In Re: Geoffrey Ifenay EKENASI, Debtor. Geoffrey Ifenay Ekenasi, Plaintiff-Appellee, v. The Education Resources Institute; Pennsylvania Higher Education Assistance Agency, Defendants-Appellants, and Debra A. Wertman, Trustee.
No. 02-1239.
United States Court of Appeals, Fourth Circuit.
Argued: February 24, 2003. Decided: April 16, 2003.
325 F.3d 541
ARGUED: Steven Leftridge Thomas, Kay, Casto & Chaney, P.L.L.C., Charleston, West Virginia, for Appellants. Andrew Steven Nason, Pepper, Nason & Hayes, Charleston, West Virginia, for Appellee. Before TRAXLER and SHEDD, Circuit Judges, and C. Arlen BEAM, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, sitting by designation. Reversed by published opinion. Judge TRAXLER wrote the opinion, in which Judge SHEDD and Senior Judge BEAM joined.
TRAXLER, Circuit Judge:
The Education Resources Institute and Pennsylvania Higher Education Assistance Agency (“Appellants“) appeal an order of the district court affirming the bankruptcy court‘s order discharging Geoffrey Ifenay Ekenasi‘s student loan debts pursuant to
I.
Ekenasi is a native of Nigeria. He obtained a degree in political science at the University of Lagos, Nigeria, in 1978. In the late 1980s, he emigrated to the United States. Upon arriving in this country, he worked briefly in a factory and, for several years, as a taxi driver in New York City.
While working as a taxi driver, Ekenasi learned that he could attend law school in the United States and pay for his postgraduate education through student loans sponsored by the federal government. He was accepted to the West Virginia University College of Law, enrolled in classes in 1992, and graduated on schedule in 1995. In 1997, Ekenasi passed the West Virginia bar examination and obtained a license to practice law in that state. All of this was made possible by his receipt of nearly $90,000 in government-sponsored student loans.
Based upon his income and expenses, including the $253 per month student loan payment, Ekenasi claimed excess income of $300 per month. He proposed to make scheduled payments in the amount of $300 per month to the bankruptcy trustee for 60 months for distribution towards his “general unsecured” (i.e., non-student loan) creditors only, while continuing to make his student loan payment directly to the student loan creditors. The Plan proposed that “cause exist[ed]” to extend Ekenasi‘s рayment of the debt “over a period of more than 36 months” due to Ekenasi‘s desire “to pay student loans outside [the Plan] and pay 27% of [the] general unsecured debt through the trustee.” J.A. 46. See
In February 1998, the bankruptcy court enterеd an order confirming Ekenasi‘s Chapter 13 Plan. Thus, Ekenasi‘s approved Plan, including its exception of the student loan creditors from any portion of the $300 payment made to the bankruptcy trustee, was premised upon his choice to continue making the student loan payment outside the Plan and directly to the student loan creditors. Ekenasi also obtained an extended payment period towards his other unsecured creditors by pointing to the very same choice.
Then, in May 1998, Ekenasi instituted this adversary proceeding, seeking a discharge of his student loan debts in their entirety on the basis that they imposed an undue hardship upon him. Since filing his Chapter 13 Plan, however, Ekenasi had passed the West Virginia bar examination and secured employment as an attorney with the West Virginia Bureau of Child Support Enforcement with a starting salary of $36,000 per year. In his complaint, Ekenasi represented that he was “unmarried but living in the same household as his ex-wife with his six (6) children ranging in age from four (4) years to seventeen (17) years оld.” J.A. 54. By 1999, Ekenasi‘s salary had increased to $39,899 and, by the time trial in the adversary proceeding commenced in December 2000, Ekenasi‘s salary had increased to $42,000 per year — nearly double the $22,000 salary he was earning when he filed his proposed Chapter 13 Plan claiming $300 in excess monthly income. Also by this time, two of the six children residing with Ekenasi in this country had achieved majority status. However, Ekenasi testified that he had three additional children (ages 18, 11 and 9) living in Nigeria who were dependent upon him for support аnd that he was subject to a Nigerian court order for such support in the monthly amount of $300 per child.
II.
Because the district court “act[ed] in its capacity as a bankruptcy appellate court, we review the bankruptcy court‘s decision independently.” Banks v. Sallie Mae Servicing Corp. (In re Banks), 299 F.3d 296, 300 (4th Cir.2002). We review the bankruptcy court‘s factual findings for clear error and its legal conclusions de novo. See Kielisch v. Educational Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 319 (4th Cir.2001).
