Lead Opinion
This appeal arises out of an adversary proceeding filed by Denise Bronsdon (the “Debtor”) seeking to discharge her student loan obligations to Educational Credit Management Corporation (“ECMC”) on the grounds of undue hardship pursuant to § 523(a)(8).
For the reasons set forth below, we AFFIRM.
BACKGROUND
A. The Debtor’s Personal Background
At the time of trial in January 2009, the Debtor was 64 years old and single. She did not have any dependents nor did she suffer from any disability or debilitating medical condition. In 1994, the Debtor, at the age of 50, received a bachelor’s degree in English from Wellesley College. Thereafter, from 1996 until 2002, she worked at various jobs as a legal secretary until she decided to go to law school. She enrolled in Southern New England School of Law, and graduated in the top half of her class in December 2005. To finance her law school education, the Debtor took out the student loans now at issue, which at some point were assigned to ECMC. As of September 8, 2008, the loans totaled $82,049.45.
After law school, the Debtor failed the bar exam three times, each time by a significant margin. She does not plan to take the bar exam again because she has no money to pay for the exam fee or preparation materials, and because she has not come close to passing.
After graduating from law school, the Debtor worked briefly as a receptionist and as a temporary patent prosecution secretary at two different law firms. Although she continually went on interviews, made telephone calls, and spoke with employment agencies in an effort to find any kind of secretarial, receptionist, or contract manager work, she was unable to find employment. The Debtor pursued alternate means of earning income, but her attempts were unsuccessful.
B. Procedural History
The Debtor filed a chapter 7 petition in July 2007, and received a discharge in December 2007. Thereafter, the Debtor filed an adversary complaint seeking to discharge her student loan obligations to ECMC.
The bankruptcy court also recognized that if the Debtor participated in the Ford Program, her current financial status would not require monthly payments. Id. at *4, 2009 Bankr.LEXIS 69, at *11. It rejected ECMC’s argument that repayment would not cause the Debtor an undue hardship because the Debtor would not be required to make monthly payments under the program. The bankruptcy court stated that if the Debtor were to participate in the Ford Program, “the student loan forgiveness at the conclusion of her participation in the program would result in a tax liability that would subject the Debt- or’s Social Security benefits to garnishment,” which would “promote a vicious cycle that could leave the Debtor in a financial state much more desperate than the one she is currently enduring.” Id. Additionally, the bankruptcy court referred to its reasoning in In re Denittis,
On appeal to the district court, ECMC contested the bankruptcy court’s factual findings regarding the Debtor’s good faith efforts to find work and that she was not likely to earn income in the future. ECMC also argued that the bankruptcy court made errors of law concerning the ICRP. At the outset, the district court noted the two tests for determining undue hardship, but stated that the test to be applied was not a material issue in this case as the result was the same under both tests. The district court then determined that there was ample evidence supporting the bankruptcy court’s factual findings and, therefore, that the findings were not clearly erroneous. It also concluded that the bankruptcy court had made a legal error by “giving no weight to the ICRP in the undue hardship analysis.” As a result, the district court vacated the First Decision and remanded the matter to the bankruptcy court to consider the impact that participating in the ICRP would have on the undue hardship analysis.
On remand, the bankruptcy court concluded that “the Debtor’s failure to participate in the ICRP [wa]s insufficient to demonstrate a lack of good faith (again assuming such finding is integral to the test under § 523(a)(8)) when weighed against this Debtor’s efforts to try to improve her financial circumstance,” and ordered that the student loans owed to ECMC were discharged. This appeal ensued.
JURISDICTION
Before addressing the merits of an appeal, the Panel must determine that it has jurisdiction, even if the issue is not raised by the litigants. See Boylan v. George E. Bumpus, Jr. Constr. Co. (In re George E.
