ERIC L. FRANK, Bankruptcy Judge.
In this adversary proceeding, Plaintiff Janice Roundtree-Crawley ("the Debtor"), acting pro se, seeks a discharge of her student loan obligations under 11 U.S.C. § 523(a)(8). Section 523(a)(8) provides that student loans are not dischargeable "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).
It is settled law in this Circuit that a debtor seeking to discharge his or her student loans must prove that:
In re Faish, 72 F.3d 298, 305-06 (3d Cir. 1995) (quoting Brunner v. New York Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir.1987)). Courts in this circuit, as well as in the other circuits that have adopted this legal standard, regularly refer to it as "the Brunner test."
Defendant Educational Credit Management Corporation ("ECMC") opposes the Debtor's request for discharge of her student loans. ECMC's primary contentions are that: (1) the Debtor did not satisfy the second prong of the Brunner test because she did not prove that her current financial difficulties are likely to persist for an extended period of time and (2) the Debtor cannot satisfy the third prong good faith requirement because she failed to avail herself of a federal administrative repayment program that would reduce her monthly payment to $0.00 per month for so long as her current financial condition does not improve.
As several courts have observed, § 523(a)(8) imposes a "heightened standard" for the discharge of student loans, one that imposes a "heavy burden" on the debtor. See, e.g., In re Traversa, 2010 WL 1541443, at *10 n. 19 (Bankr.D.Conn. Apr. 15, 2010) (citation omitted). After applying the "heightened standard" to the facts presented here, I find the case before me to be a close one in certain respects, but I conclude, nonetheless, that the Debtor has met her burden of establishing undue
This adversary proceeding arose in a somewhat unusual fashion.
The Debtor filed a petition under chapter 13 of the Bankruptcy Code on November 18, 2004. (Bky. Doc. # 1). On May 3, 2005, the bankruptcy case was converted to one under chapter 7. She received her chapter 7 discharge on September 29, 2005. (Bky. Doc. # 82).
On June 17, 2009, nearly four years after receiving her discharge, the Debtor filed a motion to reopen the bankruptcy case in order to seek a dischargeability determination with respect to her student loan debt.
Trial of this proceeding took place on May 24, 2010. The parties were offered an opportunity to file a post-trial memorandum of law in support of their respective positions. ECMC submitted its brief on July 16, 2010. The Debtor did not to file a responsive submission.
1. The Debtor attended Delaware State University from the fall of 1980 until 1985, when she graduated with two (2) baccalaureate degrees: one in Theater and another in English Literature. (N.T. at 19, 38).
2. During college, the Debtor took a loan out every semester to pay for tuition, housing and food. (N.T. at 39; Ex. ECMC-10 at 10).
3. The Debtor is obligated on six (6) Promissory Notes for Guaranteed Student Loans ("the Notes") executed between December 2, 1980 and July 26, 1984. (N.T. at 39-40; Ex. ECMC-11, ¶ 4).
4. The aggregate, original principal amount of the Notes was $10,000.00. (ECMC-1).
5. Each of the Notes provided for a grace period in which repayment was not required, so long as the Debtor remained in school on at least a half-time basis. (ECMC-2).
6. Under the Notes, the Debtor's obligation to repay commenced some time in 1986.
8. The aggregate balance due on the Notes (hereafter referred to collectively as "the Student Loan") as of May 19, 2010 was $19,726.35, which consists of principal, interest, and collection costs mandated by federal regulation.
9. Interest on the Student Loan accrues at the fixed rate of 7% per annum. (Exs. ECMC-2; ECMC-11, ¶ 8).
10. ECMC is the current holder of the Student Loan. (Ex. ECMC-11, ¶ 7).
11. Upon graduation from college in 1985, the Debtor went to work full-time as a Field Services Coordinator for the Girls Scouts of Delaware County, earning approximately $19,000.00 per year. (N.T. at 40-41; Ex. ECMC-10 at 13-14).
12. In 1987, she went to work at the Center for Literacy in Philadelphia where she taught adults to read and assisted them in back-to-work programs. At that job, she earned approximately $22,000.00 per year. (N.T. at 41-43; Ex. ECMC-10 at 15).
13. Approximately two (2) years later in 1989, the Debtor left the Center for Literacy in order to get married and move to Delaware. (N.T. at 43; Ex. ECMC-10 at 15).
14. In Delaware, while she was pregnant, the Debtor worked for a public relations firm as a temporary receptionist for approximately two (2) months. (Ex. ECMC-10 at 15).
