In re: THOMAS FRANCIS BARRETT, JR., Debtor. THOMAS FRANCIS BARRETT, JR., Plaintiff-Appellee, v. EDUCATIONAL CREDIT MANAGEMENT CORPORATION, Defendant-Appellant.
No. 06-3519
UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT
June 8, 2007
07a0214p.06
Before: RYAN and GRIFFIN, Circuit Judges; HOOD, Chief District Judge.
RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206. On Appeal from the Sixth Circuit Bankruptcy Appellate Panel. No. 01-45444—Kay Woods, Bankruptcy Judge. Argued: April 20, 2007. Decided and Filed: June 8, 2007.
COUNSEL
OPINION
GRIFFIN, Circuit Judge. Plaintiff-debtor Thomas Barrett filed a voluntary Chapter 7 bankruptcy petition on December 28, 2001, seeking the discharge of $302,342 in unsecured nonpriority debt. Among those claims are two student loans totaling $94,751. Defendant Educational Credit Management Corporation (“ECMC“) appeals the judgment of the Sixth Circuit Bankruptcy Appellate Panel (“BAP“) affirming the bankruptcy court‘s order discharging Barrett‘s student loan debts on the basis of “undue hardship” pursuant to
I.
Plaintiff-debtor Thomas Barrett incurred student loan debt totaling $94,751 while earning masters degrees in both Health Administration and Business Administration from Saint Louis University in 1999. Barrett has a long history of medical problems.1 After receiving his
In October 2002, Barrett began experiencing pain in his shoulders. He was diagnosed with avascular necrosis, a condition that causes the patient‘s bones to die due to lack of blood supply. Barrett testified that he experiences “massive pain” in his shoulders, hips, and knees. He was originally prescribed OxyContin pain medication, and later underwent surgery in April 2004 to repair the joint in his right shoulder. Following the surgery, Barrett continued to experience “a great deal of pain” in his shoulder. After arthroscopic surgery revealed that the shoulder cap‘s prosthetic was loose, a second surgery on the right shoulder was performed in August 2004. Due to the second surgery, Barrett was forced to wear a sling on his right shoulder at the trial before the bankruptcy court.
Barrett testified that he now takes forty milligrams of OxyContin three times per day, ten milligrams of Oxycodon four times per day, and two milligrams of hydromorphone four times per day, and that the pain in his right shoulder is so great that he “can‘t even hold a coffee cup with [his] right hand.” Following a nine-month recovery period for each surgery, Barrett expects to undergo surgery to repair his left shoulder and both hips.
Due to the pain that he experiences, Barrett‘s work opportunities are limited. Barrett testified that he currently performs “computer networking jobs” on a word-of-mouth basis that require no more physical exertion than the movement of a computer mouse with his left hand. Barrett testified that he has attempted to find a job with a company but has been unable to secure employment because he “cannot work at a level that would have to be sustained to work at a full-time job.” Because of the pain that he experiences, Barrett‘s ability to work “really depends on how [he] feel[s] that day, and that can be very bad or it can be somewhat bad.” Moreover, Barrett testified that, in his experience, employers were not willing to hire someone in his condition, stating “if I bring up what I‘ve – what‘s happened to me in the past, it seemed like they lose interest.” Barrett testified that because his medical condition has worsened since he filed the Chapter 7 petition, he has incurred an additional $20,000 in medical bills and expenses. According to Barrett‘s Schedule J, his projected monthly income
On November 23, 2004, the bankruptcy court conducted an adversary proceeding. Barrett was the sole witness. In addition to testimony from Barrett, the bankruptcy court also admitted Barrett‘s tax returns for the years 2000, 2002, and 2003, Barrett‘s Schedules I and J listing his current expenditures, a February 14, 2003, letter from Dr. Brad Pohlman, a print-out of a search performed on the Department of Education‘s Interactive Repayment Calculator, and a copy of the 2004 HHC Poverty Guidelines as originally published in the Federal Register on February 13, 2004. On December 14, 2004, the bankruptcy court issued a memorandum opinion stating that it found Barrett‘s testimony to be credible and concluding that Barrett had demonstrated that it would be an undue hardship if his student loans were excepted from his Chapter 7 discharge. On appeal, the BAP unanimously affirmed the bankruptcy court‘s determination. ECMC now timely appeals.
