Upload
others
View
5
Download
0
Embed Size (px)
Citation preview
Student Loan Strategies
Speakers: Francis E. Corbett, Esquire
Kenny Steinberg, Esquire, Steidl & Steinberg, P.C. Jill l. Locnikar, Esquire, Assistant U.S. Attorney, U.S. Attorney’s Office, Western District of PA
Patricia l. Fitzgerald, Paralegal Specialist, U.S. Attorney’s Office, Western District of PA The Honorable Jeffery a. Deller, U.S. Bankruptcy Judge, Western District of PA
Session Materials
1. OUTLINE OF BRUNNER/FAISH STANDARD TO DETERMINE DISCHARGEABILITY OF STUDENT LOANS IN BANKRUPTCY CASES; THE BASICS
Prepared by Kenny Steinberg, Esquire, Steidl & Steinberg, P.C.
2. Cases from the Western District of Pennsylvania addressing student loan dischargeability
3. Important Documents relating to Federal Loans
Repayment Plans – U.S. Department of Education
Discharge Application: Total and Permanent Disability
OUTLINE OF BRUNNER/FAISH STANDARD TO DETERMINE DISCHARGEABILITY OF STUDENT LOANS IN BANKRUPTCY CASES: THE BASICS
A. The Basic Premise of the Bankruptcy Code 11 USC Section 523 (a) excepts from discharge most student loans of just about any type unless it “would impose an undue hardship on the debtor and the debtor’s dependents. B. Our Circuit The 3rd Circuit uses the “Brunner” test from the 2nd Circuit (Brunner v. New York State Higher Educational Services Corporation, 831 F.2d 395 (1977); it is best expressed in the 3rd Circuit case In Re: Faish, 72 F.3rd 298 (3rd Circuit 1995) C. The Standards: This is what you have to know: i. The debtor cannot maintain a “minimal;” standard of living for herself and her dependents, based on current income and expenses, if forced to repay the loans; ii. That additional circumstances exist indicating that this state of affairs will persist for a significant portion of the repayment period, and, iii. That the debtor has made a “good faith” effort to repay. D. How have our judges here applied Brunner and Faish? Two examples: i. Murphy v. US Department of Education 14-22073 CMB This was a Chapter 7 dischargeability adversary that was in front of the Judge for summary judgment by the defendant. The plaintiff had an “extensive educational and employment background” including a paralegal degree and a masters in business education and Organizational Leadership. He had worked several jobs short term including customer service, collections, and as a law firm records clerk, leaving three of the jobs voluntarily He had made no payments and did not apply for either ICR or IBR. At the time of the case, he was unemployed. The debtor himself focused mostly on good faith repayment, but here is what the judge noted: -The debtor left three jobs voluntarily so he did not maximize his earning potential - He had a good education and a lengthy employment history -Though he did consolidate his loans, he had made no payments. -He had not applied for ICR or IBR, either of which could have significantly reduced his payments
The judge also looked at the ratio of student loan debt vs. total unsecured debt, about 85% student loans, and thought that good faith was lacking Other factors: some of the student loan debt was very recent, the debtor was young, healthy, and employable, and he had significant income potential. ii. Goforth v. Department of Education 10-11155 TPA Another Summary judgment request by the defendant in this Chapter 7 -Some interesting twists: Husband and Wife were both in their mid-fifties and had recently taken out these loans for degrees that neither of them completed. Husband, though, had earlier completed computer trade school. -Each had done ICR plans, but didn’t take advantage of provisions that would have saved them some money if they would have done it jointly. - In addition, neither tried IBR, which would have saved them a bundle Judge Agresti’s analysis: Minimal Standard of Living -The judge showed that they could have done common-sense belt-tightening measures to make the loan payments. He pointed to a payment of over $200 per month to the Christian Broadcasting Network -The debtors could have saved more money using IBR -The debtors were sending payments to a daughter who was incarcerated so she really didn’t need the money to survive Financial Condition Likely to Persist -The debtors claimed medical problems but didn’t provide evidence -Their age, while relatively high being in their fifties, didn’t prevent them from taking out these loans; it was their choice to do it late in life Good Faith Effort -No payments after the consolidation, but it was shortly before the case was filed in one instance and after the case was filed in another, so this was not used as a basis for the denial. There was enough in the factors above. -And again, no attempts at ICR or IBR, so the clients had to Goforth and pay the loans iii. Davis v. National Collegiate Trust 12-11264 TPA Yet another Chapter 7 discharge issue, though remember that this can also be done in Chapter 13 cases. This is a 36-year-old mother of one who is not married and owns no real estate. She went to Edinboro University but didn’t graduate during her twelve year stint. She did get a medical office assistant certificate from Great Lakes Institute of Technology. She had made no payments on her student loans of almost $100,000, but her mom had made two payments. Mom is a co-signer.
Davis had operated a business, but it had closed by the date of the hearing. She was not claiming any mental, physical, or other disabilities or other limitations, not even claiming that the snow in Edinboro kept her from making a living. She is now in Erie anyway, and the weather is much better in Erie in the winter than in Edinboro. So here is how the judge analyzed this one: Good Faith Effort -First, she didn’t make any payments, though her mom made two. (Mom is a co-signer, remember?.) The debtor did not provide evidence that she incurred extra necessary expenses that prevented her from paying. Her mom had her own obligations here, so that didn’t count. (By the way you can use a Chapter 13 to help out the mom also in these cases.) And for some reason, after the debtor’s business closed, she didn’t make an effort to find work though she appears to be employable. She loses. She also contended that the loans are an undue hardship as even if she obtained employment, she wouldn’t be able to make enough money to pay them. She did not present any evidence to back this up. -The debtor did not try to consolidate her loans prior to the filing, so when you interview your own possible clients, look at this factor. Her efforts to consolidate were post-petition. - She was able to get her loan down to 0% interest, so if she would have made payments, they would have gone directly to principal. Minimal Standard of Living - The judge didn’t have to go here since Davis lost already. Remember, you must prove all three factors in Brunner. But he went over these factors, no doubt knowing I would be writing on them. -The judge focused on her income potential here. She should be looking for work, and has the capacity to do so. It is not good enough that she was living on her tax refund. Must have been a good one - There were some other factors. Go look them up yourself if you are interested. Financial Condition Likely to Persist - Again, this is not necessary as Davis lost, but it is good for us to use for the future, so here it is. -Judge Agresti noted her good education, her certificate as a medical office assistant, and her experience in operating a business as factors in finding against her on this prong, also. More stuff is in his opinion; go get it.
E. Why Would Anyone Use Chapter 13 If You Have Little Chance of Getting a Discharge? Let me count the ways:
1. Client has a payment on his or her student loans that is way more than they can afford 2. Client’s wages have been attached. 3. Client’s bank account has been attached. 4. Client’s income tax refund has been attached. 5. Client’s co-signer’s wages, bank accounts, or income tax checks have been attached.
---------------------Filing a Chapter 13 stops all of these!------------------------------------------- Advantages As indicated above, the 13 stops all of that nasty stuff. But wait, there’s more! 13 can be used as an effective tool to control all of the debtor’s debt. For instance, often the debtor has significant credit card debt also, or arrears on a car or house, or money owed to the IRS. What the debtor can do, if qualified, is to do a low-payment 13 that covers all of this, while still keeping the student loan creditors off his or her back. The advantage over a 7 is that the 7 won’t do anything with the student loan debt, so the client will still be faced with the student loans after the 7 is completed. In some instances, it might be appropriate to file a 7, wait for a discharge, and then file 13. Consider the ethics of this, however: in the 7, you are saying that the client has no money to pay on the debt and that is why he or she filed the Chapter 7 and gets a discharge. But then if he or she turns around and files a new 13, the debtor would be saying that he or she now has money to pay on the 13 that they didn’t have available in the Chapter 7. Hmmmmm……. F. Discrimination within the unsecured classes of a Chapter 13 Plan Section 1322 allows for the different classification of unsecured claims under some circumstances, such as debts that may be co-signed with non-filing individuals. This is not uncommon in student loan cases where a parent or relative might have co-signed one of these loans. The goal of the attorney would be to classify this co-signed debt in such a way as for the debt to be paid the largest possible amount, while other debt would be paid at a much lower percentage. But debtor’s attorneys will not catch the Chapter 13 Trustee’s Office napping. They might oppose this if
the plan provides, say, a tiny percentage to general unsecured creditors while paying off 100% of the student loans that happen to be co-signed. Well, we can try, can’t we? G. The Benefits of Filing A Bankruptcy Case in These Situations, and What, Pray Tell, Does the Future Look Like? And Will the Supremes Get Aboard? Or Will They Keep Us Hanging On?
1. I was always told that if you don’t ask, you don’t get. So why not ask for discharge? The worst thing that can happen is that the servicer can say “no”. But if you have a reasonably good case, you file the adversary, and back it up with some good evidence, you may win, or, often, you may open the path toward a settlement. 2. Debtor’s attorneys need to file more of these cases in appropriate circumstances so that they can narrow down the fact situations to provide more predictability. According to one article, only one of every 300 filers with student loan debt tries to get it discharged. 3. If, by the filing of lots of appropriate cases, the judges find that the servicers are being unreasonable, who knows? The judges might see fit to not exactly loosen the standards, but may be more willing to consider cases that would be on the edges of the three-prong Brunner test. 4. The Supremes: Time for Them to Weigh In? Or, You Can’t Hurry Student Loans. -There is a split in the federal courts as to the standard to use for discharging these things. We know about Brunner, above. (You don’t? Were you asleep when we were presenting this?) But some federal courts use a less-harsh interpretation for dischargeability: “totality of the circumstances”. An example of this is a case out of Wisconsin. The plaintiff is a guy named Tetzlaff who went to two law schools, graduated from one, failed the bar exam twice and can’t get a job because of a criminal record. (No, it is not criminal to fail the bar exam twice. But the record is not specified in the article I read.) He has not had income since 2004 and lives with his 86-year-old mother who supports them both with her social security. He has over a quarter of a million dollars in student loan debt, and, if all of this isn’t enough, he also is struggling with alcohol abuse.
5. The 8th Circuit does not use Brunner. They use “totality of the circumstances” that leads to undue hardship. 6. The 1st Circuit has not adopted a standard. This is New England, and New Englanders often don’t care what the rest of the country thinks, anyway. There is a circuit case that has a 62-year-old unemployed man trying to deal with $200,000 in parent-plus loans for his presumptively lazy, do-nothing kids. 7. Creative solutions: Mediation, anyone? Or how about a program similar to the Bankruptcy Court’s Loss Mitigation Program? Stay Tuned!!!
1
IN THE UNITED STATES BANKRUPTCY COURTFOR THE WESTERN DISTRICT OF PENNSYLVANIA
__________________________________________)
IN RE: ) Bankruptcy No. 14-22073-CMB)
CRAIG DEVON MURPHY, ) Chapter 7)
Debtor. )__________________________________________)
)CRAIG DEVON MURPHY, )
)Plaintiff, ) Adversary No. 14-2155-CMB
)v. ) Related to Doc. Nos. 70 and 79
)U.S. DEPARTMENT OF EDUCATION, )
)Defendant. )
__________________________________________)
Appearances: Craig Devon Murphy, pro se
David Lew, Esq., for the United States of America, on behalf of the United States Department of Education
MEMORANDUM OPINION
The above-captioned adversary proceeding was commenced on July 15, 2014, by the
filing of the Adversary Complaint of Plaintiff to Determine Dischargeability of Debt Pursuant to
11 U.S.C. §523(a)(8)(A)(i)(ii)(B) (“Complaint”).1 An answer was filed by the United States.2
1 This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§157 and 1334. This is a core matter pursuant to 28 U.S.C. §157(b)(2)(I), and the Court will enter final judgment. Furthermore, theparties have identified this matter as a core matter upon which the bankruptcy court may enter final judgment. See Early Conference Certification and Stipulation, Exhibit A to Doc. No. 35, at 2. Therefore, this Court finds that the parties knowingly and voluntarily consented to adjudication by this Court. SeeWellness Int’l Network, Ltd. v. Sharif, 135 S.Ct. 1932 (2015).
2 Other Defendants were named; however, the United States is the only remaining Defendant. On September 4, 2014, Sallie Mae and SLM Corporation were dismissed as Defendants. On October 7, 2014, Educational Credit Management Corporation was also dismissed as a party to this proceeding.
2
The matters presently before the Court are the (1) United States’ Motion for Summary Judgment
(“United States’ Motion”) and (2) Plaintiff’s Motion for Summary Judgment and Memorandum
in Support (“Plaintiff’s Motion”, collectively the “Motions”).3 Plaintiff’s Response Brief in
Opposition to Defendant’s Motion for Summary Judgment was filed on April 20, 2015. On May
22, 2015, the United States’ Response to Plaintiff’s Motion for Summary Judgment and the
United States’ Memorandum in Opposition to Plaintiff’s Motion for Summary Judgment were
filed. Oral argument on said Motions was held on July 28, 2015, and the matters were taken
under advisement. Upon consideration of the foregoing and for the reasons set forth herein, this
Court finds that the United States’ Motion must be granted and Plaintiff’s Motion must be
denied.
Factual Background4
On May 22, 2014, Plaintiff filed a voluntary petition for relief under Chapter 7 of the
Bankruptcy Code. On July 15, 2014, Plaintiff commenced the above-captioned adversary
proceeding seeking discharge of the debt resulting from a number of educational loans.
Education and Employment
Plaintiff has an extensive educational and employment background. In approximately
October of 1999, Plaintiff obtained his GED and voluntarily left Duquesne High School after
completion of the ninth grade. See United States’ Exhibit A, Plaintiff’s Deposition Transcript
3 In support of their respective Motions, the parties submitted exhibits and cited to materials in the record. The Court notes that the United States’ Motion was filed pursuant to the Undersigned’s Procedures as it was accompanied by a Concise Statement of Material Facts, Memorandum of Law in Support, and Appendix. As Plaintiff is pro se, the Court is not requiring strict adherence to the posted procedures and will resolve the Motions as filed.
