Educational Credit Management Corp. v. Krieger
482 B.R. 238
Bankr. C.D. Ill.2012Background
- Appellant appeals a bankruptcy court discharge of Appellee’s student loan debt; the district court reverses the bankruptcy court’s decision.
- Appellee is 52, healthy, with a paralegal education and multiple student loans; she has no substantial savings.
- Her divorce settlement left her with limited income (food assistance) and reliance on her mother, without assets.
- She has been unemployed since roughly 2002 and has applied for very few jobs since 2010, with little prospect of earnings.
- Her loans accrued interest, totaling about $24,186 as of March 25, 2011, with rates between 2.82% and 5.39%.
- The court applies the Brunner test (two factual prongs plus good faith) to determine whether a federally guaranteed loan is dischargeable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debtor meets Brunner prong II (additional circumstances) | Appellee shows likely long-term unemployment and poor prospects. | Appellee’s situation does not show additional circumstances projecting continued distress. | Not met; insufficient evidence of future hardship. |
| Whether debtor acted in good faith to repay | Appellee made some payments and sought relief through repayment options. | Appellee failed to pursue feasible repayment alternatives, undermining good faith. | Not good faith; failure to maximize income and to pursue IBR weighs against discharge. |
| Whether failure to pursue IBR undermines good faith | IBR could reduce or postpone payments while pursuing forgiveness. | Evidence of IBR consideration is not dispositive of good faith. | Failure to investigate IBR undermines good faith and supports disallowing discharge. |
| Whether Brunner framework was misapplied | Court properly considered all Brunner prongs, including circumstantial evidence. | Court misapplied Brunner by treating second prong too leniently. | Court erred in Brunner analysis; discharge reversed. |
Key Cases Cited
- Roberson v. United States, 999 F.2d 1132 (7th Cir. 1993) (explains hardship standard and education as a mortgage on the debtor's future)
- Goulet v. Educational Credit Management Corp., 284 F.3d 773 (7th Cir. 2002) (objective facts; unemployability not shown; reliance on ability to re-enter workforce)