We begin with a brief summary of the Chapter 13 statutory provisions that are pertinent to the proceeding before us. See
Once a debtor has satisfied his payments under the confirmed plan, the bankruptcy court grants the debtor a discharge of all debts provided for by the plan, see
Student loans, as a general rule, fall within the category of nondischargeable debts and pass through the bankruptcy process unaffected. See In re Kielisch, 258 F.3d at 320 (noting that Chapter 13 debtors ordinarily “remain personally responsible for their nondischargeable student loan debts, and those debts pass or ride through the bankruptcy unaffected and are a postbankruptcy liability of the former debtor“) (internal quotation marks omitted). The federal government, under the Guaranteed Student Loan Program, “serves as guarantor of unsecured student loans and subsidizes interest payments on those loans.” Id. at 319 (internal quotation marks omitted). However, Congress has also provided that such government-guaranteed student loans are nondischargeable in bankruptcy proceedings unless the debtor can demonstrate that repayment of the loans would constitute an “undue hardship.”
III.
We first address Appellants’ contention that Ekenasi‘s adversary procеeding seeking a discharge of his student loan obligations as an “undue hardship” was premature. More specifically, they urge us to follow those courts that have held that student loan hardship cases are never ripe for adjudication in a Chapter 13 case until near or at the time of completion of the Chapter 13 plan. See Pair v. United States (In re Pair), 269 B.R. 719, 720-21 (Bankr.N.D.Ala.2001); Soler v. United States (In re Soler), 250 B.R. 694, 697 (Bankr.D.Minn.2000); Raisor v. Education Loan Servicing Ctr., Inc. (In re Raisor), 180 B.R. 163, 167 (Bankr.E.D.Tex.1995). Appellants argue that this interpretation is implicit in the language of §§ 1328 and 523(a)(8), which focuses on the debtor‘s circumstances at the point of discharge. Ekenasi, on the other hand, urges us to follow those cases that allow a debtor to seek a hardship determination at any time of his choosing. He contends the debtor may choose “the date of the ‘snapshot’ which the [c]ourt must examine for Brunner purposes.” Goranson v. Pennsylvania Higher Educ. Assistance Agency (In re Goranson), 183 B.R. 52, 56 (Bankr.W.D.N.Y.1995); see United Student Aid Funds, Inc. v. Taylor (In re Taylor), 223 B.R. 747, 751 (B.A.P. 9th Cir.1998).
As Appellants correctly observe, the Brunner factors, which were developed in the context of an adversary proceeding brought to discharge student loan obligations at the сonclusion of a Chapter 7 proceeding, do not transfer neatly to an adversary proceeding brought to discharge student loan obligations in the midst of the debtor‘s attempts to comply with a confirmed Chapter 13 plan. Brunner requires the debtor to establish that he “cannot maintain, based on current income and expenses, a ‘minimal’ standard of living” for himself and his dependents if he is forced to repay the student loans and that this condition will “likely ... persist for a significant portion of the repayment period of the student loans.” Brunner, 831 F.2d at 396 (emphasis added).
In a Chapter 7 case, the bankruptcy proceeding is short-lived and the debtor achieves a quick discharge of his unsecured, dischargeable debts. Thus, predicting whether the debtor‘s current inability to maintain a minimal standard of living will persist throughout a significant portion of the repayment period is based upon a known, current situation. Where an adversary proceeding seeking a discharge of student loan obligations is brought early in a Chapter 13 case, however, the question of whether the debtor will be unable to maintain a minimal standard of living throughout a significant portiоn of the repayment period must be premised upon a prediction of what the debtor‘s situation will be at the conclusion of the Chapter 13 plan which, as here, may extend up to five years.
IV.
Thus, we turn to the bankruptcy court‘s application of the Brunner factors to Ekenasi‘s claim that repayment of his student loan obligations will constitute an undue burden upon him. For the reasons which follow, we conclude that the bankruptcy court clearly erred in finding that Ekenasi met his burden of establishing the Brunner fаctors and, therefore, erred in discharging the student loan obligations based upon the record before it.
A.
With the assistance of government-sponsored student loans, Ekenasi successfully achieved a postgraduate law degree in the ordinary three-year period, passed his state‘s bar examination, and received a state license to practice law in 1997. Ekenasi filed his Chapter 13 petition and proposed Chapter 13 Plan in August of that same year. According to Ekenasi‘s rеpresentations in that proceeding, he had an annual income of $22,000 per year, a net monthly income of $1,480 and, after payment of his expenses in the amount of $1,180 (including a $253 per month student loan payment), $300 in disposable income available to pay his other unsecured creditors. Although entitled to an automatic stay of his student loan obligation, see
A mere three months later, in May 1998, Ekenasi filed this adversary proceeding, seeking a complete discharge of the student loan debt and, thereby, the $253 monthly payment. Also in 1998, Ekenasi secured employment as an attorney, an opportunity afforded by the very loans he now seeks tо discharge. His annual income rose to $36,000 per year and, by the time of the trial in December 2000, had increased again to $42,000 — nearly double the income upon which the Plan was originally based. Ekenasi‘s net monthly income had increased from $1,480 to approximately $2,800. But, after eliminating any payment for student loans, Ekenasi claimed that his expenses had risen from $1,480 (a figure which included the bankruptcy payment) to $3,831. Ekenasi had apparently not been making the $253 monthly student loan payment, but testified at trial in December 2000 that he was current on his $300 monthly bankruptcy payments to the trustee in his Chapter 13 case.