4 The facts set forth herein are undisputed unless otherwise indicated. The Court notes that, to the extent unsubstantiated statements were included in briefs and/or oral argument, such statements cannot be considered as evidence by the Court in resolving the instant Motions. See Davis v. Nat’l Collegiate Trust (In re Davis), 526 B.R. 136, 142 (Bankr.W.D.Pa. 2015)(citing Versarge v. Township of Clinton N.J., 984 F.2d 1359, 1370 (3d Cir.1993) and Bell v. United Princeton Properties, Inc., 884 F.2d 713, 720 (3d Cir.1989)).
3
(hereinafter, “U.S. Ex. A”), at 14-15. Thereafter, Plaintiff attended the Western School of Health
and Business Careers in pursuit of a two-year degree. See U.S. Ex. A, at 16. Plaintiff did not,
however, obtain his degree as he was terminated from the school around 2000 for a reason that is
not set forth on the record. See U.S. Ex. A, at 16-17. Following this termination and prior to
furthering his education, it is unclear whether Plaintiff was employed.
A few years later, Plaintiff once again pursued further education, and he obtained an
Associate degree in paralegal studies from Duff’s Business Institute in 2004. See U.S. Ex. A, at
19-20, 23-24; U.S. Ex. C.5 Thereafter, Plaintiff sought and obtained full-time employment. See
U.S. Ex. A, at 20-21. For approximately one year, Plaintiff was a customer service representative
for Precision Response Corporation for which he was compensated approximately $20,000.00
per year. See U.S. Ex. A, at 20-21. Plaintiff was ultimately terminated from that position due to
attendance. See U.S. Ex. A, at 21.
Overlapping this prior employment, Plaintiff was enrolled at Point Park University where
he obtained a Bachelor’s degree in Business in 2006. See U.S. Ex. A, at 22; U.S. Ex. C. During
this time period, Plaintiff was employed by RGIS as an inventory auditor. See U.S. Ex. A, at 25.
He was paid approximately $8.00 per hour; however, he voluntarily left that position after a few
months. See U.S. Ex. A, at 26.
Subsequently, around August of 2006, Plaintiff obtained a position as a collections
representative with NCO, which paid approximately $10.50 per hour. See U.S. Ex. A, at 27. He
remained in that position until approximately October of 2006 when he voluntarily left that
employment. See U.S. Ex. A, at 27-28. Plaintiff later obtained a temporary position with
National Real Estate as a mortgage settlement agent. See U.S. Ex. A, at 28. He was paid
5 Initially, Plaintiff testified that he was enrolled in the Sanford Brown Institute. Subsequently, he corrected himself and testified that he attended Everest Institute. Plaintiff’s degree, however, is from Duff’s Business Institute. The name of the institution does not affect the Court’s analysis.
4
approximately $12.00 per hour, and he remained in that position from January through March of
2007. See U.S. Ex. A, at 28. Shortly thereafter, Plaintiff obtained employment with K&L Gates
as a legal records clerk where he received a salary of $22,000.00 per year. See U.S. Ex. A, at 29-
30. In October of 2007, Plaintiff left that position to continue to further his education at Point
Park University where he ultimately obtained a Master of Business Administration degree in
2009. See U.S. Ex. A, at 29-31; U.S. Ex. C.
Aside from some short-term positions, Plaintiff was mostly unemployed from
approximately 2009 through 2011. See U.S. Ex. A, at 31-33. In 2011, Plaintiff obtained a
position through a staffing agency at the law firm of Pietragallo, Gordon, Alfano, Bosick &
Raspanti, LLP, as a records clerk for which he received approximately $13.00 per hour. See U.S.
Ex. A, at 34-35. During this period of time, Plaintiff was able to save sufficient funds from his
employment to purchase his three-bedroom home for $7,200.00 cash around December of 2012.
See U.S. Ex. A, at 7-8, 55. Not long thereafter, around February of 2013, Plaintiff’s employment
at the law firm concluded. See U.S. Ex. A, at 35-36.
In 2013, Plaintiff obtained another degree from Point Park University, a Master of Arts
degree in Organizational Leadership. See U.S. Ex. C. During September and October of 2013,
Plaintiff was employed in a temporary position with Chevron for which he received $16.00 per
hour as an oil and gas records technician. See U.S. Ex. A, at 41-42. Plaintiff then obtained a
position with Staffmark in May of 2014; however, that employment ended within the month due
to issues with a background check. See U.S. Ex. A, at 42-43. Plaintiff has not been employed
since that time. See U.S. Ex. A, at 43.
5
Educational Loans
Plaintiff obtained a number of educational loans from 1999 through 2012, some of which
were consolidated during that time. See Attachment 1 to U.S. Ex. B. The records from the
National Student Loan Data System indicate that a disbursement on one of these loans was made
as recently as February 1, 2013. See Attachment 1 to U.S. Ex. B. “As of July 30, 2014, the
outstanding balance on Plaintiff’s federal educational loans was $149,041.99, which represents
$139,936.24 in principal and $9,105.75 in interest.” See U.S. Ex. B, at ¶4. For nearly the entire
life of the loans, the loans have been in deferment or forbearance. See U.S. Ex. B, at ¶7.
Plaintiff has not made any payments on his current educational debts nor has he applied
for the Income-Based Repayment Plan (“IBR”) or the Income-Contingent Repayment Plan
(“ICR”). See U.S. Ex. A, at 75, 80; U.S. Ex. B, at ¶¶8-15.6 Under the IBR, based upon Plaintiff’s
stated income in his Schedule I, Plaintiff’s monthly payment would be $0. See U.S. Ex. B, at
¶11. According to Plaintiff, he saw no need to apply for such repayment options as he, instead,
sought and obtained deferments and forbearances; furthermore, he does not intend to apply for
either IBR or ICR. See U.S. Ex. A, at 80, 85.
Plaintiff’s Current Circumstances
At the time he commenced this case, Plaintiff indicated in his Schedule I that he was
unemployed with a total monthly income of $239.00, comprised of $50.00 in family support and
$189.00 in government assistance. Although Plaintiff’s Schedule J includes $2,163.007 of
6 Within Plaintiff’s Motion and at oral argument, Plaintiff asserted that he made sporadic payments on educational loans; however, no evidence was provided to substantiate these allegations. Furthermore, these statements are contrary to Plaintiff’s deposition testimony.
7 As pointed out in the United States’ Concise Statement of Material Facts, although Plaintiff’s Schedule J identifies the total of Plaintiff’s monthly expenses as $1,516.00, the expenses listed actually total $2,163.00.
6
monthly expenses, as indicated at Plaintiff’s deposition, this total includes expenditures which
Plaintiff is not currently making, including $500.00 for home maintenance, $345.00 for vehicle
payments,8 and $685.00 for educational loan repayment. See U.S. Ex. A, at 62-63, 75. The
remaining expenses total $633.00.
Within his Schedule I, Plaintiff indicated that he expected his income to increase within
the year due to possible employment. Plaintiff submitted a long list of positions for which he has
applied in the timeframe of 2004 through 2015, many of which are employment opportunities
within the federal government. See Plaintiff’s Ex. B. Within the last year, Plaintiff estimates that
he has been on ten interviews. See U.S. Ex. A, at 58. In September of 2014, Plaintiff applied for
a seasonal position, scheduled to last four to six months, with the Internal Revenue Service for
which the annual pay was approximately $32,000.00. See U.S. Ex. A, at 55-56, 58. According to
Plaintiff, he has no health problems or medical conditions that would prevent him from
employment. See U.S. Ex. A, at 66. In sum, Plaintiff is a highly-educated, healthy, thirty-two
year old man, who owns his home outright and has no dependents.
Summary Judgment Standard
Motions for summary judgment are governed by Fed.R.Civ.P. 56, made applicable to
adversary proceedings by Fed.R.Bankr.P. 7056. Pursuant to Fed.R.Civ.P. 56(a), “[t]he court shall
grant summary judgment if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Initially, the burden rests on the
moving party and then shifts to the non-moving party if the movant meets its burden. A party
must support its position by citing to materials in the record, such as depositions, documents,
8 The Court notes that, despite listing his total income as only $239.00 in Schedule I, at the time of filing his voluntary petition, Plaintiff expressed his intention to retain his 2011 Toyota Camry and reaffirm that debt. See Chapter 7 Individual Debtor’s Statement of Intention, Case No. 14-22073, Doc. No. 1.
7
admissions, and interrogatory answers. See Fed.R.Civ.P. 56(c)(1). To preclude summary
judgment, the mere existence of a factual dispute is insufficient; rather, the dispute must be with
respect to a material fact, i.e., a fact that would impact the outcome of the litigation under
applicable substantive law. See Volek v. Redevelopment Auth. of the Cnty. of Fayette, 24
F.Supp.3d 473, 482 (W.D. Pa. 2014). Where a defendant moves for summary judgment, that
party need not refute each element of the plaintiff’s claim; instead, the defendant is only required
to demonstrate the absence or insufficiency of evidence in support of at least one requisite
element of the plaintiff’s claim. Id. at 483. With this standard in mind, the Court will analyze the
pending Motions in accordance with the applicable law.
Analysis
Within the Complaint, Plaintiff seeks a determination that his educational debts are
dischargeable pursuant to 11 U.S.C. §523(a)(8), which provides as follows:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt--
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for--(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual[.]
See 11 U.S.C. §523(a)(8). In this case, the parties dispute whether the inability to obtain a
discharge of educational loan debt will result in an undue hardship on the Plaintiff.
In determining whether an “undue hardship” exists under §523(a)(8), this Court is bound
to follow the standard set forth in Brunner v. New York State Higher Education Services Corp.,
831 F.2d 395 (2d Cir. 1987), which was adopted by the Court of Appeals for the Third Circuit in
8
Pennsylvania Higher Education Assistance Agency v. Faish (In re Faish), 72 F.3d 298 (3d
Cir.1995). The test set forth in Brunner consists of the following three elements:
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for [debtor] and [debtor’s] dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for student loans; and (3) that the debtor has made good faith efforts to repay the loans.
See Faish, 72 F.3d at 304-305 (quoting Brunner, 831 F.2d at 396). Each of these elements must
be established individually by the debtor in order for discharge to be granted. See Faish, 72 F.3d
at 306. Significantly, the Court of Appeals for the Third Circuit characterized the Brunner test as
“the definitive, exclusive authority” for determining “undue hardship” and further mandated that
“[e]quitable concerns or other extraneous factors not contemplated by the Brunner framework
may not be imported into the court’s analysis to support a finding of dischargeability.” Id.
Accordingly, for the purpose of resolving the pending Motions, this is the applicable governing
law pursuant to which this Court must decide if a genuine dispute exists with respect to a
material fact.9 As the Brunner test requires that a debtor meet his burden as to each of its three
prongs, a debtor’s inability to demonstrate one of the prongs is fatal to a request for
dischargeability.
9 Plaintiff dedicated a significant portion of his motion and oral argument emphasizing his beliefthat the Brunner test should no longer be applied and advocating the application of a totality of the circumstances test and/or the means test analysis to determine undue hardship. While this Court reviewed the Plaintiff’s Motion and submissions in their entirety, the Court will not address herein every single argument and allegation made by Plaintiff. This Court is bound to apply the Brunner test, and relevance is determined by, and limited to, relation to the three prongs of the Brunner test. While Plaintiff contends that the test is outdated, the Third Circuit continues to adhere to the test adopted in Faish. See Lepre v. United States Dep’t of Educ. (In re Lepre), 530 F.App’x 121 (3d Cir. 2013), cert. denied, 134 S.Ct. 525 (2013). Notably, however, based upon the undisputed facts of record, Plaintiff would fair no better under the totality of the circumstances test which he contends should govern. This Court would reach the same conclusion: the educational loan debt would nonetheless be nondischargeable.
9
Good Faith Efforts
Much of the parties’ argument was dedicated to the third prong of the Brunner test, which
asks whether the debtor has made good faith efforts to repay the loans. Although out of turn, the
Court will begin its analysis with this inquiry. In order to demonstrate good faith, a debtor’s
financial plight must have resulted from factors beyond his reasonable control as opposed to his
own willful or negligent conduct. See Davis v. Nat’l Collegiate Trust (In re Davis), 526 B.R.
136, 141 (Bankr.W.D.Pa. 2015). A court “must consider whether: (1) the debtor incurred
substantial expenses beyond those required to pay for basic necessities; and (2) the debtor made
efforts to restructure the loan before filing his or her bankruptcy petition.” Id. Additional factors
courts have considered are the ratio of a debtor’s student loan obligation to his total unsecured
debt and the amount of time between when the loan became due and when debtor sought a
discharge. See Goforth v. United States Dep’t of Educ. (In re Goforth), 466 B.R. 328, 341
(Bankr.W.D.Pa.2012). With these factors in mind, a court must determine whether a debtor has
made good faith efforts to repay an educational loan from the date upon which the first loan
payment became due to the date of the bankruptcy filing. See id. at 339.10
With respect to expenses, Plaintiff does not have a mortgage or pay rent as he was able to
save $7,200.00 from earnings to purchase his home with cash in 2012. Plaintiff does own a
vehicle, requiring monthly payments of $345.00. Based upon the remaining expenses identified
10 The Court notes that it is not entirely clear on the record when the first payments on the loans at issue became due. In reference to the relevant time period, the United States cites to the earliest of Plaintiff’s current loans, which are loans from November of 2007. See United States’ Memorandum of Law in Support of Motion for Summary Judgment, Doc. No. 71, at 8, 13 n.6. Meanwhile, at oral argument and within his Motion, Plaintiff appears to assert that the relevant timeframe is the past sixteen years, apparently relying upon the date when he first obtained an educational loan. See Plaintiff’s Motion for Summary Judgment and Memorandum in Support, Doc. No. 79, at 38. Within Plaintiff’s Exhibit A, the dates when certain loans entered repayment are provided; however, many of these individual loans weremarked as paid in full through consolidation loans. As to the remaining loans identified in Plaintiff’s exhibit, it appears that the earliest any of those existing loans entered repayment was 2012.Notwithstanding the foregoing, no evidence of payments was submitted, and the forbearances, deferments, and consolidations are matters of record.
10
on Schedule J, Plaintiff appears to live modestly without incurring substantial expenses beyond
those required to pay for basic necessities.
