ORDER & OPINION
This matter is before the Court on Appellant’s appeal from the decision of the United States Bankruptcy Court for the Central District of Illinois discharging Ap-pellee’s student loan debt. Both parties have filed their respective briefs, and the matter is ready for disposition. For the reasons stated below, the decision of the bankruptcy court is reversed.
STANDARD OF REVIEW
This Court has jurisdiction to review the decision of the bankruptcy court pursuant to 28 U.S.C. § 158(a). On an appeal, a “district court or bankruptcy appellate panel may affirm, modify, or reverse a bankruptcy judge’s judgment, order, оr decree or remand with instructions for further proceedings.” Fed. R. BaNKR.P. 8013. District courts are to apply a dual standard of review when considering a bankruptcy appeal: the bankruptcy court’s findings of fact are reviewed for clear error, while the conclusions of law are reviewed de novo. Mungo v. Taylor,
BACKGROUND
Appellee is 52 yеars old and is in good health. She graduated from high school in 1978, and soon married her first husband. After their divorce, she worked in clerical positions and as an inventory control clerk until 1986, when she left work to be a homemaker. In 1992, she began doing part-time bookkeeping work. In 1999, Ap-pellee obtained an associate’s degree in business and accounting, and in 2000, she enrolled at Webster University in pursuit of a paralegal degree. Appellee obtained her paralegal certificate in December 2000, and began seeking employment as a paralegal; she alsо worked as an intern with the federal district court before graduation. She completed her bachelor’s degree in August 2002, earning a grade point average of 3.86. In addition to scholarships
Appellee and her second husband divorced in 2001, and he was awarded custody of their two high-school-age children. Appellee received a mutual fund account worth $52,000 and a savings account worth $10,000; she was entitled to $1200 in monthly maintenance for five years, from which she was obligated to pay $529.78 for her car, which was leased in her husband’s name.
Appellee later moved out of the marital home and rented an apartment. Appellee and her former husband also agreed to reduce her maintenance to $650 a month, from which Appellee was still responsible for the car payment. In December 2008, Appellee moved to her mother’s home in Dallas City, Illinois, a rural community with a population of less than 1,000 people. Her mutual fund and savings accounts are now depleted, and she has no remaining savings or investments. Appellee is now dependent on her mother for support; her own income is limited to $200 in food assistance. Her mother is 74, and has a small farming income as well as social security. Appellee’s son also gave her a credit card for emergency use.
Appellee’s student loans first came due in November 2003, and she has obtained deferments and forbearances of the payments ever since. On March 19, 2001, she paid $4,000 toward them from her divorce settlement, paying off one of the loans. Later in 2001, she made a payment of $297, in 2002 she made a payment of $332, in 2003 she made a payment of $43, and in 2006 she made a payment of $600. As of March 25, 2011, the total amount due was $24,185.75. For four of the five loans, the interest rate is 2.82%, and the interest rate for the fifth is 5.39%.
Appellee testified that she applied for at least 180 job positions over the ten years since her graduation. However, in 2010 she only made around eight applications, and in 2011 she made only a few. Appel-lee testified that she feels she is now permanently unemployed, and holds out no hope of finding a job, though she would take a job if one were offered.
Discussion
Appellant challenges the bankruptcy court’s decision to discharge Appellee’s student loan debt. Unlike ordinary debts, federally-guaranteed student loans are presumptively non-dischargeable in bankruptcy. In re Hanson,
The Seventh Circuit, like most Circuits, has adopted the test set forth by the Second Cirсuit in Brunner, to determine whether the repayment of a student loan will cause “undue hardship.
“[U]ndue hardship” requir[es] a three-part showing (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for [himself] and [his] dependents if forced to repay the loans; (2) that additional circumstances exist indicating 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 debtor has made good faith efforts to repay the loans.
Id. (quoting Brunner,
Before the bankruptcy court, Appellant conceded that Appellee could not maintain a minimal standard of living if required to repay the loan, the first element of the Brunner test, so this Court cannot review the existence of that element on appeal.
I. Additional circumstances indicating that debtor will be unable to pay for a significant portion of the repayment period
As noted above, Appellee graduated from Webster University in 2002, and has been unable to obtain a job since that time. The bankruptcy court found that Appellee had applied for more than 180 jobs in that period, that her job search had been “extensive,” and that her paralegal skills had likely become too “stale” to be of use for future employment.