II.
We focus our review of cases appealed from the BAP on the bankruptcy court‘s decision, reviewing findings of fact for clear error, and conclusions of law de novo. In re Tirch, 409 F.3d 677, 680 (6th Cir. 2005). Whether the repayment of student loans would impose an undue hardship on the debtor is a question of law reviewed de novo. Id.; In re Cheesman, 25 F.3d 356, 359 (6th Cir. 1994).
III.
The Bankruptcy Code limits the discharge of student loans only to those circumstances where repayment “will impose an undue hardship on the debtor and the debtor‘s dependents.”
(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 v. New York State Higher Educ. Serv. Corp., 831 F.2d 395, 396 (2d Cir. 1987)). To satisfy the second prong, Barrett must show that circumstances indicate a “certainty of hopelessness, not merely a present inability to fulfill financial commitment.” Id. at 386 (quoting In re Roberson, 999 F.2d 1132, 1136 (7th Cir. 1993)); see also In re Hornsby, 144 F.3d 433, 438 (6th Cir. 1998) (observing that debtors “need not live in abject poverty before a discharge is forthcoming“). These circumstances may include, but are not limited to, “illness, disability, a lack of useable job skills, or the existence of a large number of dependents.” Id. Ultimately, the most important factor in satisfying the second prong is that the “additional circumstances” must be “beyond the debtor‘s control, not borne of free choice.” Id.
On appeal, ECMC does not challenge the bankruptcy court‘s finding that Barrett satisfied the first prong of the Brunner test: that Barrett cannot maintain, based on current income and expenses, a “minimal” standard of living if forced to repay the loans. Rather, ECMC argues that Barrett was required, and failed, to provide expert corroborating evidence to carry his burden of proof in satisfying the second prong. In particular, ECMC contends that Barrett could not competently testify to his prognosis or future health, and that expert medical evidence was necessary to competently project Barrett‘s future ability to repay his student loans.
In our prior interpretations of “undue hardship” under
Three other decisions by this court interpreting
In In re Cheesman, 25 F.3d 356, 359 (6th Cir. 1994), we upheld a finding by the bankruptcy court that the debtors had satisfied the undue hardship standard. Because the Cheesman debtors did not claim “additional circumstances” due to their health, Cheesman is not on point. Nevertheless, we based our conclusion that the debtors had satisfied the “additional circumstances” requirement in part based on the debtors’ employment history, which did “not indicate that the Cheesmans’ financial condition would improve considerably if she obtained a position as a teacher‘s aide.” Id. at 360. Thus, Cheesman suggests that a debtor‘s work history is a relevant and significant consideration in projecting whether a debtor‘s current state of affairs is likely to persist.
We decline to adopt here ECMC‘s position that Barrett was required to produce an expert witness to corroborate his health status, and instead concur with the BAP that “a requirement of corroborating evidence ‘when Plaintiff is unable to afford expert testimony or documentation imposes an unnecessary and undue burden on Plaintiff in establishing his burden of proof,’ if corroborating evidence is understood to be limited to expert medical testimony.” Even where some corroborating evidence of the debtor‘s claimed illness is required, the notion that only expert medical testimony would suffice has been rejected. See, e.g., Burton v. Educ. Credit Mgmt. Corp. (In re Burton), 339 B.R. 856, 879 (Bankr. E.D. Va. 2006) (“This Court, in light of . . . the fact that other credible evidence often exists, does not suggest expert testimony is the only method of corroboration available to debtors.“); Swinney v. Academic Fin. Servs. (In re Swinney), 266 B.R. 800, 805 (Bankr. N.D. Ohio 2001) (“Although such [corroborating] evidence does not have to necessarily consist of extensive expert testimony, such evidence should consist of more than simply bare allegations; that is, whenever a debtor‘s health, whether mental or physical, is directly put at issue some corroborating evidence must be given supporting the proponent‘s position . . . . For example, if properly authenticated, letters from a treating physician could be utilized.“).