Significantly, however, Plaintiff failed to maximize his income earning potential to
demonstrate that the cause of his financial hardship is beyond his reasonable control. See Davis,
526 B.R. at 142 (finding that “although the Debtor maintains modest monthly expenses, her
unexplained failure to maximize her income earning potential also evidences her lack of ‘good
faith’ in repaying her student loans”). For example, on three occasions, Plaintiff voluntarily left
employment. Notwithstanding the foregoing, Plaintiff asserts to the contrary and contends that he
has vigorously sought employment opportunities. See Plaintiff’s Motion, at 23. In support of his
contention, Plaintiff submitted a long list of positions for which he applied in the timeframe of
2004 through 2015, many of which are employment opportunities within the federal government.
See Plaintiff’s Ex. B.11 The fact that Plaintiff has applied to jobs for which he has not been hired
does not establish that Plaintiff maximized his earning potential. Notably, with respect to some
of the government positions, Plaintiff’s own exhibit provides a “status” which has not been
11 Plaintiff submitted Exhibit D in support of his position that the United States cannot assert in this proceeding that Plaintiff possesses marketable employment skills as Plaintiff applied for a position with the Office of the United States Attorneys but was not given an interview despite his qualifications. SeePlaintiff’s Motion, at 25. Based upon Exhibit D, it appears that in March of 2014 Plaintiff applied for a legal assistant position with the Department of Justice, Executive Office for U.S. Attorneys and the Office of the U.S. Attorneys in Pittsburgh, Pennsylvania. Aside from providing evidence of his application for the position, Exhibit D does not support Plaintiff’s position that he is viewed as unemployable by the United States.
Similarly, Plaintiff submitted Exhibit C in support of his assertion that his attempts to obtain a position with the federal government have been unsuccessful mostly due to a hiring preference for veterans. See Plaintiff’s Motion, at 23. Although Exhibit C provides evidence of one instance where thenumber of applicants eligible for this preference precluded Plaintiff’s application from receiving further consideration, it does not establish that the preference is the reason that Plaintiff was not considered for any other position to which he applied. More significantly, it does not establish that Plaintiff is unemployable.
Furthermore, this Court notes but expresses no opinion on the effect this pending proceeding against the United States may have on Plaintiff’s pursuit of employment with the federal government,especially with the Office of the United States Attorney.
11
clarified for the Court. In a number of instances, the status is marked cancelled, application
incomplete, or minimum qualification requirements not met. See Plaintiff’s Ex. B. Although
Plaintiff is currently unemployed, he is highly educated with a lengthy employment history
indicating that he is certainly employable. Plaintiff has not demonstrated that his current
unemployment resulted from factors beyond his reasonable control.
In an effort to demonstrate good faith, Plaintiff established the steps he has taken to
prevent default, including through obtaining deferments and forbearances. In addition, Plaintiff
asserts that he has shown his good faith by consolidating some of his loans. Although not
dispositive to the determination of good faith, a debtor’s pursuit of loan consolidation is a
component of the analysis as it may demonstrate that a debtor takes the obligation to repay
seriously and that he is doing what he can to repay despite his circumstances. See Fabrizio v.
U.S. Dep’t of Educ. (In re Fabrizio), 369 B.R. 238, 245 (Bankr.W.D.Pa. 2007). Notably, as was
the case in Fabrizio, consolidation fails to carry the burden under this prong where no payments
have been made and the record does not demonstrate an intention to repay. See id. at 245-46.
Accordingly, without more, Plaintiff cannot demonstrate good faith efforts to repay the loans by
seeking deferments, forbearances, and consolidation.
In addition, courts have considered the failure to enroll in IBR or ICR as significant when
such administrative programs would substantially reduce the debtor’s monthly payment. See
Goforth, 466 B.R. at 340. Furthermore, if certain requirements are met, then Plaintiff may
qualify for cancellation of his outstanding debt after twenty-five years. See Attachment 2 to U.S.
Ex. B. Here, Plaintiff has stated that he has no intention to participate in IBR despite the fact that
it would reduce his monthly payment to $0. Plaintiff contends that, should he choose to
participate in this repayment program and eventually qualify for cancellation of the debt, the
12
cancellation may result in a large tax burden. Plaintiff made no attempt to establish what this
potential tax debt may be and provides nothing more than a suggestion that a debt, in some
amount, may exist twenty-five years in the future. Based upon Plaintiff’s employment history
and education, Plaintiff’s contention in this regard fails to take into account the likely reduction
of the educational loan debt due to payments from future income. Cf. Coco v. N.J. Higher Educ.
Student Assistance Auth. (In re Coco), 335 F.App’x 224 (3d Cir. 2009) (finding a debtor’s
decision to forgo enrollment in an income contingent repayment program reasonable where
eventual cancellation of the debt would simply trade the student loan debt for a tax debt as
debtor’s financial circumstances and chronic medical problems were likely to continue
indefinitely). Based upon the circumstances of this case, Plaintiff’s argument is highly
speculative and does not provide a reasonable basis for his refusal to enroll in these repayment
plans.
Another consideration in the good faith analysis is the ratio of a debtor’s student loan
obligation to his total unsecured debt. See Goforth, 466 B.R. at 341. Where the student loan debt
constitutes the majority of the debt, it is an indication that discharging the student loan debt was
the primary motivating factor in filing for relief under the Bankruptcy Code. Id. In Goforth, the
court found that a student loan debt representing 72% of unsecured debt is a high ratio weighing
against a finding of good faith. Id. Likewise, in this case, the vast majority of Plaintiff’s debt is
student loan debt. The United States points out that, in his Schedules, Plaintiff calculated his total
liabilities to be $172,176.20, of which $147,987.46 was represented to be educational loan debt.
Accordingly, the United States contends that 85% of Plaintiff’s debt arises from his educational
13
loans thus indicating a lack of good faith.12 Although this ratio is not dispositive, it is a relevant
factor for consideration. In this case, it is a further indication that discharge is not appropriate
under the good faith analysis.
Furthermore, based upon the records submitted, the last disbursement on one of
Plaintiff’s educational loans occurred on February 1, 2013. The most recent degree obtained by
Plaintiff was awarded to him on May 4, 2013. See U.S. Ex. C. The above-captioned adversary
proceeding seeking discharge of all educational loan debt was commenced a little over one year
after Plaintiff obtained his second Master’s degree. Based upon the record, Plaintiff spent much
of the time between the date he first obtained an educational loan and the filing of this
bankruptcy case pursuing his education. In fact, Plaintiff was awarded degrees in 2004, 2006,
2009, and 2013. Plaintiff has not demonstrated a good faith effort to repay by seeking discharge
of these loans after only recently completing his educational goals. Meanwhile, for nearly the
entire life of the loans, the loans have been in deferment or forbearance.
Upon consideration of the foregoing relevant factors applied to the undisputed facts,
Plaintiff failed to demonstrate good faith efforts to repay the loans at issue. Because each of the
three prongs of the Brunner test must be established by a debtor in order to demonstrate undue
hardship, Plaintiff is incapable of meeting his burden. Accordingly, the United States established
entitlement to summary judgment as Plaintiff failed to respond with sufficient evidence to create
a genuine dispute as to any material fact on the issue of undue hardship. The Plaintiff’s
educational debt is not dischargeable. The Court’s analysis could conclude at this point;
12 The Court notes that the United States’ calculation compares Plaintiff’s total liabilities with the amount of educational loan debt; however, in Goforth, the court compared total unsecured debt with the student loan indebtedness. In this case, using the latter calculation results in an even higher percentageand does not change the analysis.
14
however, as there are alternative grounds for the Court’s decision, the other two prongs of the
Brunner test will also be addressed herein.
Additional Circumstances
The second prong of Brunner requires a debtor to demonstrate the existence of additional
circumstances indicating that his current state of financial affairs is likely to continue for a
significant portion of the repayment period. This has been characterized as a “demanding
requirement” as a debtor must establish a complete incapacity to pay debts in the future for
reasons beyond the debtor’s control. See Davis, 526 B.R. at 145. Dischargeability is reserved for
exceptional cases where there is a certainty of hopelessness as opposed to present inability. See
Brightful v. Pa. Higher Educ. Assistance Agency (In re Brightful), 267 F.3d 324, 328 (3d Cir.
2001). Disabilities and/or impairments which prevent an individual from retaining employment
are typically significant factors under this prong. Davis, 526 B.R. at 146. The evidence produced
by a debtor must be definitive and demonstrate that the debtor’s earning potential will not
improve over time. Id. at 145-46.
The undisputed evidence in this case reveals that the Plaintiff is thirty-two years old,
healthy, well-educated, and employable. Plaintiff’s second Master’s degree was awarded to him
on May 4, 2013, approximately one year before the commencement of the bankruptcy case. In
the interim, Plaintiff was employed by Chevron and Staffmark, although the latter position was
terminated relatively quickly. Despite Plaintiff’s submission showing his applications to various
positions, the evidence is simply insufficient to meet the demanding requirement of this prong of
the Brunner test. Significantly, although the Plaintiff provides a list of numerous positions for
which he applied, it appears that these applications were made within the timeframe of 2004
through 2015. See Plaintiff’s Ex. B. As detailed within the undisputed facts, Plaintiff was not
15
unemployed throughout that entire time period. In fact, Plaintiff held a number of different
positions while he was pursuing his educational goals. Further, Plaintiff admits to voluntarily
leaving certain positions during this timeframe. While Plaintiff may be attempting to show that
he did not obtain particular employment, the evidence overwhelmingly demonstrates that he is
employable. Plaintiff failed to produce even a shred of evidence to support a finding in his favor
as to this prong of the Brunner test.13 The undisputed facts demonstrate that Plaintiff is
employable and that, with employment, his financial condition will likely improve.
Based upon the foregoing, there is no genuine dispute as to any material fact regarding
Plaintiff’s inability to present sufficient evidence to meet his burden under the second prong of
the Brunner test. Accordingly, this provides an alternative basis upon which the request to
discharge the student loan debt must be denied.
Minimal Standard of Living
As set forth above, the first prong of the Brunner test requires a debtor to demonstrate
that, if he is forced to repay his educational loans, he cannot maintain a minimal standard of
living. The concept of a minimal standard of living is flexible and dependent upon the particular
circumstances of a case. See Davis, 526 B.R. at 144. An evaluation of the debtor’s present
income and expenses is required under this prong; however, in undertaking this analysis,
“income and expenses should not be regarded as unalterable.” Id. Thus, a court is permitted to
consider whether it would be unconscionable to require a debtor to pursue additional income or
13 Plaintiff makes a number of assertions in an attempt to demonstrate the requisite additional circumstances under the Brunner analysis; however, these are no more than unsubstantiated statements which are not supported by any evidence. See Plaintiff’s Motion, at 28 (asserting, inter alia, that he is unlikely to earn a salary in excess of $25,000.00 annually, that he will suffer chronic unemployment and underemployment due to the economy and outsourcing, and that prices of necessities will continue to increase).
16
reduce expenses. Id. Significantly, simply demonstrating “tight” finances is insufficient to meet
the burden as to this prong. Id.
Overall, a review of Plaintiff’s Schedule J indicates that Plaintiff’s monthly expenses are
not unreasonably excessive; however, they far exceed the amount of income identified on
Schedule I. Notably, of the $2,163.00 of expenses listed, $1,530.00 of the payments are not
actually being made, including the home maintenance payments of $500.00, vehicle payments of
$345.00, and the educational loan payments in the amount of $685.00. In fact, Plaintiff has never
made payments on these educational loans. Further, this amount could clearly be reduced based
upon one of the repayment options available to Plaintiff. In fact, if Plaintiff were to enroll in
IBR, his payment would be reduced to $0. Based on the facts of this case, Plaintiff’s highly
speculative argument that he may incur a substantial tax debt due to cancellation of debt in the
future under a repayment plan does not provide a reasonable explanation as to why Plaintiff has
not pursued such an administrative option in an attempt to reduce his expenses. Assessment of
expenses, however, is not the end of the analysis. See Davis, 526 B.R. at 145 (holding that
“[a]lthough, a review of the Debtor’s expenses indicates that there is little room for her to further
reduce or eliminate her ‘cost of living’ expenses, and all of those expenses appear reasonable,
based on the current record, there nevertheless remains an opportunity for the Debtor to increase
her income in an amount that could be used to repay her current student loan obligations”).
According to Plaintiff’s Schedule I, he is unemployed with a total monthly income of
$239.00, in the form of food stamps and family support. Income, however, is not unalterable in
this analysis. While Plaintiff alleges that he is unlikely to earn a salary in excess of $25,000.00,
the statement is completely lacking evidentiary support. See Plaintiff’s Motion, at 28. Further,
the unsubstantiated statement is undermined by the fact that in September of 2014 Plaintiff
17
applied for a seasonal position with an annual pay rate of $32,000.00. Notwithstanding the
foregoing, even if Plaintiff earned a salary of $25,000.00, he failed to demonstrate that he would
not be able to maintain a minimal standard of living if he was forced to repay his student loans.
Notably, based on an adjusted gross income of $25,000.00, Plaintiff’s monthly payments on his
educational loans would only increase from $0 to approximately $91.00. See U.S. Ex. B, at ¶12.
Furthermore, despite the snapshot of Plaintiff’s financial circumstances provided by
Schedule I, Plaintiff is highly educated and has demonstrated the ability to obtain various types
of employment. Throughout the stages of his education, Plaintiff has obtained both long and
short-term positions. On three occasions, Plaintiff voluntarily left employment. One of those
positions was at K&L Gates, where Plaintiff was earning $22,000.00 annually in 2007, before he
added two Master’s degrees to his résumé. Prior to December of 2012, Debtor demonstrated his
ability to earn more than what is necessary to meet his expenses as he was able to save at least
$7,200.00, which he used to purchase a home. As recently as the fall of 2013, Plaintiff was
earning $16.00 per hour. Although short-lived due to an apparent issue with a background check,
Plaintiff obtained employment with Staffmark in May of 2014. Despite the issue with Staffmark,
Plaintiff has held numerous positions, apparently without any issues resulting from background
checks.
