s one r eason that t he repaymen

pr ogr ams ar e not t hat popul ar wi t h bor r ower s. At bot t om, r equi r i ng

debt or s t o par t i ci pat e i n t hese cr edi t or pr ogr ams as a condi t i on t o

obt ai ni ng a bankr upt cy di schar ge si mpl y means t hat cr edi t or s, not

bankrupt cy j udges, wi l l deci de whi ch l oans can be r epai d, and whi ch

shoul d pr oper l y be f or gi ven. Thi s i s sur el y not what Congr ess

i nt ended i n enact i ng 523( a) ( 8) .

/ / /

/ / /

/ / /


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17 To be sur e, Br unner st i l l pr edomi nat es i n t he ci r cui t s ast he go- t o t est f or assessi ng undue har dshi p. The advant ages t o t hemor e t i mel y and enl i ght ened t ot al i t y of ci r cumst ances appr oach i sexpl ai ned i n t he Fi r st Ci r cui t BAP s deci si on i n Br onsdon v. Educ.

Cr edi t Mgmt . Cor p. ( I n r e Br onsdon) , 435 B. R. 791 ( 1st Ci r . BAP2010) ; see al so Long v. Educat i onal Cr edi t Mgmt . Cor p. ( I n r e Long)322 F. 3d 549, 554 ( 8t h Ci r . 2003) ( observi ng t hat f ai r ness andequi t y r equi r e each undue hardshi p case t o be exami ned on t he uni quf act s and ci r cumst ances t hat sur r ound t he par t i cul ar bankrupt cy[ case] . ) .

- 8-

The Ni nth Ci r cui t shoul d r econsi der i t s adher ence t o Br unner .

I t shoul d i nst ead, l i ke a f ew ot her cour t s, 17 cr af t an undue

har dshi p st andar d t hat al l ows bankrupt cy cour t s t o consi der al l t he

r el evant f act s and ci r cumst ances on a case- by- case basi s t o deci de,

si mpl y, can t he debt or cur r ent l y, or i n t he near - f ut ur e, af f or d t o

r epay the st udent l oan debt whi l e mai nt ai ni ng an appr opr i at e

st andar d of l i vi ng. Thi s appr oach coul d al l ow t he bankrupt cy cour t

af t er wei ghi ng t he f act s of each case, t o deci de t hat a st udent -

debt or , whose debt f i nanced t r ai ni ng t hat di d not al l ow hi m or hert o achi eve any si gni f i cant ear ni ngs, t o di schar ge a l ar ge l oan

bal ance even i n t he absence of a debi l i t at i ng i l l ness or handi cap.

I t coul d al l ow an el der l y debt or t o escape t he bur den of decades- ol

st udent l oans when her pr ospect s f or r epayment have di sappear ed,

even t hough t he debt or has not part i ci pated i n a r epayment pl an wi t

t he cr edi t or . And t hi s har dshi p t est woul d f ocus on t he

cont empor ar y wor l d of st udent l oan debt , not ci r cumst ances t hat

exi st ed t hi r t y or mor e year s ago.


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As Amer i ca s exper i ence i n t he recent mor t gage cr i si s

shoul d have t aught us, empl oyi ng an undue hardshi p di schar ge t est

t hat r equi r es t hose who cannot r epay educat i onal l oans, most of

whi ch ar e government - backed, t o at t empt t o do so creat es probl ems

f or al l . Under 523( a) ( 8) , Congr ess di d not draw br i ght l i nes, bu

i nst ead pr esumabl y i nt ended t hat bankr upt cy cour t s have t he

f l exi bi l i t y t o make f act - based deci si ons i n i ndi vi dual cases about

t he need f or st udent l oan debt r el i ef . Pena/ Br unner r est r i ct s t he

bankr upt cy cour t s abi l i t y to do so, and i t s appl i cat i on i n t heNi nt h Ci r cui t shoul d be r econsi der ed.

in re: janet rose roth, 9th cir. bap (2013)

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