The Seventh Circuit has used the phrase “certainty of hopelessness” to describe the showing the debtor must make in order to meet the second Brunner prong. Roberson,
Both before the bankruptcy court and on appeal, Appellant raises two main arguments against the finding that Appellee met the second prong of the Brunner test: that she has not done enough to seek work since her graduation, preferring to live off of the remainder of her divorce settlement to taking a less-preferred job, and that she had no disability or other conditions actually preventing her from finding work. While accepting the bankruptcy court’s factual findings, this Court does not agree that Appellee’s situation shows “additional circumstances” that indicate she is likely to remain unemployed during the bulk of the repayment period.
First, in response to Appellant’s argument that Appellee had failed to adequately consider jobs outside her chosen field, the bankruptcy court cited a mere three instances, all in 2003, in which Ap-pellee had applied for “other” jobs: a legal secretary position, a newspaper circulation clerk, and an administrative assistant.
Moreover, as Appellant points out, there is simply no objective reason Appellee should be unable to find work. She is only 52 years old, has no disability,
The Seventh Circuit’s opinion in Goulet supports the Court’s conclusion that Ap-pellee has not met the requirements of the second Brunner prong.
Though the Court does not believe that Appellee has met the requirements of the second Brunner prong, it need not rely solely on this finding, as it is clear that the bankruptcy court misapplied the Brunner good faith analysis.
II. Good faith
After finding that Appellee had met the second prong of the Brunner test, the bankruptcy court turned to the question of whether she had made a good faith effort to reрay her loans. It noted that, though Appellee has been unemployed since her graduation, and had very little income in that period, she did make some efforts to pay her loans. Indeed, she paid off one of her five student loans while still in school, using proceeds of her divorce settlement, though Appellant now points out that this was not one of the loans that it held. Given the fact that Appellee has had essentially no income to speak of during the repayment period, this Court agrees with
After noting Respondent’s repayment history, the bankruptcy court turned to Appellant’s argument regarding Appellant’s failure to take advantage of an alternative repayment plan, such as the William D. Ford Income-Based Repayment (“IBR”) program.
The bankruptcy court’s lenient consideration of Respondent’s failure to take advantage of the IBR program appears to be based on the idea that she would “gain nothing” from the program because her payments while unemployed would be $0, and that the program is a form of deferment, merely postponing payments to some later date. (Op. at 12-13). This is not the case. Under the IBR program, once enrolled, a debtor who is qualified to make $0 payments is still considered to be in repayment, and will have her debt burden completely forgiven after 25 years of qualifying “payments” — even if she has never actually paid anything because her earnings were never high enough to result in a positive payment under the plan.
While not “dispositive,” several courts, including courts in this District, have considered the failure of a debtor to utilize an available alternative payment program to be a very significant factor in determining whether that dеbtor has made a good faith effort to repay her loans, stating that a debtor must “take advantage of one of the repayment plans available to [her] if and when [she] is able to do so.” Vargas,
Moreover, a bankruptcy court should consider a debtor’s attempts to “maximize income” as part of the good-faith analysis. Roberson,
Though Appellee’s past payments were likely all that she could manage at that time, neither she nor the bankruptcy court have offered an explanation as to why, going forward, the IBR program is not a better alternative than a complete dischаrge of her student loans. Under that program, Appellee would not be liable for any payments on her loans until she could afford them; so long as she remains unemployed, though, she would have no payment, but would continue to receive credit toward forgiveness of the loans after 25 years. Absent a particularized explanation of why IBR is not a good fit for Appellee, the Court cannot find that her failure to enroll in it is compatible with a good faith effort to repay her loans over the long term. The fact that Appellee has also effectively given up looking for work also shows that she has failed to maximize her income as required to show good faith.
Conclusion
The Court finds that that bankruptcy court’s application of the Brunner test was erroneous, in that Appellee has shown neither “additional circumstances” indicating that she is likely to remain in financial distress into the future, nor that she has made a good faith effort to repay her loans during the latter half of the period since her graduation. Therefore, the judgment of the bankruptcy court discharging Appel-lee’s student loans is REVERSED.
CASE TERMINATED.