The evidence does not establish that Plaintiff is unemployable. Although Plaintiff may
intend for the Court to view his income only as it is set forth in Schedule I, the Court’s analysis
is not limited in that respect. Therefore, in this case, based upon the record, it is certainly not
unconscionable to require Plaintiff to pursue additional income. Plaintiff failed to establish that
he cannot maintain a minimal standard of living under the first prong of the Brunner test. The
18
undisputed facts demonstrate to the contrary. Accordingly, judgment in favor of the United
States could alternatively be granted on this basis as well.
Conclusion
Based upon the foregoing analysis, there is no genuine dispute as to any material fact
regarding Plaintiff’s inability to present sufficient evidence to meet his burden as to each of the
three prongs of the Brunner test. Therefore, Plaintiff failed to establish undue hardship under 11
U.S.C. §523(a)(8), and the debt resulting from the educational loans is not dischargeable.
Throughout these proceedings, the Court had the opportunity to observe Plaintiff on several
occasions. Although for many the experience of appearing before a court pro se is daunting,
Plaintiff appeared eloquent, well-prepared, highly competent, and articulate on each of these
occasions. Plaintiff’s education is evident in his presentation and filings. Discharging the student
loan debt of a young, healthy, well-educated, employable debtor is not the purpose of §523(a)(8).
Therefore, upon consideration of the United States’ Motion for Summary Judgment and
Plaintiff’s Motion for Summary Judgment and Memorandum in Support, the responses,
memoranda, exhibits, and argument, the Court finds that the United States’ Motion must be
granted and the Plaintiff’s Motion must be denied. An Order will be entered consistent with this
Memorandum Opinion.
Date: August 13, 2015 __/s/ Carlota M. Böhm_______Carlota M. Böhm United States Bankruptcy Judge
MAIL TO:Office of the United States Trustee
David Lew, Esq.
Craig Devon Murphy117 Friendship StreetDuquesne, PA 15110
FILED
CLERKU.S. BANKRUPTCYCOURT -
8/13/15 12:54 pm
1
IN THE UNITED STATES BANKRUPTCY COURTFOR THE WESTERN DISTRICT OF PENNSYLVANIA
__________________________________________)
IN RE: ) Bankruptcy No. 14-22073-CMB)
CRAIG DEVON MURPHY, ) Chapter 7)
Debtor. )__________________________________________)
)CRAIG DEVON MURPHY, )
)Plaintiff, ) Adversary No. 14-2155-CMB
)v. ) Related to Doc. Nos. 70 and 79
)U.S. DEPARTMENT OF EDUCATION, )
)Defendant. )
__________________________________________)
ORDER
AND NOW, this 13th day of August, 2015, upon consideration of the United States’
Motion for Summary Judgment (“United States’ Motion”) and Plaintiff’s Motion for Summary
Judgment and Memorandum in Support (“Plaintiff’s Motion”), the responses, memoranda,
exhibits, matters of record, the arguments presented at the hearing on July 28, 2015, and for the
reasons expressed in the Memorandum Opinion entered on this date,
It is hereby ORDERED, ADJUDGED, and DECREED that:
1. The Plaintiff’s Motion is DENIED.
2. The United States’ Motion is GRANTED.
3. Plaintiff’s educational loan debt is not dischargeable.
2
4. This Order resolves the above-captioned adversary proceeding.
__/s/ Carlota M. Böhm_______Carlota M. Böhm United States Bankruptcy Judge
MAIL TO:
Office of the United States Trustee
David Lew, Esq.
Craig Devon Murphy117 Friendship StreetDuquesne, PA 15110
FILED
CLERKU.S. BANKRUPTCYCOURT -
8/13/15 12:59 pm
IN THE UNITED STATES BANKRUPTCY COURTFOR THE WESTERN DISTRICT OF PENNSYLVANIA
IN RE:
PAMELA GOFORTH and : Case No. 10-11155-TPASTEVEN GOFORTH, :
Debtors : Chapter 7
PAMELA GOFORTH and : Adv. No. 10-1151-TPASTEVEN GOFORTH, :
Plaintiffs : Related to Doc. Nos. 30, 38:
v. ::
UNITED STATES OF AMERICA :DEPARTMENT OF EDUCATION, :
Defendant :
Appearances: Lloyd Wilson, Esq., for the Debtors/PlaintiffsMegan E. Farrell, Esq., for the Defendant
MEMORANDUM OPINION
Debtors filed this adversary proceeding in an effort to obtain a discharge of their
student loan obligations because of undue hardship, pursuant to 11 U.S.C. §523(a)(8). After the
close of pleadings and discovery, an Amended Motion for Summary Judgment (“Motion”), Doc.
No. 30, was filed by the Defendant, United States of America, Department of Education. The
Debtors responded to the Motion, and the Parties filed briefs. The Court heard oral argument on the
Motion on February 6, 2012 and at that time granted the Motion in an oral ruling from the bench,
followed by a brief written Order entered later that date. See Doc. No. 38. The Court indicated at
the time that it was reserving the right to issue a written opinion setting forth its findings of fact and
1
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 1 of 23
conclusions of law in the event the Debtors were to appeal the decision. The Debtors have now filed
a notice of appeal,1 and in accordance with the prior reservation, the Court submits this
Memorandum Opinion setting forth its findings and conclusions as to the previously-granted
Motion.2
PROCEDURAL AND FACTUAL HISTORY
Debtors Pamela and Steven Goforth (hereinafter referred to collectively as “Debtors”
and individually as “Wife” and “Husband,” respectively) filed this bankruptcy case on June 23,
2010, and received a discharge on September 27, 2010. Debtors then moved to reopen the case on
November 12, 2010. That motion was granted on November 12, 2010, and the Debtors filed the
present adversary action shortly thereafter. According to the rather skeletal complaint, the Debtors
are both in their mid-50s. Wife owes $51,656 in student loan debt and Husband owes $45,439.3
These loans were incurred for college courses toward degrees in Psychology and Fine Arts for Wife
and in Computer Information Sciences for Husband, though neither completed the necessary course
work for the degrees and neither is currently employed in fields relevant to the credits. Debtors
contend it would be an undue hardship if they are required to repay the loans.
1 The Debtors were represented by Counsel before this Court, but are pursuing the appeal on a pro sebasis.
2 The Court has jurisdiction over this matter pursuant to 28 U.S.C. §1334. The matter is a core matterpursuant to 28 U.S.C. § 157(b)(2)(A),(I) and (O). This Memorandum Opinion constitutes the Court’s findings of factand conclusions of law pursuant to Fed.R.Bankr.P. 7052.
3 In its Answer to the Complaint, the Defendant asserts that Wife’s loan balance is $52,312.96 andHusband’s is $46,588.30. In the Motion, Defendant asserts the balances are $54,310 for Wife and $47,823 forHusband. Presumably the differences are due to accruing interest. In any event, the Parties are in rough agreementas to the size of the loan balances, and the precise amount of the balances is not crucial to the Court’s determination.
2
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 2 of 23
The relative paucity of information concerning the circumstances of these Debtors
and their student loans available in the pleadings was substantially fleshed out in the Motion and the
accompanying evidentiary materials submitted by the Defendant. The Motion sets forth 53
paragraphs of what it contends are undisputed material facts, with citations to the record in support.
The “record” as presented by the Defendant in this instance consists of transcripts of depositions of
the Debtors that were taken on October 20, 2011, “National Student Loan Data System (“NSLDS”)
printouts for the loans of each of the Debtors,4 and an affidavit from Rubio Canlas, a loan analyst
employed by the Defendant, which includes as attachments loan history information for the Debtors’
loans.
By their Response to the Motion, the Debtors demonstrated that the Parties are in
overwhelming agreement as to the material facts of the case. The Debtors only outright deny four
of the 53 factual paragraphs in the Motion, some of which relate to minor points anyway.5
Consistent with that, in the brief the Debtors filed in opposition to the Motion, they state that they
“do not disagree with the facts as enumerated” in the Motion and supporting brief. The factual
narrative that follows is therefore undisputed by the Debtors, except as may be specifically noted.
Wife was born in 1955. She did not finish high school but earned a GED in 1983. Her
work history includes time working as a certified nurse’s aide, a home health assistant, in cleaning,
and in factory assembly positions. When she was about 45 years old she made the decision to attend
4 The NSLDS printouts are not authenticated by affidavit or otherwise, and thus had the Debtors made anobjection the Court may not have considered them as competent evidence in connection with the Motion. However,since the Debtors did not make such objection, and in fact have admitted to the truthfulness of the portions of theprintouts relied upon by the Defendant for its Motion, the Court may properly consider them. See, e.g., In reMadera, 363 B.R. 718, 720 n.2 (Bankr. E.D. Pa. 2007).
5 The Response uses the unusual terminology of “not denied” rather than “admitted”, but at oralargument on the Motion Counsel for the Debtors agreed it had the effect of an admission.
3
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 3 of 23
Clarion University in the hope that she would thereby be able to obtain a better job. She majored in
Fine Arts and minored in Psychology, with a career goal to work as an art therapist with nursing
home patients. Wife attended Clarion for a number of years and completed 104 credits, but she has
not obtained a degree.
In order to finance her education at Clarion, Wife took out a series of individual
Stafford loans under the Federal Family Education Loan Program (“FFEL”) during the period from
June 21,2002 through July 25, 2005. The loans were made by private lenders and guaranteed by the
Pennsylvania Higher Education Assistance Agency (“PHEA”). Eight of these loans, totaling
$21,563, were subsidized, and another eight totaling $21,124, were unsubsidized. Wife consolidated
these various loans on August 17, 2006, into a single FFEL Consolidation Loan in the amount of
$44,995. On July 19, 2010, the loan was further “consolidated” into two loans under the William D.
Ford Direct Loan Program, a subsidized loan of $22,078 and an unsubsidized loan for $28,770.6
Husband was also born in 1955. He did not finish high school but earned a GED in
1994. His work history includes time working for various employers as a general unskilled laborer,
for example in lumberyards, and a few acting positions. Around 2002 Husband made the decision
to attend Clarion University, majoring in Computer Information Systems. He attended Clarion for
a number of years and completed 78 credits but he has not obtained a degree. Subsequently, Husband
attended a four-month trade school, with the tuition paid by the Commonwealth of Pennsylvania, and
6 The Direct Consolidation Loan for Wife is thus a postpetition obligation, not even subject to dischargeunder 11 U.S.C. §727(b), and the Motion could be granted as to her loan on that basis alone without even needing toengage in an undue hardship analysis. See, In re Miller, 2006 WL 2361819 (Bankr. W.D. Pa. 2006). For the sake ofcompleteness, the Court will nevertheless analyze Wife’s circumstances under the applicable undue hardshipstandard as discussed infra.
4
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 4 of 23
in October 2010 he obtained a certification from this school in computer and network systems
support, maintenance, and repair.
In order to pay for his education at Clarion, Husband similarly took out a series of
individual Stafford loans under the FFEL Program, his loans coming during the period from March
28, 2002 through July 15, 2005. Eight of these loans, totaling $16,875, were subsidized, and another
eight, totaling $20,187, were unsubsidized. Husband consolidated these various loans on June 8,
2006, into a single FFEL Consolidation Loan in the amount of $40,451. On March 5, 2010, the loan
was further “consolidated” into two loans under the William D. Ford Direct Loan Program, a
subsidized loan of $22,300 and an unsubsidized loan for $23,138.
On January 17, 2011, both of the Debtors enrolled into the “Income Contingent
Repayment Plan,” or “ICRP,” to repay their Direct Consolidation Loans. Upon entering the ICRP
they had the option to repay their loans jointly, in which case both of their loan balances would be
combined to determine a monthly repayment amount. Debtors, however, elected to have their loans
treated individually. Under that election, the monthly repayment for Wife is $227.52 and for
Husband it is $203.20. By contrast, if the Debtors agreed to joint treatment under ICRP, their
combined monthly repayment, as calculated by Canlas based on a combined loan balance of $102,133
and an adjusted gross income of $25,635, would be $182.08, a reduction of almost $250 per month.
The Debtors are also eligible for but have chosen not to participate in a program called
the “Income-based Repayment Plan,” or “IBR.” Canlas ran the calculations and determined that if
the Debtors participated in the IBR, Husband’s monthly repayment would be $21 and Wife’s would
be $24. These figures can apparently vary from year to year depending on fluctuations in income.
5
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 5 of 23
If a borrower repays under IBR for 25 years and meets certain other requirements, the remaining
balance of the debt is cancelled.
In Schedule I of their bankruptcy petition the Debtors showed a current monthly
income of $1,231. However, at the depositions held in October 2011 they testified that their monthly
income was between $2,104 and $2,184 and additionally supplemented by odd jobs. Wife had a
weekly income of $273 in unemployment compensation and between $60 and $100 from part-time
home health aide job she has had since 2005 which pays her $9.09 per hour . She also does odd jobs
such as dog sitting and an eBay based internet business of restoring old photos, though the earnings
from these are modest. At the time of his deposition, Husband’s weekly income consisted of $173
in unemployment and $20 from odd jobs. In his most recent regular prior job, from December 2010
to August 2011, Husband was earning $8.75 per hour in a temporary laborer position. Based on his
trade school certification, Husband is also eligible to take examinations to obtain an “A-Plus
Certification” or a “Network Plus Certification.” If and when he takes and passes one or both of
those exams he will be qualified to obtain work as a computer network person, with estimated
earnings from $8 to $15 per hour.
In Schedule J of their petition, the Debtors indicated average monthly expense of
$1,817. Again, however, this amount was modified and explained somewhat at the depositions held
in October 2011. For instance, although they show $175 per month as rent or home mortgage
payment expense, they do not actually pay that for the rent of their residence, which is owned free
and clear by an adult daughter (born in 1974) who allows them to live there. The daughter is
incarcerated in Oklahoma and the Debtors pay the $175 to cover the rent for a trailer she owns in
6
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 6 of 23
Oklahoma which is currently sitting vacant. The Debtors also give this daughter about $40 per week
for things she needs. A $300 per month Rent-a-Center payment listed on Schedule J has now been
paid off. Finally, the Debtors donate significant amounts to CBN (Christian Broadcasting Network),
totaling approximately $2,500 for the year 2011 (or about $250 per month) as of the time of the
depositions.