STANDARD OF REVIEW
The Panel reviews the bankruptcy court’s findings of fact for clear error and its conclusions of law de novo. See TI Fed. Credit Union v. DelBonis,
The district court determined that the bankruptcy court’s factual findings were not clearly erroneous, and, therefore, no factual issues were determined by the bankruptcy court on remand. Thus, the bankruptcy court’s findings may not be challenged in this appeal. See Ellis v. U.S.,
DISCUSSION
I. The Appropriate Legal Standard
A. The Burden of Proof
Under § 523(a)(8), debtors are not permitted to discharge educational loans “unless excepting such debt from discharge ... would impose an undue hardship on the debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8). The creditor bears the initial burden of establishing that the debt is of the type excepted from discharge under § 523(a)(8). Once the showing is made, the burden shifts to the debtor to prove that excepting the student loan debt from discharge will cause the debtor and her dependents “undue hardship.” Educ. Credit Mgmt. Corp. v. Savage (In re Savage),
B. The Tests for Determining Undue Hardship
The Bankruptcy Code does not define “undue hardship” and courts have struggled with its meaning. After several decades of case law interpreting this term, essentially two tests have emerged — the so-called Brunner test and the “totality of the circumstances” test. As the First Circuit has noted:
... [N]ine circuit courts of appeal [ ] have followed the Second Circuit’s test set forth in Brunner v. New York State Higher Educ. Servs. Corp.,831 F.2d 395 (2d Cir.1987) (per curiam). This is a tripartite test, requiring that the debtor show inability, at her current level of income and expenses, to maintain a “minimal” standard of living; the likelihood that this inability will persist for a significant portion of the repayment period; and the existence of good faith efforts to repay the loans. Id. at 396. A facially different test is the Eighth Circuit’s totality-of-circumstances test, which would have courts consider the debtor’s reasonably reliable future financial resources, his reasonably necessary living expenses, and “any other relevant facts.” See Long v. Educ. Credit Mgmt. Corp. (In re Long),322 F.3d 549 , 554 (8th Cir.2003).
Nash,
In the First Decision, the bankruptcy court applied the totality of the circumstances test to determine whether excepting the Debtor’s student loan obligations from discharge would cause her undue hardship. The district court determined that the issue of the appropriate test was immaterial as the result would be the same under either test. On remand, the bankruptcy court again declined to endorse the Brunner test. On appeal, ECMC urges the Panel to formally adopt the so-called Brunner test.
C. Adopting a Test
As noted above, neither the plain language of § 523(a)(8) nor the First Circuit mandate a particular test for evaluating the dischargeability of student loans. The Panel has also declined to endorse a particular test.
To determine the appropriate test, we first examine the differences between the Brunner and the totality of circumstances approaches. As the Panel noted in In re Lorenz, the distinctions between the two tests are modest, with many overlapping considerations:
The “totality of the circumstances” analysis requires a debtor to prove by a preponderance of evidence that (1) his past, present, and reasonably reliable future financial resources; (2) his and his dependents’ reasonably necessary living expenses; and (3) other relevant facts or circumstances unique to the case, prevent him from paying the student loans in question while still maintaining a minimal standard of living, even when aided by a discharge of other prepetition debts. Kopf,245 B.R. at 739 ; see also Hicks v. Educ. Credit Mgmt. Corp. (In re Hicks),331 B.R. 18 , 31 (Bankr.D.Mass.2005) (distilling so-called totality of the circumstances test to “one simple question: Can the debtor now, and in the foreseeable future, maintain a reasonable, minimal standard of living for the debtor and the debtor’s dependents and still afford to make payments on the debtor’s student loans?”). Courts “should consider all relevant evidence — the debtor’s income and expenses, the debtor’s health, age, education, number of dependents and other personal or family circumstances, the amount of the monthly payment required, the impact of the general discharge under chapter 7 and the debtor’s ability to find a higher-paying job, move or cut living expenses.” Hicks,331 B.R. at 31 ; see also Kelly,312 B.R. at 206 ; Savage,311 B.R. at 840 ; Bloch v. Windham Profls (In re Bloch),257 B.R. 374 , 378 (Bankr.D.Mass.2001); Kopf,245 B.R. at 744 .
The Brunner test differs, albeit modestly. See Kopf,245 B.R. at 731 (comparing tests). Brunner requires a “three-part showing (1) that the debtor cannot, based on current income and expenses, maintain a ‘minimal’ standard of living for herself or her dependants if forced to repay the loans; (2) that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debt- or has made good faith efforts to repay the loans.” Brunner, 831 F.2d at 396 ....
One can see readily that insofar as income and expenses are concerned, the tests take converging tacks. The “totality test” looks to past, present, and future “financial resources” and “necessary living expenses” and whether, taken together with other factors, the debtor has the ability to repay while maintaining a minimal standard of living. Brunner asks the same question looking to “current” income and expenses, then considers whether circumstances inhibiting repayment will endure.
In re Lorenz,
Although the two tests do not always diverge in function, they do in form. In re Hicks,
At first blush, the second Brunner requirement — -a showing that the debtor’s “state of affairs is likely to persist for a significant portion of the repayment period of the student loan” — seems merely to resonate with the forward-looking nature of the undue hardship analysis. That is, under any undue hardship standard the debtor must show that the inability to maintain a minimum standard of living while repaying the student loans is not a temporary reality, but will continue into the foreseeable future.