15. By 1990, the Debtor separated from her husband and returned to the Girl Scouts in Philadelphia to work as a field services coordinator. She remained there until she was laid off in 1995. She earned approximately $25,000.00 per year during this time. (N.T. at 43-44; Ex. ECMC-10 at 15-16).
16. From 1996 to 1998, the Debtor worked part-time as a cashier at Macy's department store earning approximately $10.00 per hour. She also was on welfare. For a six-month period prior to obtaining the job at Macy's she worked for a temporary agency. (N.T. at 108; Ex. ECMC-10 at 17-18, 20).
17. In 1998, the Debtor left Macy's when she became pregnant. She also had a bout of hepatitis at the time. The Debtor was out of work for approximately two (2) years thereafter. (Ex. ECMC-10 at 19).
18. In January, 2000, the Department of Public Welfare ("DPW") hired the Debtor to work as an income maintenance case worker. She worked at DPW until 2009. (N.T. at 19, 26-28; Ex. ECMC-10 at 20-21).
20. In 2000, when the Debtor accepted the job with DPW, she was pregnant and had an active case of hepatitis. (Id. at 20).
21. While working at DPW, she was offered employment accommodations, including flexible hours which allowed her to come in late or work half days. (Id. at 24-25).
22. During at least seven (7) different time periods between January 2002 and December 2007, the Debtor was on unpaid medical leave from her job with DPW, for three (3) to six (6) months each, because of health-related issues. Therefore, in those five (5) years, she was out on medical leave for about half of the time. The least amount of leave time she requested during those years was a period of six (6) weeks. (Id. at 22-24, 82-83; Ex. P-1).
23. After returning to work from a six (6) month leave, at some point in 2007, her long-term problem with depression flared up, as did her hypertension, which caused her to be absent from work again for another six (6) months. (Id. at 25).
24. When she returned to work in September 2008, she requested a part-time schedule so that she could go to the psychiatrist and the hematologist. By that time, the Debtor had exhausted any leave available through the Family and Medical Leave Act.
25. In December 2009, DPW terminated the Debtor's employment. That same day, she applied for unemployment compensation. (N.T. at 26-28; Ex. P-1 at 35-36).
26. The Debtor's gross wages (and total taxable income) in:
27. At the time of trial in 2010, following the termination of her employment at DPW approximately six (6) months earlier, the Debtor was still unemployed. (Ex. ECMC-10 at 24).
28. The Debtor suffers from Hepatitis C, pernicious anemia, hypertension and depression. (Ex. ECMC-10 at 25).
29. The Debtor takes medications and sees a psychiatrist for her depression, which was diagnosed at the age of twelve (12). She also takes medication for her hypertension. (Ex. ECMC-10 at 28-29).
30. The Debtor contracted hepatitis in or around 1992. (Ex. ECMC-10 at 20, 25).
31. Though the Debtor's anemia has been persistent since 1994, it became particularly problematic in 2007. Her anemia causes frequent bruising and extreme fatigue. (N.T. at 73).
32. Since 2007, the Debtor has visited the emergency room approximately fourteen (14) or fifteen (15) times. Of those times, she had to be admitted overnight on three (3) occasions because of pneumonia. The Debtor's longest hospital stay resulting from an emergency visit, was one (1) week. (Id. at 74-75).
34. After graduation from college, but particularly since 1993, the Debtor has been receiving some form of public assistance periodically. (N.T. at 33).
35. For the first two (2) years of her employment, the Debtor did not earn enough money to start repaying her loans. She did not make any payments and the loans became delinquent. Two (2) years after her default, her income tax returns were garnished. (Id. at 57-58).
36. Since 1994, the Debtor has had difficulty paying her regular living expenses because of her illnesses. (Id. at 29).
37. In 2000, despite the fact that she was working at the time, she was evicted from her residence and had no place for her children to stay. As a result, she lost custody of her children for six (6) months. (Id. at 30).
38. She regained custody of her children after her father allowed her to move into his house, which is not subject to a mortgage. Subsequently, her father died and she inherited ownership of the property. As a result, she presently has neither a monthly mortgage or rental obligation. (Id. at 30-31, 78).
39. Since 2000, even while she was working, the Debtor has applied for public benefits for herself and her children, such as LIHEAP (a utility assistance program) and food stamps. (Id. at 31). She has faced the shutoff of her utility services regularly. She also has been receiving food stamps since approximately 2003. (Id. at 31-33; Ex. ECMC-10 at 37).
40. At some point in 2007, she requested some sort of hardship and/or forbearance from ECMC, which was denied. (N.T. at 33-34).
41. The Debtor has not made voluntary payments on her educational loans; rather, payments were made only when her wages or tax returns were garnished. (N.T. at 57).