With the above factual background in mind, the Court will turn to a legal discussion
of the issues raised by the Motion. Any additional factual material for consideration will be
introduced as necessary.
SUMMARY JUDGMENT STANDARD
For purposes of resolving a summary judgment motion, Fed.R.Civ.P. 56 is made
applicable to adversary proceedings through Fed.R.Bankr.P. 7056. Summary judgment is appropriate
if the pleadings, depositions, supporting affidavits, answers to interrogatories and admissions that are
part of the record demonstrate that there exists no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law. Fed.R.Bankr.P. 56(c), Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986). Summary judgment is appropriate if no material factual issue exists and the only
issue before the Court is a legal issue. Earth Data Int’l of N.C., L.L.C. v. STV, Inc., 159 F. Supp.2d
844 (E.D. Pa. 2001); In re Air Nail Co., Inc., 329 B.R. 512 (Bankr. W.D. Pa. 2005). The test under
Fed.R.Civ.P. 56 is “whether the moving party is entitled to judgment as a matter of law.” Med.
Protective Co. v. Watkins, 198 F.3d 100, 103 (3d Cir. 1999) (quoting Armbruster v. Unisys Corp.,
32 F.3d 768, 777 (3d Cir. 1994)).
7
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 7 of 23
Once the moving party satisfies its burden of establishing a prima facie case for
summary judgment, the non-moving party must respond with contrary evidence and do more than
raise some metaphysical doubt as to material facts, otherwise judgment will be entered in favor of
the movant. Boyle v. County of Allegheny, 139 F.3d 386, 393 (3d Cir.1998) (quoting Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)). No issue for trial exists, in fact, unless
the non-moving party can adduce sufficient evidence favoring it on the disputed factual issue such
that a reasonable jury could only return a verdict in its favor. Celotex, 477 U.S. at 322. “It is
important to note that, even if a genuine factual dispute is shown to exist, such showing may not
necessarily suffice to preclude the entry of a summary judgment. Indeed, the mere existence of some
alleged factual dispute will not defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of material fact.” In re Allegheny Health,
Educ. & Research Found., 321 B.R. 776, 789 (Bankr.W.D.Pa.2005). Also, where the movant is
either the defendant or the party without the burden on the underlying claim, as is the case here, the
movant has no obligation to produce evidence negating its opponent's case. Air Nail Co., 329 B.R.
at 528; Nat’l State Bank v. Fed. Reserve Bank, 979 F.2d 1579, 1581–82 (3d Cir.1992).
LEGAL DISCUSSION
Under 11 U.S.C. §523(a)(8), student loans are excepted from discharge unless to do
so would impose an “undue hardship” on the debtor and the debtor’s dependents. The “undue
hardship” term is not defined in the Bankruptcy Code but the most widely-recognized standard is the
one set forth in Brunner v. N.Y. Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987). Under this
test undue hardship requires proof that: (1) based on current income and expenses the debtors cannot
8
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 8 of 23
maintain a minimal standard of living for themselves, and any dependents, if forced to repay the
loans; (2) additional circumstances exist indicating that this state of affairs is likely to persist for a
significant portion of the repayment period of the loans; and, (3) the debtors have made good faith
efforts to repay the loans. This 3-part test was adopted by the Third Circuit in In re Faish, 72 F.3d
298 (3d Cir. 1995).
The Debtors have the burden of proof by a preponderance of the evidence as to all
three prongs of this test. In re Fabrizio, 369 B.R. 238, 244 (Bankr. W.D. Pa. 2007). Each of the
prongs must be satisfied, individually before a discharge of the obligation can be granted, and if any
one prong is not satisfied, that may end the court’s inquiry without a discharge being granted. In re
Flickinger-Luther, 462 B.R. 157, 161 (Bankr. W.D. Pa., January 4, 2012). Finally, while considering
each prong the Court may not consider any extraneous factors outside of the Brunner framework,
including equitable concerns. Id. The Court will now consider each of the Brunner factors in turn
with respect to these Debtors.
Can the Debtors Maintain a Minimal Standard of Living?
Under the first prong the Debtors must prove that they cannot maintain a minimal
standard of living based on their current financial condition if forced to repay the loans. Faish, 72
F.3d at 306. Debtors must go beyond showing that repayment of the loans will lead to tight finances.
Id. Debtors cannot satisfy this prong if they could make the loan payments by engaging in some
“short-term belt tightening.” Id.
9
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 9 of 23
The Defendant argues that the Debtors could meet their current combined monthly
loan payment obligation of $430.92 by eliminating or reducing the approximately $250 per month
they are contributing to CBN, the approximately $335 per month they are paying to or for their adult
daughter, and the $57 per month they are paying for internet and cell phone. The Defendant also
states that the Debtors have the ability to reduce their monthly loan obligation by “taking advantage”
of the other repayment options which are available to them. As explained above, the Defendant has
submitted undisputed evidence to show that if the Debtors were to modify their current status under
the ICRP from individual loan treatment to joint treatment, they could reduce their required monthly
payment to $182.08. If they were to enroll into the IBR, they could reduce the total monthly payment
even further, all the way down to less than $50 per month.
There was no evidence presented to show that the Debtors are currently living below
a minimal standard. Their current income as detailed in their depositions exceeds their expenses as
set forth in their petition. If there has been any significant increase in expenses since the petition was
filed, it was incumbent upon the Debtors to apprise the Court of that fact in responding to the Motion,
but they did not do so.7 The Court can only conclude that the Debtors have a monthly surplus of
income over expense, albeit fairly small, and that they are maintaining at least a minimal standard
of living. Therefore, any “savings” they can make from their current expenditures or increase in their
7 Debtors did argue that Husband has a chronic medical condition that requires the payment of $188.58per month, but the only proof they have provided for that are copies of some billing invoices from 2009. It should benoted that neither these documents, nor the other evidentiary materials submitted by the Debtors in response to theMotion (copies of some tax returns and a copy of a writ of certiorari to the U.S. Supreme Court supposedly preparedby Wife in another matter) were supported by affidavit or otherwise authenticated. Since the Defendant did not askthat these documents be excluded, the Court has considered them, giving them the weight they deserve. See n. 4,supra. In this instance, the billing invoices are of little weight since they are from more than two years ago andcannot establish current expenses. The Defendant also points out that Schedule J to the petition shows only $10 permonth in medical and dental expenses, and that at his deposition Husband testified that there are no current medicalor dental expense obligations outstanding.
10
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 10 of 23
income could be devoted to payments on the student loans without affecting their ability to maintain
a minimal living standard.
In that regard, the Court finds that the Defendant has identified a number of expenses
which can be reduced or eliminated entirely, as well as some opportunities for an increase in income.
These are proper considerations with respect to the first Brunner factor. Income and expenses should
not be regarded as unalterable. The proper inquiry is whether it would be unconscionable to require
the Debtors to take any available steps to earn more income or to reduce their expenses. Faish, 72
F.3d at 307 (citing Matthews v. Pineo, 19 F.3d 121 (3d Cir. 1994), cert. denied 513 U.S. 820). The
Court does not believe it would be unconscionable to expect that the Debtors could realize savings
in their expenses by cutting back or eliminating the items identified by the Defendant.
Considering first the voluntary payments which the Debtors are making to CBN each
month, the Court assumes they are properly characterized as charitable religious contributions.
Although neither Party raised it, the Religious Liberty and Charitable Donations Protection Act of
1998, Pub. L. 105-183 (June 19, 1998) amended some provisions in the Bankruptcy Code to place
restrictions on what could be required of debtors in bankruptcy with respect to their charitable
contributions. Section 523(a)(8), however, was not affected by this Act, so by a plain language
reading, the Act would not apply in this case. Some courts in similar cases have nevertheless been
asked to “import” the principles of the Act by implication into the undue hardship analysis under
Section 523(a)(8) and have split fairly evenly in their decisions. See 36 A.L.R. Fed, 2d 1 (2009) at
§§19, 20. None of the cited cases is from the Third Circuit. Since the Debtors have waived any
argument that the Act should be applied here, and in the absence of any contrary binding authority,
11
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 11 of 23
the Court will not “read in” the Act to its analysis, making the CBN contributions fair game for
possible belt-tightening.
Up next for consideration as to possible savings are the payments the Debtors are
making to or for their adult daughter. Debtors argue that they have a legal duty to support their
daughter because she is an indigent family member, citing in support Savoy v. Savoy, 433 Pa. Super.
549, 641 A.2d 596 (1994). However, as correctly pointed out by the Defendant, no evidence has
been presented to show that the daughter is indigent and in any event the decision in Savoy was based
on a statute, 62 P.S. §1973(a), that was repealed effective July 7, 2005. The current Pennsylvania
statute dealing with the duty to support an indigent family member specifically provides that there
is no such duty if “an individual does not have sufficient financial ability to support the indigent
person.” See 23 Pa. C.S.A.§4603(a)(2)(i).
There are additional problems with the Debtors’ argument concerning payments to
the daughter. There was no evidence presented to show that the daughter petitioned for or requested
payments from the Debtors. She is a resident of Oklahoma, so there are issues as to the
extraterritorial effect of the Pennsylvania statute. Finally, she is currently incarcerated and thus
presumably has her basic needs taken care of by the Oklahoma prison system. For all these reasons,
the Court concludes that the payments being made by the Debtors are voluntary and not due to a legal
obligation.
A final item of potential savings pointed out by the Defendant is internet and cell
phone expense. Although the expense incurred by the Debtors for these is fairly minor, Debtors have
not shown that these services are necessary for work or otherwise, therefore they could be cut. See,
12
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 12 of 23
e.g., In re Berryhill, 2011 WL 3861598 (Bankr. C.D. Cal. 2011). The Defendant has thus identified
potential monthly expense savings totaling over $600 per month which could be devoted toward
payment on the loans.
Also on the expense side, the Court cannot ignore that the Debtors have it within their
power to substantially reduce the monthly loan expense to as low as $50 or less by some of the
administrative options described in the Canlas affidavit. If there were some reasonable explanation
as to why the Debtors have not done so, the Court would be willing to listen. The Debtors have
provided no such explanation, so the Court can only conclude they do not have one.
There also appear to be opportunities available to the Debtors to increase the income
side of the ledger. Husband has completed a computer certification course that by his own admission
will result in him being qualified for computer network IT positions paying from $8-15 per hour once
he passes the necessary exams. He has failed them to this point, but he is able to retake them until
he passes. Wife has had a nurse’s assistant certification in the past in North Carolina and there is
nothing to prevent her from pursuing that designation in Pennsylvania which would expand her
employment opportunities.
The Debtors had no direct response to the proposition that they can make payments
on the loans without falling below a minimal standard of living, by cutting expense or increasing
income if necessary. The Debtors do argue that the magnitude of their student loan debt to their
annual income (approx. 5-to-1) is so high that the Court should disregard other student loan cases
that have found a lack of undue hardship where part of the reasoning was that unnecessary expenses
could be cut out of the debtor’s budget to allow for repayment of the loan. In the Court’s view the
13
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 13 of 23
ratio of loan debt to income, per se, is an irrelevant consideration under the Brunner test and
represents an attempt by Debtors to inject the sort of extraneous factor or equitable concern into the
case that Faish made clear must be excluded. The real question is whether a debtor can afford the
required monthly payments without falling below a minimal standard of living, and these Debtors
can.
The Court concludes that the Defendant has established a prima facie case for
summary judgment as to the first prong of the Brunner test and the Debtors have responded with little
or no evidence to the contrary. When the applicable summary judgment standard is applied, the
Court finds that the Defendant is entitled to judgment as a matter of law as to this prong. Given the
Debtors’ obligation to meet all three prongs in order to secure a discharge of the debt, the Court could
simply stop here and have a sufficient basis to support its grant of the Motion. However, for the sake
of completeness the Court will proceed to review the remaining two prongs of the test.
Is the Debtors’ Financial Condition Likely to Persist?
Under this prong of the Brunner test, sometimes called the “additional circumstances”
prong, the Debtors must show that their current state of affairs will not improve for a significant
portion of the student loan repayment period. This is a demanding requirement under which the
Debtors must prove a total incapacity to repay the loans in the future for reasons beyond their control.
Flickinger-Luther, 452 B.R. at 162. Under this prong, a finding of undue hardship is reserved for the
exceptional case and requires the presence of unique or extraordinary circumstances which would
render it unlikely the Debtors would ever be able to honor their obligations. Id. The presence of
14
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 14 of 23
additional circumstances assists the Court in the difficult task of predicting future income. In re Nys,
446 F.3d 938, 945 (9th Cir. 2006).
The Defendant argues that the Debtors have not shown anything to prove that
additional circumstances exist indicating that they cannot maintain a minimal standard of living in
the future if they are required to repay their loans. The Debtors respond by arguing that they each
have a medical impairment that restricts their earning ability. Wife is alleged to have a cognitive
disorder which renders her unable to coherently communicate in writing. However, in responding
to the Motion, as well as in their Pretrial Statement, the Debtors did not submit any expert medical
report to confirm that such diagnosis in fact exists, and that if it does it prevents or significantly
impairs her ability to be gainfully employed.8 The court in In re Brightful, 267 F.3d 324, 330 (3d
Cir. 2001) made clear that just this sort of alleged mental problem cannot be used as a basis for
finding additional circumstances to support the second Brunner prong unless there is a record basis
to explain, at a minimum, how the Debtor was able to work in the past with the condition yet
supposedly cannot do so in the future.
Furthermore, at the argument on the Motion, counsel for the Defendant indicated that
in early January 2012 (after discovery had closed and after pre-trial statements, which were to have
had any expert reports attached, were filed) she received a copy of a neuropsychological report from
a Dr. Tofalo which concluded that Wife has no reading or math disorders and is capable of a wide
variety of employment, including home healthcare, outdoor jobs, skilled technology, computer
8 The only evidence presented by the Debtors to support the existence of the Wife’s alleged cognitivedisorder is an excerpt from a pro se petition for writ of certiorari that she filed with the United States Supreme Court. This document was filed in 2003, indicating a contention that Wife has had the disorder since at least then, duringwhich time she has been employed.
