586 B.R. 414
6th Cir. BAP2018Background
- Debtor Cory Lamon Chenault filed Chapter 7 in July 2017 and an adversary complaint seeking discharge of student loans as an "undue hardship" under 11 U.S.C. § 523(a)(8).
- Loans were incurred for Spencerian College; the DOE intervened and is the loan holder/servicer via Great Lakes.
- Bankruptcy court gave Debtor leave to amend after finding the original complaint lacked factual support for the Brunner test, particularly the second prong.
- Amended complaint produced parole documentation but did not allege concrete facts about income, employment efforts, or reliance on programs for parolees.
- The bankruptcy court dismissed under Fed. R. Civ. P. 12(b)(6) for failure to plead facts plausibly showing undue hardship; Debtor appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint plausibly alleges §523(a)(8) undue hardship under Brunner | Debtor: parole lasts through repayment, preventing employment; thus hardship will persist | DOE: complaint contains only conclusory allegations; Brunner elements not pleaded with facts | Dismissal affirmed: conclusory assertions insufficient; parole status alone fails Brunner prongs |
| Who bears initial burden to show debt falls within §523(a)(8) exception | Debtor: creditor should initially prove loan fits §523(a)(8) | DOE: court need not resolve because Debtor’s own pleadings allege student loan and servicer | Court: Debtor’s pleading allegations rendered the issue non-contested; characterization sufficiently alleged |
| Whether parole status qualifies as "additional circumstances" under Brunner second prong | Debtor: parole is an ongoing circumstance making repayment unlikely | DOE: parole status alone is insufficient and may be self-inflicted | Held: parole alone, without factual allegations of income, efforts, or barriers beyond Debtor’s control, is insufficient |
| Whether Brunner test applies (vs. totality test) | Debtor: Brunner is too stringent; prefers totality-of-circumstances | DOE: Sixth Circuit precedent applies Brunner | Held: Sixth Circuit controls; Brunner applies and Debtor did not satisfy pleading standards |
Key Cases Cited
- Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395 (2d Cir. 1987) (articulating three-part test for undue hardship under §523(a)(8))
- Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382 (6th Cir. 2005) (Sixth Circuit adopting Brunner test)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleadings under Rule 12(b)(6))
- Midland Asphalt Corp. v. United States, 489 U.S. 794 (1989) (definition of a final order for appealability)
- Ebelsheiser v. Coll. Assist (In re Ebelsheiser), 543 B.R. 1 (Bankr. S.D. Iowa 2015) (parole conditions tied to convictions do not necessarily warrant undue hardship)
- Trudel v. U.S. Dep't of Educ. (In re Trudel), 514 B.R. 219 (6th Cir. BAP 2014) (debtor bears burden to prove Brunner elements)