42. In January 2010, after her termination from DPW, the Debtor's application for unemployment compensation was denied initially. (N.T. at 28). The Debtor successfully appealed the unemployment compensation determination and has been receiving unemployment compensation since March 2010. (Id.).
43. The Debtor also appealed the decision to terminate her employment from DPW to the Department of Labor and Industry because she believes she can perform her job with some accommodation. (Id. at 62).
44. The Debtor unsuccessfully applied for Social Security disability benefits on four (4) separate occasions over the years spanning her intermittent absences from work at DPW: 2005, 2006, 2007 and 2010. (N.T. at 67-68, 85).
45. The Debtor has been unsuccessful in her attempt to seek employment since
46. The Debtor has five (5) children: James, Ngozi, Amir, Zindzi and Said Crawley. She also has one (1) grandchild, Laini, who is Ngozi's child. (Ex. ECMC-10 at 12, 34).
47. At the time of the trial, the Debtor lived with and supported three (3) of her own children (Amir, Zindzi and Said) and her grandchild, Laini, for whom she has physical custody, in the house she inherited from her father.
48. Also at the time of the trial, the Debtor was 47 years old, Amir was 18 years old, Zindzi was 12 years old and Said was 9 years old. (Ex. ECMC-10, at 12).
49. The Debtor's home is located in Philadelphia and free and clear from any encumbrances. (N.T. at 58; 60-62; Ex. ECMC-10 at 29, 33-34).
50. As of the trial date, the Debtor's monthly income consisted of: (a) $623.00/month in Social Security and welfare benefits
51. The Debtor's Student Loan is eligible to be repaid through a consolidation option called the Income Contingent Repayment Plan ("the ICRP") offered under the William D. Ford Federal Direct Loan Program. (Ex. ECMC-11, ¶ 9).
52. The ICRP would allow the Debtor to repay her educational loans with a payment calculated on the basis of her annual adjusted gross income, total loan amount, and family size.
53. Using her adjusted gross income as shown on her bankruptcy petition in Bankruptcy Case No. 10-12900, along with her family size as claimed on her federal tax returns, her monthly payment through the ICRP would be $0.00. (Id., ¶¶ 13, 18)
54. The Debtor did not apply for assistance under the ICRP. (N.T. at 71-72).
The discharge of student loans in a chapter 7 case is governed by 11 U.S.C. § 523(a)(8), which provides:
11 U.S.C. § 523(a)(8) (emphasis added).
A debtor seeking to discharge student loan debt falling within the purview of § 523(a)(8) assumes the burden of establishing that excepting that debt from discharge will cause the debtor and his or her dependents "undue hardship." See Faish, 72 F.3d at 305-306; In re Zierden-Landmesser, 249 B.R. 65, 69 (Bankr.M.D.Pa. 2000).
In deciding adversary proceedings brought under § 523(a)(8), courts have focused on the purposes that motivated Congress to treat the discharge of student loan obligations differently than other debts. One court reasoned:
In re Frushour, 433 F.3d 393, 399 (4th Cir.2005) (citation omitted); see also In re Brunner, 46 B.R. 752, 756 (S.D.N.Y.1985) ("In return for giving aid to individuals who represent poor credit risks, it strips these individuals of the refuge of bankruptcy in all but extreme circumstances"), aff'd 831 F.2d 395 (2d Cir.1987).
Congress intended § 523(a)(8)'s heightened standard for obtaining a student loan discharge to help ensure the financial integrity of the student loan program by protecting it from fiscal doom. Frushour, 433 F.3d at 400. Section 523(a)(8) is also said to help ensure "public support for the [student loan] program by preventing debtors from easily discharging their debts at the expense of the taxpayers who made possible their education." Id.; see also Faish, 72 F.3d at 306 (noting that the "undue hardship" standard "safeguards the financial integrity of the student loan program by not permitting debtors who have obtained the substantial benefits of an education funded by taxpayer dollars to dismiss their obligation simply because repayment of the borrowed funds would require some major personal and financial sacrifices.").
In short, Congress enacted § 523(a)(8) to foster "the twin goals of rescuing the student loan program from fiscal doom and preventing abuse of the bankruptcy process by undeserving debtors." In re Pelkowski, 990 F.2d 737, 743 (3d Cir.1993).
As stated earlier in Part I, in Faish, the Third Circuit adopted the three-part test for evaluating whether "undue hardship" exists set forth by the Second Circuit in Brunner: (1) present inability to repay the loan while maintaining a minimal standard of living; (2) additional circumstances suggesting that the present inability to pay will continue for a significant period of the loan's repayment period; and (3) a past, good faith effort to repay the loan.