15
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 15 of 23
electronics, skilled business, and social and health-related services. Counsel for the Debtors
conceded that the report was not favorable to the Debtors because it shows that while Wife does have
some cognitive deficits, she is able to work. The report was admitted into the record without
objection.
Husband is alleged to have a hemorrhoid condition that impairs his earning capacity.
Again, however, no medical evidence has been provided to substantiate the severity of the condition
or how it may affect his earning capacity. Husband has never been hospitalized for the condition and
treats it with over-the- counter ointments and creams. In August 2011 he had a colonoscopy done
and the physician who performed it also gave him a prescription to help treat the condition. When
asked at his deposition if the hemorrhoids were a temporary condition, Husband said he did not
know, and added that he has been fortunate so far that they haven’t “severely injured” him. The
Pretrial Statement filed by the debtors on October 26, 2011, refers to the hemorrhoids as a temporary
condition. See Doc. No. 15. The evidence presented by the Debtors as to Husband’s condition falls
well below their burden of proof to show that this is a long-lasting condition that will negatively
affect his earning capacity.
There is also an issue as to the ages of the Debtors. The contention is that if the loan
debt is not discharged they will in all likelihood be paying on the loans until they are deceased, or
very elderly, without ever paying the loans off. Perhaps so, but that is a consequence of their
voluntary choice to incur the loans at relatively advanced ages. In other cases where the age of the
debtor has been put forward as an additional circumstance to support the second prong under
Brunner, at least where the age is standing alone unaccompanied by serious illness or disability, the
16
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 16 of 23
courts have rejected the argument. See, e.g., Fabrizio, supra (debtor 51 years old); Educ. Credit
Mgmt. Corp., v. Spence, 341 B.R. 825 (E.D. Va. 2006) (debtor in mid-sixties with loan debt of
$160,000); In re Chapelle, 328 B.R. 565 (Bankr. C.D. Cal. 2005) (debtor age 52); In re Jones, 392
B.R. 116 (Bankr. E.D. Pa. 2008) (debtor 52 years old). See also, Jones v. Bank One Tex., 376 B.R.
138, 139 (W.D. Tex. 2007) (debtor cannot use age as grounds to avoid repaying student loans as she
chose to go to school later in life, which resulted in the debt persisting into her later age).
The Debtors have thus failed to adduce evidence to show a “total incapacity” in the
future to pay their debts for reasons not within their control, Brightful, 267 F.3d at 329, and thus have
failed to rebut the evidence presented by the Defendant. Summary judgment is therefore appropriate
with respect to the second prong of the Brunner test as well.
Have the Debtors made a Good Faith Effort to Repay the Loans?
Under the final prong of the Brunner test, the Debtors must prove that they have made
a “good faith” effort to repay the loan over the entire time period from the date on which the first loan
payment became due to the date on which the Debtors filed for bankruptcy. Fabrizio, 369 B.R. at
244. This prong of the test serves the function of ensuring that a debtor’s financial plight is caused
by factors beyond his reasonable control, rather than negligently or wilfully caused by him, as well
as to guard against bankruptcies by former students motivated primarily by a desire to avoid payment
of student loan debts. Id.
Looking first at the issue of repayment efforts, an initial question is what time period
the Court should focus upon. The Defendant argues that the relevant time period for this inquiry
17
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 17 of 23
is from the point of the Direct Consolidation Loans forward. The Defendant contends that neither
spouse has made any loan payments since the Direct Consolidations Loans occurred, citing the
affidavit of the loan analyst Canlas to support that contention. Defendant further notes that Wife’s
Direct Consolidation Loan did not even occur until a month after the bankruptcy petition was filed,
and that the ICR program was entered by the Debtors in January 2011. The Debtors dispute the
contention that they have not made any loan payments during this period. However, the only
supporting evidence they have provided are copies of some tax return documents showing they took
deductions for paying interest on student loans. The last of these returns is from 2010, and the returns
provide nothing to show when payments were made within a given tax year. Thus, even assuming
the Debtors did make payments on the loans in 2010, it could well have been prior to the dates of the
Direct Consolidation Loans (March 5, 2010 for Husband and July 19, 2010 for Wife). The Court thus
finds that the Debtors have failed to meet their burden of proof on this issue and finds that no loan
payments have been made by them since the inception of the Direct Consolidation Loans.
The legal significance of that finding requires some additional exploration. In
Fabrizio the Court noted that under the Higher Education Act, and particularly 20 U.S.C. §1074(a),
the statutory language makes clear that federal consolidation loans are new agreements which
discharge the liabilities of the old loans and create their own obligations. 369 B.R. at 244-45 (citing
In re Clarke, 266 B.R. 301 (Bankr. E.D. Pa. 2001)). Based on that fact, the debtor in Fabrizio
stipulated that the relevant time period for consideration of whether a good faith payment attempt
occurred began on the loan consolidation date. In light of the Debtor’s stipulation in Fabrizio, the
Court was not required to make a legal ruling as to whether that is in fact the relevant time period,
18
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 18 of 23
although such would certainly seem to follow from the law which treats consolidation loans as new
obligations. Assuming for the moment that the date of consolidation begins the relevant period, then
Husband did not make any loan payments between then and the date of the petition. Since Wife’s
consolidation did not occur until after the petition was filed, her situation does not fit neatly into the
usual pattern. Clearly neither of the Debtors have paid on the loans since the petition was filed,
including the period from September 27, 2010, when the case was closed until it was reopened on
November 12, 2010, and further including the period since January 17, 2011 when they entered the
ICRP.
Without deciding the legal issue, even if the relevant time period here is from the date
of the Direct Consolidation Loans forward, the Court is reluctant to adopt the argument of the
Defendant and treat the lack of payments since then as conclusive on the good faith issue given the
brief windows of time between the consolidation date and the filing of the petition – only 3½ months
for Husband, and no time with respect to Wife. The Court thus views the non-payment as somewhat
in support of a lack of good faith, though not of overriding probative value, and certainly not
dispositive of the issue.
Of considerably more significance on this issue in the Court’s view is the unexplained
failure of the Debtors to participate in the administrative programs previously described which would
substantially reduce their monthly loan payments. A debtor’s effort to seek out options that make
the debt repayment obligation less onerous is an “important component” of the good faith inquiry.
Fabrizio, 369 B.R. at 245. Although not conclusive, such efforts can support a finding that the debtor
takes his loan obligation seriously and is doing his utmost to repay the loan despite his financial
19
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 19 of 23
circumstances. Id. Conversely, a failure of such efforts may be a “persuasive factor” to be weighed
as part of the good faith analysis. Flickinger-Luther, 462 B.R. at 164.
As noted previously, the Debtors here have offered no reasonable explanation as to
why they have refused to apply for joint treatment of their loans under the ICR, or sought entry into
the IBRP, either of which steps would dramatically lower their payment obligation. Additionally,
testimony given by the Wife during the depositions concerning this matter is quite troubling to the
Court. During her own deposition, even after being provided with an explanation about the various
options that were available and how payments would be tied to income, Wife adamantly refused to
consider them. Subsequently, during Husband’s deposition testimony, when he began expressing a
willingness to “pay what we can” and then answered affirmatively to a question of whether he and
Wife would be willing to each pay $50 per month on the loans, Wife interjected to contradict him and
say they could not even afford that level of payment.
The Court does not find this indicative of a Debtor who is proceeding in good faith
with respect to repayment of the student loans. Demonstrative evidence of the almost belligerent or
contemptuous attitude of Wife toward this debt was provided at the argument on the Motion. Wife
was present in the spectators’ seating portion of the courtroom and made a couple of unbidden
outbursts responding to the arguments of Counsel and questions or comments from the Court directed
to Counsel. The Court admonished her that this was improper conduct, but she persisted and the
Court was finally required to call the United States Marshal and have her removed from the
courtroom. The Court views this type of conduct as a further demonstration of an obstinacy that is
inconsistent with the good faith requirement.
20
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 20 of 23
Another point to be noted with respect to the good faith inquiry is the ratio of the
Debtors’ student loan obligation to their total unsecured debt, something this Court has previously
recognized as a relevant factor for consideration. Fabrizio, 369 B.R. at 247. The relevancy here is
that if student loan debt represents a significant portion of a debtor’s debt, a court may conclude that
discharge of the student loan debt was the prime motivating factor behind filing the bankruptcy case.
A review of the Debtor’s schedules in this case show that the student debt represents about 72% of
unsecured debt. This is similar in magnitude to the 80% figure in Fabrizio that was found to be a
“high ratio” of student loan debt that weighed against the debtor under the good faith prong. See
also, e.g., In re L.K., 351 B.R. 45, 55-56 (Bankr. E.D. N.Y. 2006) (ratio of “more than 70%”
indicated lack of good faith). While the Court does not believe that in isolation the ratio of student
debt to overall debt in the present case compels a finding of a lack of good faith, it is yet a further
negative factor for the Debtors’ position.
Finally, some courts have looked to the length of time between when the loan first
became due and when the debtor sought discharge of the debt. See, e.g., In re Fields, 286 Fed. Appx.
246, 249 (6th Cir. 2007). The record is not entirely clear as to exactly when the loans in the present
case first became due, though it would appear that it was in 2006 at the earliest, and possibly not until
2010 when the Direct Consolidation Loans were created. Either way the period between the initial
due date and the filing of the adversary proceeding seeking to discharge the loans was relatively brief,
providing yet a further factor militating against a finding of good faith by these Debtors. The
Defendant thus has established entitlement to summary judgment with respect to the third prong of
the Brunner test.
21
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 21 of 23
CONCLUSION
The Court is not unsympathetic to the situation of the Debtors, who may have had
unrealistic expectations when enrolling into Clarion and taking on the student loan obligations under
consideration to pay for it. However, as the Defendant correctly points out, the Third Circuit has
held that the Brunner test must be “strictly construed; equitable concerns or other extraneous factors
not contemplated by the test may not be imported into the analysis of ‘undue hardship’.” Brightful,
267 F.3d at 327 (quoting Faish, 72 F.3d 298 (3d Cir. 1995)).
When the test is thus applied, it is clear that the Motion must be granted. As to the
first Brunner factor, the Debtors have not shown that they would be unable to maintain a minimal
living standard if they are required to repay the loans. To the contrary, the evidence shows that either
through a reduction in monthly expenses, an increase in monthly income, a reduction in the monthly
loan obligation (via one of the repayment options), or any combination thereof, it should be possible
for the Debtors to make the loan payments while still maintaining a minimal standard of living.
Since the Debtors must show the existence of all 3 Brunner factors, the failure to do
so as to the first factor is itself a sufficient basis to grant the Motion. Beyond that, the Debtors have
also failed to submit any convincing evidence as to the second Brunner factor concerning “additional
circumstances.” Neither Husband nor Wife has a condition which impedes them from working to
an extent that would support a finding that the Debtors face an irremediable financial condition likely
to persist for a significant portion of the loan repayment period. Finally, although the third Brunner
factor presents perhaps a bit closer call for summary judgment purposes, for all of the reasons stated
22
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 22 of 23
above, the Court also concludes that the Defendant has demonstrated an entitlement to summary
judgment with respect to it as well.
The Amended Motion for Summary Judgement filed by the Defendant having
previously been granted by the Order entered at Doc. No. 38, and this Memorandum Opinion merely
being a written exposition of the Court’s finding of fact and conclusions of law in that regard for
purposes of the appeal which the Debtors have taken, no further Order follows
Dated: March 9, 2012 ______________________________________Thomas P. Agresti, Chief JudgeUnited States Bankruptcy Court
Case administrator to serve:Megan E. Farrell, Esq.Lloyd E. Wilson, II, Esq.Pamela Goforth, DebtorSteven Goforth, Debtor
23
Case 10-01151-TPA Doc 62 Filed 03/09/12 Entered 03/09/12 16:28:45 Desc Main Document Page 23 of 23
IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA
IN RE:
CORINNE DAVIS : Case No. 13-11264-TPA Debtor : Chapter 7
: CORINNE DAVIS : Adv. Proceeding No. 13-1103-TPA
Plaintiff : :
v. : : Related to Doc No. 17
NATIONAL COLLEGIATE TRUST : Defendant :
Appearances: Laura S. Steehler, Esq., for the Debtor Monette W. Cope, Esq., for Defendant Keri P. Ebeck, Esq., for Defendant
MEMORANDUM OPINION Currently before the Court is the Plaintiff’s Amended Adversary Complaint to
Determine Dischargeability of Student Loans (“Complaint”) filed at Document No. 17 seeking a
discharge of her prepetition educational loans pursuant to 11 U.S.C. §523(a)(8). 1 There are no
material factual issues in dispute, and the Parties agree that the Court should decide the matter
without a trial based on the stipulated facts, the admitted pleadings, responses, answers to
1 The Court’s jurisdiction under 28 U.S.C. §§157 and 1334 was not at issue. This is a core proceeding pursuant to 28 U.S.C. §§157(b)(2)(A), (I) and (O).
1
FILED
CLERKU.S. BANKRUPTCY COURT - WDPA
1/14/15 3:29 pmCase 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 1 of 15
discovery, the admitted Exhibits, and the arguments contained in their Briefs.2 After careful
consideration and for the reasons expressed below, the relief requested in the Debtor’s Complaint
is denied and the Debtor’s student loan debt is not excepted from discharge.
PROCEDURAL AND FACTUAL HISTORY
On October 11, 2013, the Debtor, Corinne Davis (“Debtor”), filed a voluntary
petition for relief under Chapter 7 of the Bankruptcy Code. On November 14, 2013, the Debtor
filed the within adversary proceeding seeking a discharge of her student loan debt pursuant to 11
U.S.C. §523(a)(8),3 and thereafter on January 17, 2014, the Debtor filed her Amended Complaint.