Many courts interpreting and applying the second Brunner prong, however, place dispositive weight on the debtor’s ability to demonstrate “additional extraordinary circumstances” that establish a “certainty of hopelessness.” This has led some courts to require that the debtor show the existence of “unique” or “extraordinary” circumstances, such as the debtor’s advanced age, illness or disability, psychiatric problems, lack of usable job skills, large number of dependents or severely limited education.... And, in the absence of such a showing, the court may conclude that the debtor has failed the second Brunner prong and the student loans will not be discharged ....
Requiring the debtor to present additional evidence of “unique” or “extraordinary” circumstances amounting to a “certainty of hopelessness” is not supported by the text of § 523(a)(8). The debtor need only demonstrate “undue hardship.” True, the debtor must be able to prove that the claimed hardship is more than present financial difficulty. See Kopf,245 B.R. at 742, 745 . And the existence of any of the factors mentioned above may be highly relevant to a finding that the hardship will persist into the foreseeable future. But whether or not this Court subjectively viewsthe debtor’s circumstances as “unique” or “extraordinary” is, in a word, overkill.
In re Hicks,
Furthermore, we agree that the “good faith” requirement of Brunner is “without textual foundation.” Id. at 28 (citing In re Kopf,
Undue hardship is measured as of trial date, In re Kelly,
Having considered the various tests used to determine undue hardship, the plain text of § 523(a)(8), and further recognizing that the majority of courts in the First Circuit adopt the totality of the circumstances test, the Panel declines to adopt the Brunner test as requested by ECMC. The Panel is persuaded that the totality of the circumstances test best effectuates the determination of undue hardship while adhering to the plain text of § 523(a)(8).
[9] ECMC’s primary argument on appeal is that the bankruptcy court failed to adequately consider the availability of the ICRP in its determination of undue hardship under the totality of the circumstances. As noted above, the totality of the circumstances test requires the bankruptcy court to consider “any other relevant facts and circumstances” unique to the particular case, such as the debtor’s ability to repay her loans. Although courts applying the totality of the circumstances test have treated the ICRP differently, the weight of authority is to treat the ICRP as one of many factors to consider in evaluating the totality of the debtor’s circumstances.
The Ford Program allows student loans to be consolidated and payments on the consolidated loan to be adjusted based on a formula that takes into account poverty guidelines and a debtor’s adjusted gross income. See 34 C.F.R. § 685.100, et seq. One of the consolidation options under the Ford Program is the ICRP. See 34 C.F.R. §§ 685.208-685.209. Under the ICRP, an eligible debtor’s annual loan payment is generally equal to 20 percent of the difference between his or her adjusted gross income and the federal poverty guidelines for the debtor’s family size, regardless of the amount of unpaid student loan debt. 34 C.F.R. § 685.209. Repayments are made monthly. 34 C.F.R. § 685.208(k). ICRP payments are recalculated annually based on changes to the debtor’s reported household adjusted gross income. 34 C.F.R. § 685.209. Unpaid interest is capitalized until the outstanding principal is ten percent greater than the original principal amount. 34 C.F.R. § 685.209(c)(5). If the borrower has not repaid the loan at the end of 25
Courts considering the ICRP as a factor under the totality of the circumstances test evaluate both the benefits and drawbacks of the program for the individual debtor within his or her unique circumstances. Brooks v. Educ. Credit Mgmt. Corp. (In re Brooks),
Central to this analysis is the idea that because forgiveness of any unpaid debt under the ICRP may result in a taxable event, the debtor who participates in the ICRP simply exchanges a nondischargeable student loan debt for a nondis-chargeable tax debt. Such an exchange of debt provides little or no relief to debtors. See Thomsen v. Dep’t of Educ. (In re Thomsen),
Application of the ICRP does not result in a discharge of the debt nor relieve the debtor from personal liability on the debt. Further action may, and will, be taken to collect the obligation, even if that action is simply requiring the debt- or to provide annual financial information to the Department of Education. The ICRP does not grant a discharge, but lapse of a period as long as 25 years may result in cancellation or forgiveness of the debt. There is no provision in the regulation for “partial” cancellation or forgiveness of the obligation. Unlike a discharge, cancellation or forgiveness of a debt results in a tax liability. As interest accrues during the 25 years or lesser repayment period, the amount of debt cancelled will be quite large. The resulting tax liability would not be subject to discharge in a later bankruptcy proceeding.
The focus of the ICRP is on deferral, not discharge, of debt. This is the antithesis of a fresh start. Congress has provided bankruptcy debtors relief which is not provided in the ICRP regulations. Compliance with ICRP regulations will not result in the same relief which can be granted by the courts under 11 U.S.C. § 523(a)(8).
