Michael Hedlund v. the Educational Resources Inst
718 F.3d 848
| 9th Cir. | 2013Background
- Hedlund, a 33-year-old with a law degree, could not pay his student loans and sought discharge under 11 U.S.C. § 523(a)(8) after bankruptcy.
- Loans were Stafford loans held by TERI and PHEAA; Hedlund faced default and multiple forbearances, and garnishments; attempts to consolidate failed or were misrouted.
- Hedlund researched repayment options (including ICRP) and offered to settle for more lenient terms, which PHEAA declined; three alternative plans offered by PHEAA were rejected by Hedlund.
- Bankruptcy court granted partial discharge; the BAP reversed; on remand a different judge discharged all but roughly $32k; Brunner three-factor test applied.
- District court reversed the good-faith finding, concluding Hedlund failed to show good faith; this Court reversed the district court and affirmed good faith.
- This opinion holds that the good-faith finding under Brunner is reviewed for clear error and that the bankruptcy court’s factual findings supporting good faith were not clearly erroneous.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What standard governs review of the Brunner good-faith prong? | Hedlund: clear error is appropriate. | PHEAA: district court- de novo review should apply. | Clear-error review applies to good faith. |
| Was Hedlund’s Brunner good-faith finding supported by the record? | Hedlund maximized income, minimized expenses, and sought alternatives. | Hedlund failed to pursue ICRP; some expenses and efforts were lacking. | Not clearly erroneous; substantial evidence supports good faith. |
| Did the district court properly evaluate Hedlund’s good-faith evidence on appeal? | District court misapplied evidence, overemphasizing some items. | District court correctly assessed efforts and plans; relied on some immoderate expenses. | District court erred; standard of review requires deferential analysis. |
Key Cases Cited
- In re Pena, 155 F.3d 1108 (9th Cir. 1998) ( Brunner factors applied to undue hardship; three elements must be proven )
- In re Mason, 464 F.3d 878 (9th Cir. 2006) (good faith review is a factual inquiry; deferential standard applied to findings)
- In re Figter Ltd., 118 F.3d 635 (9th Cir. 1997) (good faith in Brunner-like analyses treated as factual inquiries requiring clear error review},{)
- Brunner v. New York Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987) (established Brunner three-factor test for undue hardship)