On February 19, 2014, National Collegiate Trust (“NCT”) filed its Answer to the Amended
2 On November 6, 2014, the Court issued an Order at Document No. 72, indicating that the facts listed in Paragraph 6 of the Joint Pretrial Narrative Statement/Stipulation (“Joint Pretrial Statement”) (Doc. No. 47), would be deemed stipulated to if no Party in interest timely objected to such treatment. This Order became necessary based on the representations of Counsel for both the Plaintiff and the Defendant at the Final Pretrial Conference that the case should be decided on “stipulated facts,” yet, Paragraph 6 of the Joint Pretrial Statement contained what appeared to be a typographical error that the stipulated facts were “NCT’s Proposed Facts Only.” The deadline has since passed, and no Party filed an objection. Accordingly, for purposes of this Memorandum Opinion, the Court shall treat the facts contained in Paragraph 6 of the Joint Pretrial Statement as having been stipulated to by the Debtor and NCT. 3 The original Complaint listed six other Defendants in addition to NCT: (1) American Education Services, (2) Pennsylvania Higher Education Assistance Agency, (3) PNC Educational Loan Center, (4) National City Bank, (5) Sallie Mae, and (6) U.S. Department of Education. Regarding Sallie Mae, on December 13, 2013, the Court approved a Stipulation dismissing Sallie Mae as a Party to this adversary proceeding and discharging the Debtor’s debt owed to Sallie Mae. On January 8, 2014, Educational Credit Management (“ECM”) filed a Consent Motion to Intervene and for Substitution of Certain Parties. On January 9, 2014, the Court issued an Order substituting ECM as a Defendant and terminated American Education Services, Pennsylvania Higher Education Assistance Agency, and PNC Educational Loan Center as Defendants in this case. On May 2, 2014, regarding the U.S. Department of Education, the Court issued an Order dismissing without prejudice the Debtor’s claims against this Defendant. National City was presumed to be an improper Defendant as it is no longer in business. As a result, NCT is the only remaining Defendant to this adversary proceeding.
2
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 2 of 15
Complaint. On June 19, 2014, the Parties filed an Amended Joint Pretrial Narrative
Statement/Stipulation.
The Debtor is 36 years old and resides in Erie, PA with her ten-year-old daughter
over whom she has full custody. She owns no real property and is not currently married. From
1998-2010, the Debtor attended Edinboro University. From 1997-2010, the Debtor attended Tri-
State Business Institute and Great Lakes Institute of Technology. The Debtor has never obtained
a diploma, but she was awarded a “Certificate for Medical Office Assistant” from Great Lakes
Institute of Technology. The Debtor is indebted to the Defendant for eight student loans. The
Debtor herself has never made any payments on these loans. On November 15, 2011, NCT last
received payment from the Debtor’s mother for two of the loans, and on September 9, 2011 for
the other six loans.
Regarding the gross amount owed to NCT, the Parties have stipulated at Document
No. 58 that the Debtor owes NCT a total of $93,980.58 and that as of July 23, 2014, the current
per diem interest rate on this gross amount is 0% which is subject to change if the loan is assigned
to another creditor or reduced to judgment.
Currently the Debtor is unemployed. According to her Schedule I, the Debtor has a
current monthly income of $1,250 of which $250 is from child support. The Debtor’s Schedule J
reflects monthly expenses totaling $6,217. However, since the filing of her Bankruptcy Petition,
the Debtor is no longer operating her former business, Little Diva Day Spa, therefore, her expenses
have been reduced by $4,500. Accordingly, the Debtor’s expenses total $1,717 per month.
3
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 3 of 15
Finally, the Debtor admits she suffers from no physical or mental disabilities or
other personal limitations that would in any way impair her ability to maintain future employment
and affect her ability to repay her student loans.
DISCUSSION
Under the Bankruptcy Code, as a general rule, student loan debt is not
dischargeable. However, Section 523(a)(8) contains an exception to this general rule. Specifi-
.\cally this section provides in relevant part that:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . .
(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for--
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution;4 (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;
11 U.S.C. §523(a)(8) (emphasis added).
4 The only evidence that Section 523(a)(8) applies to the Debtor’s student loan debt subject to this adversary proceeding is a statement in NCT’s s Brief filed at Document No. 57, that the loans “were made under the Astrive Education Loan program and were guaranteed by TERI, a non-profit institution.” Although, as noted later in this Opinion, unsubstantiated statements in briefs do not constitute evidence for purposes of consideration, since neither Party raised the inapplicability of 11 U.S.C. §523(a)(8) as an issue, the Court will treat the Debtor’s Complaint as an admission that Section 523(a)(8) applies to her student loan debt.
4
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 4 of 15
While Congress did not define the phrase “undue hardship,” the meaning of this phrase as it
pertains to the discharge of student loan debt in bankruptcy is well settled in the Third Circuit. See
Pennsylvania Higher Education Assistance Agency v. Faish (In re Faish), 72 F.3d 298 (3d Cir.
1996). In Faish, the Court of Appeals for the Third Circuit adopted the “undue hardship” test as
set forth in Brunner v. New York State Higher Education Corp., 831 F.2d 395 (2d Cir. 1987)
(“Brunner test”). Id.
Pursuant to the Brunner test, the Debtor must demonstrate that: (1) she cannot
maintain, based on her current income and expenses, a minimal standard of living for herself and
her dependent if required to repay the loans; (2) additional circumstances exist indicating that this
state of affairs is likely to persist for a significant portion of the student loan repayment period;
and (3) the Debtor has made a good faith effort to repay her loans. Faish¸72 F.3d at 304-05. The
Debtor bears the burden of proof with regard to each of these three requirements by the
preponderance of the evidence in order to establish a right to discharge her student loan debt.
Brightful v. Pa. Higher Educ. Assistance Agency (In re Brightful), 267 F.3d 324, 327 (3d Cr. 2001).
If one of the three elements of the test is not met, because the test is written in the conjunctive, the
Court’s inquiry ends there, and the student loan debt is not dischargeable. In re Faish, 72 F.3d at
298. In re Brightful, 267 F.3d 324. Moreover, the test must be strictly applied. The Court cannot
consider extraneous factors not contemplated by the test including other equitable concerns. In re
Faish,72 F.3d at 306 (citing Northwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1998)).
Has the Debtor Made a Good Faith Effort to Repay the Loan?
Since resolution of this issue appears clear, the Court will begin by examining the
third prong of the Brunner test. Under this prong, the Debtor must prove that she has made a “good
5
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 5 of 15
faith” effort to repay her student loan obligation over the entire time period from the date on which
the first loan payment became due to the date on which the Debtor filed her bankruptcy petition.5
In re Cehula, 327 B.R. 241, 246 (Bankr. W.D. Pa. 2005) (citing Pelliccia v. U.S. Department of
Education, 67 Fed. Appx. 88, 90 (3d Cir. 2003)). The Court’s “good faith” analysis is guided by
the principle that a debtor may not willfully or negligently cause his or her own default. Id. Instead,
the Debtor’s financial plight must be due to factors beyond her reasonable control. Id. (citing In re
Faish, 267 F.3d at 305. When determining whether a debtor has made a good faith effort to repay
her student loans, the Court must consider whether: (1) the debtor incurred substantial expenses
beyond those required to pay for basic necessities; and (2) the debtor made efforts to restructure
the loan before filing his or her bankruptcy petition. In re Cehula, 327 B.R. at 246.
Here, the Debtor admitted that she has never made a payment on her student loans.
According to the Brief in Support of Debtor Regarding Brunner Factors (“Brief”), she indicates
she “was never in a financial position to make payments herself on the loan.” However, there is
nothing in the record to support this assertion, and therefore, the Court may not accept the claim.
See Versage v. Township of Clinton N.J., 984 F.2d 1359, 1370 (3d Cir. 1993) (“we have repeatedly
held that unsubstantiated arguments made in briefs or at oral argument are not evidence to be
considered by this Court”); Bell v. United Princeton Properties, Inc., 884 F.2d 713, 720 (3d Cir.
1989) (“statements made in briefs are not evidence of the facts asserted). The only evidence of the
Debtor’s income and expenses during the relevant time period is her Bankruptcy Schedules I and
5 There is nothing in the record to indicate when the Debtor’s first loan payment became due. The Court can only assume that it became due sometime in 2010, because according to the stipulation found in the Joint Pretrial Statement the Debtor’s enrollment at Edinboro University ended in 2010. Therefore, based on the record it appears that the relevant time period for establishing good faith would be, at the latest, from the beginning of 2011 to October 11, 2013 when she filed for relief under Chapter 7 of the Bankruptcy Code.
6
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 6 of 15
J, which only provide a limited snapshot of the Debtor’s financial history and a profit and loss
history of her business from March 2013 through July 2013. Therefore, the evidence before the
Court is incomplete and fails to support the Debtor’s contention that she was unable to pay her
loans from the time the first payment was approximately due until she filed for bankruptcy.
The Debtor also argues that she made a “good faith” attempt to repay her loans by
asking her mother to make some of the payments and that this demonstrates she took her obligation
seriously. However, the Debtor’s mother is a co-signer on the loans, and hence, is also equally
obligated to make payments. Furthermore, the Debtor’s answers to NCT’s interrogatories
undermine her position in this regard as they are inconsistent with the assertions contained in her
Brief. Based on the Debtor’s answers to NCT’s interrogatories, it does not appear that she
requested her mother make payments, but rather her mother only made sporadic payments after
being “harassed at work by debt collectors.” Accordingly, without more and even if the Debtor’s
assertions in her Brief could be considered as evidence, the Court is unable to find that the Debtor
has made a “good faith repayment” effort to repay her loans in the manner anticipated by
application of the Brunner test.
Additionally, although the Debtor maintains modest monthly expenses, her
unexplained failure to maximize her income earning potential also evidences her lack of “good
faith” in repaying her student loans. See In re Jones, 392 B.R. 116, 128 (Bankr. E.D. Pa. 2008).
The Debtor admitted that she has not sought employment since the closing of her business more
than a year ago. She has also failed to demonstrate that she is currently unemployable either
through affidavit, stipulation, discovery responses, or any admissions of record. Consequently, the
Debtor’s default and inability to repay her student loans is a result of her own willful inaction. In
7
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 7 of 15
fact, the Debtor’s financial plight has only been exacerbated by her own inaction and her own
choices — not because of factors beyond her control.
The Debtor also argues that her student loans should be discharged since they pose
an undue hardship to her. She contends that even if she obtains employment, she has never earned
more than $11 per hour, and that any increase in her income would be negated by the additional
childcare costs she would incur for her daughter. However, the Debtor failed to provide any record
evidence to support her claim in this regard. For instance, no expert market analysis was provided
regarding the current state of the local economy, how much the debtor is likely to earn in her
situation, or the current cost of childcare in this locale. The Debtor’s claims in this regard,
therefore, are no more than conjecture. The Debtor failed to even offer a personal affidavit to
support her position in this regard. As previously noted, unsubstantiated statements in briefs do
not constitute evidence for purposes of consideration. See Versarge v. Township of Clinton N.J.,
984 F.2d at 1370.
The Debtor also stipulated that she has no physical, mental, or medical conditions,
or other circumstances, which would affect her ability to repay her student loans. She also
responded to a number of the Defendant’s discovery requests confirming that she does not have
any physical, mental, or medical conditions, or other circumstances affecting her ability to pay her
loans. Therefore, the current state of the record demonstrates just that — the Debtor suffers from
no recognized infirmity that would allow this Court to discharge her student loan debt.6
6 The first indication that the Debtor may have a medical condition that could prevent her from repaying her loans was not disclosed until she filed her Brief. The Debtor’s Brief asserts that as of July 2014, the Debtor was experiencing several health issues that prevented her from maintaining gainful employment. At the Final Pretrial hearing where the Court entertained argument on the legal issues affecting the case, the Debtor also indicted for the first time that she filed a claim for social security disability, but she did not provide any proof of this filing. See
8
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 8 of 15
Nor did the Debtor provide any documentary evidence in the form of affidavits,
medical records, or medical testimony in support of her position. She never supplemented her
discovery responses with any sort of evidence, documentary or otherwise, that would establish that
her health issues prevented her from repaying her student loans. See Fed.R.Civ.P. 26(e). Therefore,
the Court must find that no recognized medical condition prevents the Debtor from repaying her
student loans.
Another important inquiry into the Debtor’s good faith effort to repay her student
loan obligation is whether she attempted to consolidate her student loans prior to her bankruptcy
filing in order to make the debt repayment obligation less onerous. See In re Jones, 392 B.R. at
130 (emphasis added). Although consideration of any attempt by her to consolidate her loan
obligations is neither dispositive nor a prerequisite to dischargeability under Section 528(a)(8),
such conduct can support a finding that the Debtor takes her loan obligation seriously and is
striving to repay the loan, despite the unfortunate financial circumstances in which she finds
herself. Id.; see also In re McNemar, 352 B.R. 621, 624 (Bankr. N.D. W.VA 2006); In re Allen,
324 B.R. 278 (Bankr. W.D. Pa. 2005).
Here, the Debtor failed to take advantage of her loan consolidation options prior to
filing bankruptcy. The Debtor asserts in her Brief that she only discovered such options available
to her under the Income-Contingent Repayment plan (“ICR”) and the Income-Based Repayment
(cont. from p. 8) Audio Transcript of Proceedings dated Oct. 21, 2014, 10:31:38-10:35:27. Once again, these unsworn and unsubstantiated statements do not constitute record evidence in support of her position for purposes of consideration by the Court in deciding this matter. See Versage v. Township of Clinton N.J., 984 F.2d 1359, 1370 (3d Cir. 1993) (“we have repeatedly held that unsubstantiated arguments made in briefs or at oral argument are not evidence to be considered by this Court”); Bell v. United Princeton Properties, Inc., 884 F.2d 713, 720 (3d Cir. 1989) (“statements made in briefs are not evidence of the facts asserted).
9
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 9 of 15
(“IBR”) plan7 after she filed for bankruptcy. She further contends in her Brief that since NCT does
not offer an ICR or IBR repayment option, her attempts to restructure her loans postpetition under
these programs demonstrates that she does take her student loan debt seriously and is making a
“good faith” effort to repay her loans.