ECMC presented undisputed evidence that its loans to the Debtor were eligible for the ICRP. Based on the Debt- or’s adjusted gross income at the time of trial, the bankruptcy court found that her monthly ICRP payments would be $0.00. In its decision after remand, the bankruptcy court acknowledged that the Debtor was aware of the ICRP and her eligibility to participate, but stated that the fact that the Debtor would not be required to repay her student loan under the ICRP did not mandate a finding that her failure to participate in the program prevented a discharge of the debt.
... shackling the Debtor to the ICRP would be ... a pointless exercise. Although her current payments under the ICRP would be zero, interest would continue to accrue despite the fact that the Debtor’s chances of ever repaying any portion of the loan are virtually nonexistent. The Debtor is now 65 years old, has failed to pass the Massachusetts bar examination three times. She testified she has no plans to retake the exam, which is reasonable in light of her testimony that she lacks the funds to do so, has not come within “striking distance” of passing, and importantly had an adverse physical reaction during the third examination whereby she almost fainted. Moreover, as set forth in this Court’s Memorandum of Decision, the Debtor has attempted unsuccessfully to find employment as a secretary and has sought to publish a novel. These efforts demonstrate her good faith despite her reluctance to be forced into the Ford Program. Nor are circumstances likely to improve for the Debtor. But for the ability to live in the den of her father’s home, the Debtor, without some sort of financial aid, could easily become homeless. In view of her age and work history, her prospects for a better financial future are dim. To subject her to a meaningless repayment plan when she clearly does not have the ability to repay these student loans now or in the foreseeable future is not required by 11 U.S.C. § 523(a)(8) and is inconsistent with this Court’s role as the adjudicator of undue hardship.
ECMC argues that the bankruptcy court failed to comply with the district court’s directives for remand. We disagree. Significantly, the district court did not adopt a per se rule that the availability of a zero payment ICRP should automatically result in a finding of nondischarge-ability. In its decision, the district court held that “[t]he decision whether to discharge [a student loan] in a case where the debtor is eligible but declines to participate in the ICRP must be the result of an individualized analysis in which the ICRP
On remand, the bankruptcy court clearly stated that, despite the Debtor’s eligibility for the Ford Program, her ability to repay the debt was unrealistic in light of her age, inability to pass the Massachusetts bar examination, difficulty finding employment, and other burdens. These circumstances are amply supported by the record and are appropriate factors to be considered under the totality of the circumstances test. Thus, we conclude that the bankruptcy court adequately considered the Debtor’s decision to forego enrollment in the ICRP as a factor within the totality of the circumstances.
III. The Debtor’s Work Experience and Age
ECMC argues that the bankruptcy court erred in its legal conclusions regarding the Debtor’s work experience and her age. Although ECMC purports to challenge the bankruptcy court’s legal conclusions regarding these issues, it essentially restates the arguments it made in the district court regarding the bankruptcy court’s factual findings. The district court concluded that the bankruptcy court’s factual findings were not clearly erroneous and, therefore, there were no factual issues before the bankruptcy court on remand nor before the Panel in this appeal. See Ellis v. U.S.,
CONCLUSION
As set forth above, the Panel concludes that the bankruptcy court did not err in its legal conclusions after remand regarding the weight that the Debtor’s eligibility to participate in the ICRP should have in the undue hardship analysis, as well as its conclusion that the totality of the circumstances warranted a finding of undue hardship. Therefore, we AFFIRM.
Notes
. Unless expressly stated otherwise, all references to "Bankruptcy Code” or to specific statutory sections shall be to the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Pub. L. No. 109-8, 119 Stat. 23, 11 U.S.C. §§ 101, et seq.
. See Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), Adv. Pro. No. 08-1062,
. See Educ. Credit Mgmt. Corp. v. Bronsdon,
. See Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), Adv. Pro. No. 08-1062,
. For example, the Debtor wrote a novel but was unable to find a publisher. She also applied for a patent on an invention to protect the privacy of hospital patients. At the time of trial, the Debtor had not received a response regarding the patent, and was considering writing another novel or starting a website that would feature commentary on current events.
.The original complaint was filed against "Sallie Mae, Inc.” However, the bankruptcy court subsequently granted ECMC's motion to intervene and be substituted as the defendant in the proceeding.
.In attempting to prove undue hardship under § 523(a)(8), a debtor:
... has a formidable task, for Congress has made the judgment that the general purpose of the Bankruptcy Code to give honest debtors a fresh start does not automatically apply to student loan debtors. Rather, the interest in ensuring the continued viability of the student loan program takes precedence.
