Opinion · Court of Appeals for the Second Circuit

Marie Brunner v. New York State Higher Education Services Corp.

831 F.2d 395

Type
Opinion
Court
Court of Appeals for the Second Circuit
Jurisdiction
Federal
Date
1987-10-14
Topic
general

holding that even the lower undue hardship standard requires the debtor to show that he cannot maintain a “minimal” standard of living if forced to repay the loans | holding that the debtor had failed to carry her burden under the second prong because, inter alia, "[s]he is not disabled, nor elderly," and "[n]o evidence was presented indicating a total foreclosure of job prospects in her area of training" | noting that whether debtor suffers "undue hardship" under 11 U.S.C. S 523(a)(8) is a conclusion regarding the legal effect of the bankruptcy court's factual findings | holding that the inquiry is based on debtor’s “current income and expenses.” | finding that the debtor lacked good faith in attempting to discharge debt because she had failed to seek a deferment on her loan | holding that the debtor had failed to carry her burden under the second prong because, inter alia, “[s]he is not disabled, nor elderly,” and “[n]o evidence was presented indicating a total foreclosure of job prospects in her area of training” | finding that the debtor, a Master’s degree holder, showed no evidence of “a total foreclosure of job prospects in her area of training” | indicating that the evidence must establish “exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time ... ” | finding that debtor lacked good faith in attempting to discharge debt where she failed to seek a deferment on loan | holding that the debtor had failed to carry her burden under the second prong because, inter alia, “[s]he is not disabled, nor elderly,” and “[n]o evidence was presented indicating a total foreclosure of job prospects in her area of training” | noting that “[t]he existence of the adjective ‘undue’ indicates that Congress viewed garden-variety hardship as [an] insufficient excuse for a discharge of student loans” | indicating that the evidence must establish “exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time ...” | observing that the debtor had not established exceptional circumstances because she was.not elderly, had no dependents, and had not established any disability | noting that Brunner requires that the debtor’s standard of living fall below a minimal standard | noting that at the time of the hearing on dischargeability of student loans, only ten months had elapsed since the debtor’s graduation from her master’s program | holding that petitioner did not make a good faith attempt to repay her student loans where she filed for discharge within a month of the date the first payment of her loans came due and did so without first requesting a deferment of payment | suggesting that, because the bankruptcy court’s order denying the discharge had been without prejudice, the debtor might reopen the issue of the dischargeability of her student loans pursuant to Rule 4007(a) and (b | requiring debtor to show that he has made good faith efforts to repay the loans | requiring debtor to show that his current situation “is likely to persist for a significant portion of the repayment period” | finding no good faith effort where debtor filed for discharge within one month of the date the first payment came due on her loans | declining to find 22 good faith when debtor filed adversary proceeding seeking discharge 23 within a month of when her loans first became due | finding bad faith in part because debtor filed for discharge one month after first payment date | discussing Report of the Commission on the Bankruptcy Laws of the United States, House Doc. No. 93-137, Pt. 1, 93d Cong., 1st Sess. 140 n. 16 (1973) | discussing Report of the Commission on the Bankruptcy Laws of the United States, House Doc. No. 93-137, Pt. I, 93d Cong., 1st Sess. 140 n. 16 (1973) | noting “clear congressional intent ... to make the discharge of student loans more difficult than that of other nonexcepted debt” | finding no evidence to indicate “a total foreclosure of job pros

PER CURIAM:

Marie Brunner, pro se, appeals from a decision of the United States District Court for the Southern District of New York, Charles S. Haight, Judge, which held that it was error for the bankruptcy court to discharge her student loans based on “undue hardship,” 46 B.R. 752 (Bankr.D.C.N.Y.1985). We affirm.

While this court is obliged to accept the bankruptcy court’s undisturbed findings of fact unless they are clearly erroneous, it is not required to accept its conclusions as to the legal effect of those findings. Montco, Inc. v. Glatzer (In re Emergency Beacon Corp.), 665 F.2d 36, 40 (2d Cir.1981) (citing Queens Blvd. Wine & Liquor Corp. v. Blum, 503 F.2d 202 (2d Cir.1974); R.Bankr.P. 810 (current version, see R.Bankr.P. 8013); Bank of Pa. v. Adlman, 541 F.2d 999, 1005 (2d Cir.1976)). Whether not discharging Brunner’s student loans would impose on her “undue hardship” under 11 U.S.C. § 523(a)(8)(B) requires a conclusion regarding the legal effect of the bankruptcy court’s findings as to her circumstances. Therefore, the bankruptcy court’s conclusion of “undue hardship” properly was reviewed by the district court.

As noted by the district court, there is very little appellate authority on the definition of “undue hardship” in the context of 11 U.S.C. § 523(a)(8)(B). Based on legislative history and the decisions of other district and bankruptcy courts, the district court adopted a standard for “undue hardship” requiring a three-part showing: (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her 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. For the reasons set forth in the district court’s order, we adopt this analysis. The first part of this test has been applied frequently as the minimum necessary to establish “undue hardship.” See, e.g., Bryant v. Pennsylvania Higher Educ. Assistance Agency (In re Bryant), 72 B.R. 913, 915 (Bankr.E.D.Pa.1987); North Dakota State Bd. of Higher Educ. v. Frech (In re Frech), 62 B.R. 235 (Bankr.D.Minn.1986); Marion v. Pennsylvania Higher Educ. Assistance Agency (In re Marion), 61 B.R. 815 (Bankr.W.D.Pa.1986). Requiring such a showing comports with common sense as well.

The further showing required by part two of the test is also reasonable in light of the clear congressional intent exhibited in section 523(a)(8) to make the discharge of student loans more difficult than that of other nonexcepted debt. Predicting future income is, as the district court noted, problematic. Requiring evidence not only of current inability to pay but also of additional, exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time, more reliably guarantees that the hardship presented is “undue.”

Under the test proposed by the district court, Brunner has not established her eligibility for a discharge of her student loans based on “undue hardship.” The record demonstrates no “additional circumstances” indicating a likelihood that her current inability to find any work will extend for a significant portion of the loan repayment period. She is not disabled, nor elderly, and she has — so far as the record discloses — no dependents. No evidence *397 was presented indicating a total foreclosure of job prospects in her area of training. In fact, at the time of the hearing, only ten months had elapsed since Brunner’s graduation from her Master’s program. Finally, as noted by the district court, Brunner filed for the discharge within a month of the date the first payment of her loans came due. Moreover, she did so without first requesting a deferment of payment, a less drastic remedy available to those unable to pay because of prolonged unemployment. Such conduct does not evidence a good faith attempt to repay her student loans.

It is true, however, that considerable time has elapsed since the original filing of Chapter 7 proceedings, and even since the hearing before the bankruptcy judge. We note that Judge Haight’s order was without prejudice to Brunner’s seeking relief pursuant to R.Bankr.P. 4007(a), (b).

Judgment affirmed.