Any positive or beneficial inference gleaned from the Debtor’s attempt to
consolidate her student loans was eliminated, or at least outweighed to such a degree as to become
a non-factor, when she failed to consolidate her loans prior to filing for bankruptcy as required by
the “good faith” analysis outlined supra. It irrelevant that NCT does not offer an IBR or ICR
repayment plan, because the stipulation filed at Document No. 58 states that any settlement of the
debt to NCT, at least up to and through the time of this adversary case, would be at 0% interest,
therefore, supporting a finding that NCT was and remains willing to work and cooperate with the
Debtor in retiring the debt on favorable terms.
Finally, in her Brief, the Debtor argues that even if she were able to make payments,
it would be fruitless to do so since, by doing so, she would be nowhere near fulfilling the financial
commitment required by the debt especially when considering the potential for additional fees,
interest, and penalties. This argument fails to help the Debtor, either. Actually it supports a contrary
finding, that is, the Debtor never really had any intention of repaying the debt. See In re Fabrizio,
369 B.R. 238 (W.D. Pa. 2007). Furthermore, the argument is counter to the Debtor’s claim of
demonstrating a “good faith” effort to repay the loan. As previously noted, her stipulation with
NCT at Document No. 58, that any settlement of the debt owed to it through the time of this
adversary case would be repaid at 0% interest, makes clear that any such payment made would
7 Neither party explained the terms “IBR” or “ICR” or how these repayment plans are calculated.
10
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 10 of 15
directly reduce principal and not simply go to interest and other carrying charges. Therefore, any
payment would directly benefit the Debtor’s long term debt situation. As such, the Debtor is unable
to meet her burden of establishing good faith pursuant to the third prong of the undue hardship
test. As a result, the Debtor’s student loans are nondischargeable pursuant to Section 523(a)(8).
Since the Brunner test requires all three factors to be independently proven for the
Debtor’s loans to be discharged, because of the above finding, it is unnecessary to review the
applicability of the remaining two prongs of the Brunner test. Nonetheless, since alternative
reasons exists for denying the relief requested in the Complaint further discussion of the Debtor’s
contentions is warranted.
Can the Debtor Maintain a Minimal Standard of Living?
The first prong of the Brunner test requires the Debtor to prove that she cannot
maintain a minimal standard of living based on her current financial condition if forced to repay
her loans. In re Faish, 72 F.3d at 306. This prong of the test requires the Court to evaluate the
Debtor’s present income and expenses and determine a “flexible minimal standard of living level
sensitive to the particular circumstances of each case through the application of common sense.”
In re Kelly, 351 B.R. at 53; In re Porrazzo, 307 B.R. 345, 348 (Bankr. D. Conn. 2004). In applying
this prong of the test, the Debtor’s income and expenses should not be regarded as unalterable.
Goforth v. U.S. Dept. of Educ. (In re Goforth), 466 B.R. 328 (Bankr. W.D. Pa. 2012). The Court
may consider whether it would be unconscionable to require the Debtor to take any steps to earn
more income or to reduce her expenses. Id. (citing Faish, 72 F.3d at 307). A mere showing that
the Debtor’s finances will be “tight” will not suffice in meeting the Debtor’s burden as to this
prong of the test. In re Faish, 72 F.3d at 306; In re Cehula, 327 B.R. at 245.
11
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 11 of 15
Here, the Debtor’s Schedules reflect that she has monthly income totaling $1,250
and adjusted expenses of $1,717 per month now that she is no longer operating her business.
Although, a review of the Debtor’s expenses indicates that there is little room for her to further
reduce or eliminate her “cost of living” expenses, and all of those expenses appear reasonable,
based on the current record, there nevertheless remains an opportunity for the Debtor to increase
her income in an amount that could be used to repay her current student loan obligations.
The Debtor admitted that she is currently unemployed, has been living off of her
tax return refund, and has not started to look for a job. As previously noted, the Debtor suffers
from no medical condition which prevents her from working. Therefore, from all record
appearances, the Debtor has the current ability to obtain employment, and the Court finds that it
would not be unconscionable or even unreasonable, to require the Debtor to increase her income
beyond the $1,250 per month she currently lists on her Schedule I. Nor did the Debtor present any
evidence to the contrary.
The Debtor also argues that she is not in a position to maintain a minimal standard
of living because her student loans are currently due in full. Moreover, she argues that the amount
of her student loan debt and the payments that would be required pose an undue hardship that
prevents her from being able to maintain a minimal standard of living. Unfortunately for the
Debtor, the ratio of loan debt to income, per se, is irrelevant under the Brunner test in evaluating
whether the Debtor can maintain a minimal standard of living. See, e.g., In re Goforth, 466 B.R.
at 337 (holding that the ratio of debt to income is irrelevant as an equitable consideration where
the debtors argued that the magnitude of their student loan debt compared to their annual income
was so high that other student loan cases finding a lack of undue hardship in such instances should
be disregarded). This represents an attempt by the Debtor to inject an extraneous factor or equitable
12
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 12 of 15
concern which, pursuant to Faish, must be excluded. Goforth, 466 B.R. at 337. Also, NCT has
admitted it would consider reasonable settlement offers proffered by the Debtor yet the record
reflects that none have been forthcoming.
For all of the above reasons, the Court finds that the Debtor has also failed to
demonstrate that she cannot maintain a minimal standard of living pursuant to the Brunner test.
As, such the Debtor has failed in her burden as to the first prong of the Brunner test as well.
Now that the Court has determined that the Debtor failed to meet her burden of
proof as to prongs one and three of the Brunner test, it could end the discussion here and properly
deny the Debtor’s Complaint for the reasons given. Despite these findings, for the sake of
completeness, the Court believes it appropriate to also review the effect of the second prong of the
Brunner test and the Debtor’s argument in this regard in light of the current record.
Is the Debtor’s Financial Condition Likely to Persist?
The second prong of the Brunner test requires the Debtor to show that her current
state of affairs will not improve for a significant portion of the student loan repayment period. In
re Brightful, 267 F.3d 324, 328 (3d Cir. 2001). Courts considering this prong have found it to be
a “demanding requirement” because the Debtor must prove a total incapacity to pay her debts in
the future for reasons not within her control. Id. It is not enough for the Debtor to prove she is in
financial straits or faces “a present inability to fulfill [her] financial commitment.” Id. This prong
requires definitive evidence that the Debtor’s earning potential will not improve in the future. In
re Greco, 241 B.R. 670 (Bankr. E.D. Pa. 2000). The reason such a heavy burden is placed on the
Debtor in meeting the requirements of the second prong of the Brunner test, is to effectuate
13
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 13 of 15
Congress’s intent to make the discharge of student loans more difficult than that of other
nonexcepted debt. In re Brunner, 831 F.2d at 396.
As demonstrated by the current record, the Debtor is well-educated. She holds a
Certificate for Medical Office Assistant from Great Lakes Institute of Technology and has some
other vocational training in addition to taking classes at Edinboro University. She also has
experience owning and operating her own business, i.e., Little Diva Day Spa. The Debtor clearly
possesses an educational background and experience that increases her marketability for obtaining
future employment that would ostensibly appeal to a wide array of prospective employers.
However, the Debtor has, by her own admission, voluntarily chosen not to look for employment
since closing her business. She also did not offer any evidence that her current unemployed status
is likely to continue for reasons outside her control or that she is unable to earn more than what
her Schedule I income reflects. At best, the current record supports a finding that the Debtor has
only demonstrated a current, temporary inability to pay her student loan obligations, since she
remains voluntarily unemployed. Without any record evidence to the contrary, it logically follows
that if the Debtor obtains employment, it is likely that her financial condition will improve.
In evaluating whether a debtor’s present state of affairs is likely to persist for
reasons over which she has no control, courts typically also give great weight to demonstrated
physical, mental, emotional and/or psychiatric disabilities or impairments preventing one from
working. See, e.g., In re Brightful, 1999 WL 1024516, at*2 (Bankr. E.D. Pa. Nov. 8, 1999); In re
Kelly, 351 B.R. 45, 54 (Bankr. E.D.N.Y. 2006). As discussed supra, the Debtor admitted and the
Court has already found that the Debtor possesses no physical or mental conditions which would
interfere with her ability to maintain or actually improve her standard of living if she were to seek
and obtain employment.
14
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 14 of 15
In an attempt to meet her burden of proof under the second prong of the Brunner
test, the Debtor argues that her present financial condition is likely to persist, because if she
acquires employment, her expenses will increase, thereby offsetting any increase in her income.
However, the Debtor offered no record evidence (for instance, increased daycare costs either by
documentary or testimonial evidence) to support such a contention.
Finally, the Debtor again argues that the Court should consider the amount of her
outstanding debt in resolving this aspect of the Brunner test. She asserts that even if she were to
make payments, she would not be able to meet the financial commitment required by the debt. As,
the Court previously noted, this is an equitable factor that cannot be considered. See Goforth, 466
B.R. at 337. For all of the above reasons, the Court finds that, as with the other elements of the
test, the Debtor failed to meet her burden of proof in satisfying the requirements of the second
prong of the Brunner test.
CONCLUSION
For the foregoing reasons, the relief requested in the Debtor’s Amended Adversary
Complaint to Determine Dischargeability of Student Loans will be denied and judgment entered
in favor of the Defendant pursuant to Fed.R.Bankr.P.7054. The Debtor will remain personally
liable on her student loans.
An appropriate Order will be entered.
_____________________________ Dated: January14, 2015 Thomas P. Agresti, Judge
United States Bankruptcy Court Case administrator to serve: Debtor Laura S. Steehler, Esq., for the Debtor Monette W. Cope, Esq., for the Defendant Keri P. Ebeck, for the Defendant
15
Case 13-01103-TPA Doc 74 Filed 01/14/15 Entered 01/14/15 15:41:06 Desc Main Document Page 15 of 15
Repayment plans The Direct Loan Program offers loan repayment plans designed to meet the needs of most borrowers. Direct Loans are funded by the U.S. Department of Education through your school and are managed by a loan servicer, under the supervision of the Department. The Direct Loan Program allows you to choose your repayment plan and to switch your plan if your needs change.
To find out more about repayment options before receiving a Direct Loan, borrowers may contact their school's financial aid office or the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243). If you currently have a Direct Loan and would like the exact payment amount on your loan, you can find it out by contacting your loan servicer.
Parent Direct PLUS Loan borrowers may only choose from the standard, extended, or graduated options, but student Direct PLUS Loan borrowers may also choose the income contingent repayment plan or the income-based repayment plan.
Standard Repayment
With the standard plan, you'll pay a fixed amount each month until your loans are paid in full. Your monthly payments will be at least $50, and you'll have up to 10 years to repay your loans.
The standard plan is good for you if you can handle higher monthly payments because you'll repay your loans more quickly. Your monthly payment under the standard plan may be higher than it would be under the other plans because your loans will be repaid in the shortest time. For the same reason—the 10-year limit on repayment—you may pay the least interest.
Extended Repayment
To be eligible for the extended plan, you must have more than $30,000 in Direct Loan debt and you must not have an outstanding balance on a Direct Loan as of October 7, 1998. Under the extended plan you have 25 years for repayment and two payment options: fixed or graduated. Fixed payments are the same amount each month, as with the standard plan, while graduated payments start low and increase every two years, as with the graduated plan below.
This is a good plan if you will need to make smaller monthly payments. Because the repayment period will be 25 years, your monthly payments will be less than with the standard plan. However, you may pay more in interest because you're taking longer to repay the loans. Remember that the longer your loans are in repayment, the more interest you will pay.
Graduated Repayment
With this plan your payments start out low and increase every two years. The length of your repayment period will be up to ten years. If you expect your income to increase steadily over time, this plan may be right for you. Your monthly payment will never be less than the amount of interest that accrues between payments. Although your monthly payment will gradually increase, no single payment under this plan will be more than three times greater than any other payment.
Income Contingent Repayment
(not available for parent PLUS Loans)
This plan gives you the flexibility to meet your Direct Loan obligations without causing undue financial hardship. Each year, your monthly payments will be calculated on the basis of your adjusted gross income (AGI, plus your spouse's income if you're married), family size, and the total amount of your Direct Loans. Under the ICR plan you will pay each month the lesser of:
1. the amount you would pay if you repaid your loan in 12 years multiplied by an income percentage factor that varies with your annual income, or
2. 20% of your monthly discretionary income*.
If your payments are not large enough to cover the interest that has accumulated on your loans, the unpaid amount will be capitalized once each year. However, capitalization will not exceed 10 percent of the original amount you owed when you entered repayment. Interest will continue to accumulate but will no longer be capitalized.
The maximum repayment period is 25 years. If you haven't fully repaid your loans after 25 years (time spent in deferment or forbearance does not count) under this plan, the unpaid portion will be discharged. You may, however, have to pay taxes on the amount that is discharged.
Income-based Repayment
Under this plan the required monthly payment will be based on your income during any period when you have a partial financial hardship. Your monthly payment may be adjusted annually. The maximum repayment period under this plan may exceed 10 years. If you meet certain requirements over a specified period of time, you may qualify for cancellation of any outstanding balance of your loans.
Pay As You Earn Repayment
This plan usually has the lowest monthly payment of the repayment plans that are based on your income. Your payment amount may increase or decrease each year based on your income and family size. To qualify for pay as you earn, you must have a partial financial hardship. You have a partial financial hardship if the monthly amount you would be required to pay on your eligible federal student loans under a 10-year standard repayment plan is higher than the monthly amount under pay as you earn. Once you’ve qualified for pay as you earn, you may continue to make payments under the plan even if you no longer have a partial financial hardship. For this purpose, your eligible student loans include Direct Loans as well as certain types of Federal Family Education Loan (FFEL) Program loans. Although your FFE loans cannot be repaid under pay as you earn, the following types are counted in determining whether you have a partial financial hardship:
• Subsidized and Unsubsidized Federal Stafford Loans • Federal PLUS Loans made to graduate or professional students • Federal Consolidation Loans that did not repay any PLUS loans for parents
You also must be a new borrower as of Oct. 1, 2007, and must have received a disbursement of a Direct Loan on or after Oct. 1, 2011. You are a new borrower if you had no outstanding balance on a Direct Loan or FFE loan as of Oct. 1, 2007, or had no outstanding balance on a Direct Loan or FFE loan when you received a new loan on or after Oct. 1, 2007.