We also find unpersuasive Barrett‘s position that, because of the expense involved with obtaining corroborating medical evidence, requiring such evidence creates a significant and unnecessary bar to debtors seeking discharge of student debt.6
We hold that the evidence in the record is sufficient to support the bankruptcy court‘s finding that additional circumstances exist indicating that Barrett‘s current financial state is likely to persist for a significant portion of the repayment period. First, Barrett‘s petition was supported by his testimony, which detailed his medical history and current state of health. Because Barrett received a master‘s degree in health administration and attended medical school courses, Barrett testified informatively and cogently about his medical history. Barrett then testified about being diagnosed with avascular necrosis, describing with great detail the two surgeries performed on his right shoulder due to the avascular necrosis. Barrett explained how his condition affects his health and prevents him from working, stating that he is constantly in great pain and that movement in his right arm is limited to moving a computer mouse. The bankruptcy court found Barrett to be credible:
Defendant does not challenge Plaintiff‘s testimony about his medical history and, indeed, Defendant‘s own exhibit, in the form of the letter from Dr. Pohlman, verifies that Plaintiff has been diagnosed and treated for stage IV Hodgkin lymphoma and received the ABVD chemotherapy treatment. There is also no doubt that Plaintiff actually underwent the two surgeries on his right shoulder earlier this year nor is there any challenge to the fact that Plaintiff is currently being prescribed heavy doses of pain medication. Based upon Plaintiff‘s physical demeanor, this Court finds it credible that Plaintiff is in a great deal of pain at all times. Even if Plaintiff is not required to have the five or more surgeries that he currently anticipates, which he stated would have a likely recovery period of nine months each, the pain that Plaintiff currently experiences is not likely to subside. As a consequence, this Court finds it credible that Plaintiff‘s current health problems will likely continue for a significant period
into the future and that such problems not only prohibit him from working full time at this time, but will likely prohibit him from obtaining full-time employment into the foreseeable future.
The bankruptcy court, as the trier of fact, was competent to assess and credit Barrett‘s testimony, and such credibility determinations are traditionally afforded great weight. See Otto v. Niles (In re Niles), 106 F.3d 1456, 1460 (9th Cir. 1997) (“The bankruptcy judge was, of course, entitled to assess the credibility of the witnesses and to accept [debtor‘s] testimony while rejecting [creditor‘s].“); Faden v. Insurance Co. of N. Am. (In re Faden), 96 F.3d 792, 797 (5th Cir. 1996) (“When a bankruptcy judge, after listening to all of the testimony, finds that a debtor shirked his responsibility to provide notice to his creditors, this Court cannot then usurp the role of the bankruptcy judge and mandate its own equitable relief.“). See also Peveler v. United States, 269 F.3d 693, 702 (6th Cir. 2001) (“We are generally reluctant to set aside credibility determinations made by the trier of fact, who has had the opportunity to view the witness on the stand and assess his demeanor.“).
Nevertheless, ECMC argues that the bankruptcy court erred in allowing Barrett to testify about his avascular necrosis. We review the bankruptcy court‘s decision to admit Barrett‘s testimony for an abuse of discretion. Gen. Elec. Co. v. Joiner, 522 U.S. 136, 139 (1997); Sicherman v. Diamoncut, Inc. (In re Sol Bergman Estate Jewelers, Inc.), 208 F.3d 215, 2000 U.S. App. LEXIS 3357, at *4-5 (6th Cir. Feb. 29, 2000) (unpublished table decision). The bankruptcy court properly precluded Barrett from testifying about his prognosis and the cause of his current ailments. The court did, however, allow Barrett to testify concerning his diagnosis of avascular necrosis and how his health affects his life and limits his ability to work. We find no error in admitting this testimony. Indeed, a bankruptcy petitioner would have much difficulty in fulfilling our mandate as expressed in Tirch that the debtor “precisely identify [his] problems and explain how [his] condition would impair [his] ability to work in the future” if such testimony was prohibited. Tirch, 409 F.3d at 681.