The evidence of Ekenasi‘s projected income and expenses is simply too speculаtive to substantiate the findings made by the bankruptcy court on this issue. For example, at the time of the adversary proceeding, Ekenasi claimed responsibility to pay $900 a month pursuant to a Nigerian court support order for his three children living in that country. However, he testified during the adversary proceeding that he was not fulfilling that obligation.4 Ekenasi also claimed that all nine children were dependent upon him for support, and that he received no financial assistance from their mothers, yet he testified that he claimed only two dependents on his 1997 federal tax return, three dependents on his 1998 tax return, and three dependents on his 1999 tax return.
The speculative nature of the bankruptcy court‘s findings at the time are also highlighted by the circumstances that now exist, if we presume that Ekenasi has remained current in his Chapter 13 Plan payments since the adversary proceeding. Ekenasi will have completed his obligations under the Plan to his general unsecured creditors and will be eligible for a discharge of those debts in their entirety. Three of his six children living in this country have reached majority-age status, leaving only three minority-age children (ages 9, 11, and 15) in this country currently dependent, or partially dependent, upon Ekenasi for support. We can presume that his oldest child living in Nigeria is also 18 years old; the other two are 11 and 9 years of age.
Finally, we note Appellants’ argument that Ekenasi‘s situation in many ways represents the very abuses that Congress sought to prevent in prohibiting the discharge of student loan obligations. These abuses are particularly apparent where, as here, the student loan obligations have actually resulted in an educational opportunity that has likely enhanced the student‘s monthly earning potential to a level that exceeds the monthly obligation associated with the very education that created that potential.
B.
We also conclude that Ekenasi failed to prove that he “has made good faith efforts to repay the loans,” Brunner, 831 F.2d at 396, and that the bankruptcy court clearly erred in finding otherwise. Of particular note, Ekenasi obtained approval of the Chapter 13 Plan to pay $300 in disposable income to unsecured creditors other than student loan creditors based upon his election to pay $253 to the student loan creditors outside the Plan. Although he presented evidence of his good faith attempts to pay the student loan payments prior to filing his Chapter 13 petition and Plan, he has not presented such evidencе of a good faith attempt to make the student loan payments he included in the confirmed Chapter 13 Plan. Instead, Ekenasi filed the adversary proceeding to discharge the student loan debt in its entirety within a mere three months of obtaining that confirmation. Cf. Brunner v. New York State Higher Educ. Servs. Corp. (In re Brunner), 46 B.R. 752, 758 (S.D.N.Y.1985) (finding that debtor failed to establish good faith in a Chapter 7 proceeding where she “filed for discharge within a month of the date the first payment of her loans came due ... [,] made virtually no attempt to repay, [and never] requested a deferment of payment“).
To conclude, although we decline to hold that Chapter 13 precludes a bankruptcy court from ever entertaining an adversary proceeding to discharge student loan debts until at or near the time that the debtor completes payments under a confirmed Chapter 13 plan, we are satisfied that the bankruptcy court clearly erred in finding that Ekenasi had established undue hardship under Brunner upon the record before it. After еmigrating to this country, Ekenasi sought and obtained a post-graduate, specialized education made possible by government-sponsored student loans. As a result of his education, he made a successful career transition from taxi driver to state-employed attorney. His financial circumstances are serious, especially given his paternal obligations. However, it does not appear that they are more serious or dire than they were before he entered law school. Although the record on this point is not as developed as it should be, we must assume that Ekenasi is earning a higher monthly income as a state-employed attorney than he was earning as a taxi driver and, therefore, that he is not in a financially worse position than he was when he entered law school, even excepting the scheduled student loan payment. In other words, the financial benefit of his higher education may well be more than sufficient to cover the financial obligation associated with it. This is not to say that he may not obtain a partial or total discharge of those debts, but it was indeed premature under these circumstances for the bankruptcy court to find that Ekenasi would not be able to repay at least a portion of the loan that had helped improve his earning potential. If we do not demand at least a fair inquiry into this question, we risk encouraging those in difficult financial situations to utilize government-sponsored student loans to achieve higher income withоut any concomitant accountability to repay that which enabled that achievement.
V.
For the foregoing reasons, we reverse the district court‘s decision affirming the bankruptcy‘s discharge of Ekenasi‘s student loan debt owed to Appellants.
REVERSED
Notes
The Chapter 13 statutory scheme provides that:
(a) As soon as practicable after completion by the debtor of all payments under the plan, unless the court approves a written waiver of discharge executed by the debtor after the order for relief under this chapter, the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt —
. . .
(2) of the kind specified in paragraph (5), (8), or (9) of section 523(a) of this title. . . .
Section 523(a) provides that:
(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
. . . .
(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprоfit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor‘s dependents....