Nash,
. ECMC, acknowledging that the First Circuit has not adopted either test for determining undue hardship, stated in its brief: "ECMC respectfully requests that this Court join the Nine Circuits that have formally adopted the Brunner test.” Appellant's Brief at 5.
. In several prior cases involving the dis-chargeability of student loans under § 523(a)(8), the Panel has declined to adopt
. See, e.g., Sanborn v. Educ. Credit Mgmt. Corp. (In re Sanborn),
. See Gallagher v. Educ. Credit Mgmt. Corp. (In re Gallagher),
. Indeed, the Panel has stated that the only practical difference between the two tests is that under Bmnner, the debtor must establish that she made a good faith effort to repay the loans. See In re Kelly,
. See Feather D. Baron, The Nondischarge-ability of Student Loans in Bankruptcy: How the Prevailing "Undue Hardship" Test Creates Hardship of Its Own, 442 U.S.F. L.Rev. 265 (Summer 2007), for timing and ripeness issues in § 523(a)(8) actions.
. See also In re Nash,
.The First Circuit has endorsed the totality of the circumstances approach in related bankruptcy settings. See Marrama v. Citizens Bank of Mass. (In re Marrama),
. See, e.g., In re Denittis,
. There are courts that, despite following the Brunner test, have held that forgoing enrollment in the ICRP is a factor to consider in determining whether a debt is excepted from discharge under § 523(a)(8), but that the failure to participate is not per se indicative of bad faith and is not outcome determinative. See, e.g., Barrett v. Educ. Credit Mgmt. Corp.,
. We agree with the district court's conclusion that "[t]he record shows a pattern of gradually decreasing employability followed by prolonged unemployment, despite a broad and vigorous job search and increasing education and work experience.”
Concurrence Opinion
concurring.
I agree with the majority’s conclusion that the judgment of the bankruptcy court should be affirmed; I write separately for several reasons.
The majority concludes that the “totality of the circumstances” test is the proper measure of “undue hardship” for determining the dischargeability of student loan obligations under § 523(a)(8). It goes on to assay the correctness of the bankruptcy court’s determination exclusively under the totality of the circumstances model. The determination of the test to be applied to determine dischargeability is, pure and simple, a question of law, reviewed de novo. Abboud v. The Ground Round, Inc. (In re The Ground Round, Inc.),
I have no quarrel with the majority’s conclusion that the debtor demonstrated undue hardship and, therefore, that her student loans should be discharged. This case, however, does not call for choosing between the totality of the circumstances test and the “Brunner ” test,
Having lost below under the trial court’s careful consideration of the totality of the circumstances touching on the debtor’s case, the appellant begs us to “adopt” Brunner. But we need not respond (either “yes” or, as here, “no”) when the answer is of no moment.
Having withstood one appellate assault, the bankruptcy court’s factual findings are fixed. They include:
• “[GJiven the Debtor’s lack of recent work history, narrow work experience, failure to pass the bar exam, age, unsuccessful attempts to find employment in a variety of fields, and unsuccessful attempts to sell a novel and acquire a patent, the Debt- or had no reasonably reliable financial resources other than [ ... ] Social Security payments.”
• “[I]f the Debtor participated in the Ford Program, her current financial status would result in her owing no monthly payments for her student loans.”
• “But for the ability to live in the den of her father’s home, the Debtor, without some sort of financial aid, could easily become homeless. In view of her age and work history, her prospects for a better financial future are dim.”
Taken together, these findings provide no basis to conclude that this debtor will ever have the financial resources to payoff (or even pay down) her student loan, on any terms.
One must ask, then, how could the failure to enroll in a program that would — as far as the judicial eye can see — require the debtor to pay nothing, be either a circumstance cutting against discharging the loan under the “totality” test or a lack of “good faith efforts” to pay under Brunner? Under either test, the court below was being asked to deny discharge of the loans on what basis? It could only be on the possibility that the debtor might win the lottery or that some equally improbable instance of financial good fortune could strike. Need it be said that, if such were a sufficient basis to deny discharge of a student loan, the prospect of ever discharging a student loan pursuant to § 523(a)(8) would become fantasy?
Given that the choice of test makes no difference in this case, and that to make the unnecessary choice here can only contribute to the confusion surrounding undue hardship analysis, I am left to concur in the majority’s conclusion without joining it on the path it has taken to reach it.
. Brunner v. New York State Higher Educ. Servs. Corp.
. See In re Lorenz,
. Supra at 4.
. Supra at 4.
. Bronsdon v. Educ. Credit Mgmt. Corp.(In re Bronsdon),
. Brunner,
. See, e.g., In re Kopf,