Notes
. These background facts are drawn from the bankruptcy cоurt’s opinion, as neither party appears to seriously contest its finding of facts, and the Court therefore sees no "clear error” in it. (Bankruptcy Case Number 11-ap-8010: Doc. 33 (hereinafter referred to as "Op.”) at 2-6).
. Appellee takes issue with the bankruptcy court’s consideration of her divorce settlement, as the details of that settlement were sealed under Missouri law; she also appears to claim that the standard of living contemplated by the divorce settlement should be used by the bankruptcy court in considering her financial situation. This Court finds no error in the bankruptcy court's consideration of her divorce settlement, as her financial condition and assets are material, and because she "opened the door” to their consideration by filing for bankruptcy protection. Appellee’s private agreement with her ex-husband does not alter her responsibility for her debt, and does not alter the legal standard to be applied when considering discharge of federal student loan debt.
. The bankruptcy court noted that Appellee was liable for college expenses "according to the same percentages as child support is calculated under Missouri law,” which Appellant indicates is four percent in this case. (Op. at 3; Doc. 2 at 6).
. In Roberson, the Seventh Circuit quoted from the relevant legislative history:
[E]ducational loans are different from most loans. They are made without business considerations, without security, without cosigners, and rely [] for repayment solely on the debtor’s future increased income resulting from the education. In this sense, the loan is viewed as a mortgage on the debtor's future.
. In the bankruptcy court's order, it notеd that the Tenth Circuit has ''reinterpreted” Brunner, making it more lenient, and quoted extensively from that court’s opinion. (Op. at 7-8) (quoting Educational Credit Management Corp. v. Polleys,
.The Court notes that some courts have considered the availability of income-based or income-contingent repayment plans in finding that repayment would not be too onerous, under the first prong, or that such financial difficulty, would persist, under the second prong. See, e.g., In re Durrani,
. In her Response, Appellee attempts to show that she applied for additional jobs, but it is not appropriate for this Court to expand the record on appeal beyond that relied upon by the bankruptcy court, and so this Court does not consider any additional evidence. (Doc. 5 at 13).
. If it were reviewing the facts de novo, the Court would not categorize a legal secretary job as being outside or below Appellee's paralegal training, but as an entry-level position within the field. However, the categorization is not "clear error” and so is not reversed.
. In her Response brief, Appellee attempts to undercut the bankruptcy court’s factual finding that she is in good health by saying that her lack of health insurance coverage means that she does not know if she has a disabling condition. The Court rejects this attempt, as the nature of a condition so disabling that it prevents work is such that the sufferer would certainly know of its existencе, even if she does not know the cause or diagnosis. Moreover, it certainly is insufficient to show that the bankruptcy court made a "clear error" in finding that Appellee is in good health.
. In her Response, Appellee attempts to distinguish Goulet by pointing out a number of irrelevant differences. (Doc. 5 at 21-22). The irrelevance of two of these differences is pointed out in specific cases, including the difference between the level of education and the current economic downturn. Brunner, 46 B.R. at 755 n. 3 ("value” of education received not a factor); Sederlund,
.The Court takes Appellant's reliance on the IBR plan as assurance that Appellee’s loans would qualify for it, and that her loans could be consolidated such that she would make a single payment based on her income. If, when Appellee attempts to enroll in the plan following this Order, she finds that she is not eligible for it, or that her loans cannot be consolidated, she may return to the bankruptcy court for a modification of her loan's repayment terms to an amount she is able to pay, as it is obvious that Appellee does not, and likely will not, have the means to repay her loans on an ordinary 10-year repayment schedule, or even, once she begins to earn an income, to make four payments based on that income.
. Most of these cases consider the older Income Contingent Repayment Plan, which differs somewhat from the Income Based Repayment Plan at issue here, though both bаse the borrower's payment on her income and both offer forgiveness of the loan after 25 years in the program.
. In IBR, borrowers must pay 15% of their “discretionary income,” which is their income in excess of 150% of the federal poverty guidelines. 34 C.F.R. § 685.221(b)(1). Under her current circumstances, Respondent would have to earn $20,000/year before she would be required to begin making $41/ month payments.
. Neither the parties nor the bankruptcy court mentioned this, but some courts have expressed concern about the fact that when the loan balance is forgiven, the forgiven debt may be considеred taxable income. See Educational Credit Management Corporation v. Jesperson,