In addition to Barrett‘s testimony, the bankruptcy court also considered evidence at the hearing that corroborated his testimony concerning his medical history. Barrett offered a letter from his treating physician, Dr. Pohlman, who confirmed that Barrett was diagnosed with stage IVB Hodgkin lymphoma in July 2000, and that Barrett received eight cycles of chemotherapy treatment in response. Dr. Pohlman also stated that Barrett “had vasculitis, which preceded the diagnosis of lymphoma and has required a gradually tapering dose of steroids since the completion of his therapy.” Although Dr. Pohlman‘s letter was written before Barrett was diagnosed with avascular necrosis, and therefore does not discuss Barrett‘s prognosis with regard to that disease, it confirms Barrett‘s diagnosis of Hodgkin‘s and his rigorous chemotherapy treatment as a consequence.
In addition to Dr. Pohlman‘s letter and Barrett‘s testimony that described in significant detail his medical history and his diagnosis of avascular necrosis, the bankruptcy court also considered Barrett‘s tax returns for the years 2000, 2002, and 2003, which corroborate his testimony concerning his past ability to earn income due to his health problems since receiving his master‘s degree in 2000. Barrett‘s testimony concerning his past inability to work due to his health problems was further corroborated by Barrett‘s receipt of economic
We conclude that this evidence is sufficient to support the bankruptcy court‘s finding that Barrett is unlikely to be able to maintain a minimal standard of living if forced to repay his student debt. Unlike the debtor in Tirch, Barrett testified to how his past physical condition affects his ability to earn money. Tirch, 409 F.3d at 682. Moreover, unlike the debtor in Oyler, Barrett‘s financial woes are not the result of his own choice of profession, but rather are due to circumstances beyond his control. Oyler, 397 F.3d at 386 (noting that the “additional circumstances” under the Brunner test must be “beyond the debtor‘s control, not borne of free choice“). Barrett‘s long medical history and inability to work consistently indicate a “certainty of hopelessness” that satisfies the standards of
Finally, we note that Barrett‘s account of his medical history and his current health status is uncontroverted. ECMC has offered neither evidence to contradict Barrett‘s description of his history of medical problems nor any proof to rebut Barrett‘s testimony concerning his diagnosis of avascular necrosis and its impact on his ability to work and repay his student debt. Rather, ECMC has declined the opportunity to subpoena Barrett‘s medical records, which it could have done if it genuinely disputed Barrett‘s testimony concerning his current health. See
IV.
ECMC also argues that Barrett failed to satisfy the third prong of the Brunner test – that is, Barrett failed to show that he has made a good faith effort to repay his student loans – because he did not enroll in the Income Contingent Repayment Program (“ICRP“). ECMC contends that “Barrett‘s refusal to apply for the ICRP payment option was without factual and legal justification” and that this refusal demonstrates a lack of good faith under Brunner. We find ECMC‘s position unpersuasive.
As described by the bankruptcy court in In re Korhonen, 296 B.R. 492, 496 (Bankr. D. Minn. 2003), the ICRP:
permits a student loan debtor to pay twenty percent of the difference between
his adjusted gross income and the poverty level for his family size, or the amount the debtor would pay if the debt were repaid in twelve years, whichever is less. Under the program, the borrower‘s monthly repayment amount is adjusted each year to reflect any changes in these factors. The borrower‘s repayments may also be adjusted during the year based on special circumstances. See 34 C.F.R. § 685.209(c)(3) . At the end of the twenty five year payment period, any remaining loan balance would be cancelled by the Secretary of Education. However, the amount discharged would be considered taxable income.
See also Tirch, 409 F.3d at 682 (quoting Korhonen). Although ECMC doesn‘t state so explicitly, its position would create a per se rule requiring enrollment in the ICRP to satisfy the third Brunner prong and thus would, in effect, eliminate the discharge of student loans for undue hardship from the Bankruptcy Code.
