490 B.R. 908
9th Cir. BAP2013Background
- Debtor Janet Roth, pro se, sought discharge of student loans under 11 U.S.C. § 523(a)(8) in an adversary proceeding; ECMC sought to except the loans from discharge.
- Roth had thirteen FFELP loans totaling over $33,000 and five direct DOE loans; she defaulted on most loans years earlier and made no voluntary payments.
- Debtor’s income was low and unstable (2008: $34,789; 2009: $40,098); expenses exceeded income; she suffered chronic medical conditions affecting employment.
- She did not pursue deferments, forebearances, or loan restructuring; she believed she could apply for IBRP later and did not consider herself disabled.
- ECMC moved for partial summary judgment on education loans; the bankruptcy court applied the Brunner test and concluded Roth met prongs one and two but not three; the court refused to require IBRP participation as part of good faith.
- The bankruptcy court ultimately denied discharge of the FFELP loans, prompting Roth to appeal; the district court reversed and remanded for entry of discharge of those loans.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Brunner good faith prong was properly determined de novo. | Roth argues good faith should be reviewed de novo as part of mixed questions. | ECMC contends the prongs are mixed questions but should be reviewed with some deference. | Good faith prong reviewed de novo; ultimate undue hardship reviewed de novo, while historical facts reviewed for clear error. |
| Whether Roth made sufficient good faith efforts to repay the loans. | Roth systematically sought employment and minimized expenses; she believed garnishments and offsets paid the loans. | Lack of voluntary payments and failure to pursue repayment options weigh against good faith. | Roth satisfied Brunner prongs one and two and, under de novo review, demonstrated sufficient good faith given her circumstances. |
| Whether Roth’s refusal to enroll in the IBRP should negate good faith. | Roth’s refusal was reasonable given her forecast of non-payment and health issues. | Refusal to enroll in IBRP weighs against good faith in many cases. | Refusal to enroll in IBRP should not be weighed against Roth given her age, health, and likely nonpayment. |
| Whether the bankruptcy court properly considered the evolving landscape of student loans under Brunner and Pena. | Brunner/Pena constraints are outdated in the modern, large, diverse student loan landscape. | Continued application of Brunner/Pena is appropriate as controlling precedent. | Court urges reexamination of Brunner/Pena; majority adheres to current standard but acknowledges reality of modern debt. |
Key Cases Cited
- Brunner v. N.Y. State Higher Educ. Servs., Inc. (In re Brunner), 831 F.2d 395 (2d Cir.1987) (established Brunner test for undue hardship; good faith prong is central)
- Educ. Credit Mgmt. Corp. v. Pena (In re Pena), 155 F.3d 1108 (9th Cir.1998) (ultimate undue hardship de novo; Brunner adopted in Ninth Circuit)
- Educ. Credit Mgmt. Corp. v. Mason (In re Mason), 464 F.3d 878 (9th Cir.2006) (good faith factors; mixed questions; credibility considerations)
- In re Birrane, 287 B.R. 490 (9th Cir. BAP 2002) (prongs considered mixed questions; good faith analysis guidance)
- Educ. Credit Mgmt. Corp. v. Jorgensen (In re Jorgensen), 479 B.R. 79 (9th Cir. BAP 2012) (good faith considerations; not dispositive to forebearance/negotiations)