We have already rejected ECMC‘s per se position. See Tirch, 409 F.3d at 682 (noting that a debtor‘s decision not to enroll in ICRP is “not a per se indication of a lack of good faith“). Moreover, Congress recently enacted “the most sweeping reform of bankruptcy law since the enactment of the Bankruptcy Code in 1978.” Michael & Phelps, supra, at 77-78; see also Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codified in various sections of 11 U.S.C.).7 Yet Congress left
Although Barrett‘s decision to forgo the ICRP is not a per se indication of a lack of good faith, his decision “is probative of [his] intent to repay [his] loans.” Tirch, 409 F.3d at 682. Nevertheless, we conclude that Barrett has demonstrated sufficient good faith to satisfy the third Brunner prong. Barrett testified that he looked into the ICRP, but declined to enroll in the program because the tax consequences would be too burdensome:
Q: Are you familiar with the Income Contingent Repayment format?
A: Yes, I am.
Q: Did you have occasion to visit a web site to see how it worked for you?
A: Yes, I did.
Q: And what web site did you visit?
A: It‘s WWW-dot-finaid-dot-org.
. . .
Q: What did you put in for your debt?
A: My debt was a hundred thousand dollars.
Q: And what did you put for your adjusted income?
A: Approximately $15,000.
A: Four percent.
Q: What was the conclusion of that document as to the total balance you would still owe at the end of a 25-year period?
A: I would owe . . . two [hundred] sixty-eight thousand seven hundred and sixty-one dollars (sic) would be my final payment to the Government in the form of tax.
Q: I‘m sorry. That would be the total amount that the Government would write off?
A: That‘s correct.
. . .
Q: And what – did you conclude what kind of tax impact that would have on you?
A: That would be huge. It would be like paying back more than the actual loan amount, so it doesn‘t really make any sense. This is not a viable alternative.
The bankruptcy court credited Barrett‘s testimony, concluding that Barrett “has used his best efforts to maximize financial potential; recognizing that his health has not permitted him to work full time, he still works part time to the best of his ability.” In light of the significant tax consequences of enrolling in the ICRP due to his present and future inability to pay his student debt, Barrett‘s decision to forgo the ICRP was reasonable and is not grounds for finding bad faith.8
Although Barrett has made no payments on his student loans, no loan payments have come due; Barrett has received economic hardship deferments for each year since graduation due to his health. Even had payments become due, his inability to repay the loans was unlikely to evidence bad faith, as his monthly expenses exceed by double his monthly income. Despite his health problems that have prevented him from working full-time since graduation, Barrett has made repeated efforts to work as his health and opportunities have allowed, even as his physical capability has been limited to moving a computer mouse. Further, Barrett testified that but for the medical bills, he would not have filed his Chapter 7 petition.
In sum, we concur with the BAP‘s analysis of the third prong of the Brunner test:
The Debtor in this case has reasonable expenses, yet continues to accrue debt for medical care. He has made efforts to increase his income within his ability. He has cooperated in providing information to his student loan creditors on an annual basis to obtain deferments. He has never had the ability to repay his student loans as evidenced by the deferments granted to him as the result of
economic hardship. . . . Utilization of the ICRP would likely result in a substantial increase in his student loan debts over the repayment period. The Debtor has amply demonstrated his good faith.
V.
The BAP‘s judgment affirming the bankruptcy court‘s December 14, 2004, order discharging Barrett‘s student loan obligation to defendant ECMC is therefore affirmed.
Notes
[Barrett] was initially diagnosed with mononucleosis. In the fall of 1991, after he noticed that he had black spots in his field of vision, he was diagnosed with Pars Plinitus, a disease of the retina, which is also an autoimmune condition. During spring semester 1992, [Barrett] began to suffer high fevers, severe night sweats and loss of weight. His symptoms became so severe that he left [URI] and returned to his parents’ home in Youngstown, Ohio, to seek treatment. Although he consulted a physician and had blood tests and a CAT scan, his symptoms subsided and the doctor was not able to make a diagnosis. Despite his health problems, [Barrett] returned to [URI], finished his undergraduate work and received his degree.
In order to determine whether nondischargeability of the debt will impose an “undue hardship” on the debtor, the rate and amount of his future resources should be estimated reasonably in terms of ability to obtain, retain, and continue employment and the rate of pay that can be expected. Any unearned income or other wealth which the debtor can be expected to receive should also be taken into account. The total amount of income, its reliability, and the periodicity of its receipt should be adequate to maintain the debtor and his dependents, at a minimal standard of living within their management capability, as well as to pay the educational debt.
Id.