The debtor bears the burden of establishing each element of the Brunner test by a preponderance of the evidence. In re Brightful, 267 F.3d 324, 327 (3d Cir.2001). All three elements must be satisfied individually before a discharge can be granted. If any one of the Brunner requirements is not satisfied, the bankruptcy court's inquiry must end there, with a finding of no dischargeability. Faish, 72 F.3d at 306.
The Court of Appeals has instructed that this test provides "the definitive, exclusive authority that bankruptcy courts must utilize to determine whether the `undue hardship' exception applies." Id. "Equitable concerns or other extraneous factors not contemplated by the Brunner framework may not be imported into the court's analysis to support a finding of dischargeability." Id.
In light of the fact that the Debtor reopened her 2004 bankruptcy case several years after the entry of her chapter 7 discharge, a threshold question is whether the Debtor's claim of undue hardship should be measured based on her circumstances as they existed during the administration of the 2004 bankruptcy case or whether the post-closing circumstances also should be considered.
At the commencement of the trial, ECMC's counsel agreed that the court could consider all of the evidence regarding the Debtor's circumstances through the date of trial.
For two reasons, I will consider all of the evidence presented during the hearing, including the Debtor's post-petition circumstances, in evaluating whether the Student Loan is dischargeable.
First, as stated above, ECMC conceded that post-discharge circumstances could be considered at the commencement of the hearing. Consistent with that stance, ECMC took no exception to the admission of the Debtor's evidence regarding her post-closing circumstances. In these circumstances, I consider the issue waived and not revivable by being resurrected in a post-trial brief.
Alternatively, in the event the issue was not waived, I reject ECMC's argument on the merits. Regardless of the wisdom of reopening a closed bankruptcy case to consider the dischargeability of a student loan, see nn. 12, 14, supra, once the case has been reopened, the better practice, consistent with the purposes of § 523(a)(8), is for the court to consider all of the evidence available as of the trial date regarding the debtor's circumstances.
In reaching this conclusion, I am persuaded by In re Walker, 427 B.R. 471 (6th Cir. BAP 2010). In Walker, the court reasoned that because the test for undue
In asserting that the Debtor has not established her entitlement to a discharge of her student loan under the Brunner test, ECMC relies heavily on the Debtor's failure to request participation in the ICRP, despite her eligibility for the program, as a basis for its position that the Debtor should be foreclosed from obtaining an undue hardship determination under § 523(a)(8). Thus, before addressing the three (3) prongs of the Brunner test, it is helpful to describe briefly the legal framework of the ICRP.
Congress enacted the ICRP to "enable financial straitened education loan borrowers to repay loans by easing their burden of so doing." In re Shilling, 333 B.R. 716, 723 (Bankr.W.D.Pa.2005). Under the ICRP, a borrower's annual payments can be decreased after the application of a formula that takes into account poverty guidelines and a borrower's adjusted gross income. See 34 C.F.R. § 685.209. The required annual payment is determined by calculating the lesser of: (1) the amount the borrower would pay annually over twelve (12) years using standard amortization multiplied by an income percentage factor that corresponds to the borrower's adjusted gross income or (2) twenty percent of discretionary income. See 34 C.F.R. § 685.209(a)(2). The ICRP requires a minimum monthly payment of five dollars ($5.00), unless the borrower has no discretionary income under the above formula, in which case the monthly payment due is zero ($0.00). See 34 C.F.R. § 685.209(a)(6). The regulations establish the rate at which the interest accrues on the consolidated loan and if the borrower's payments are not sufficient to cover the accruing interest, some of it will be capitalized. See 34 C.F.R. § 685.209(c).
To qualify for the ICRP, the borrower must submit a formal application which, inter alia, authorizes the Internal Revenue Service to release tax information to the Secretary of Education. See 34 C.F.R. 685.209(c)(7); In re Sperazza, 366 B.R. 397, 409 (Bankr.E.D.Pa.2007), aff'd, 2008 WL 818616 (E.D.Pa.2008). The borrower's monthly payments are then determined based upon income, subject to periodic reviews. 34 C.F.R. 685.209(a). The payment period will not exceed twenty-five (25) years, after which time the canceled balance of the loan is discharged and treated as taxable income. 20 U.S.C. 1087e (d)(1)(D); 34 C.F.R. § 685.209(c)(4).
According to ECMC, the Debtor's failure to participate, despite the fact that her monthly payment under the ICRP would be zero ($0.00), should persuade the court that she has not met her burden in establishing an undue hardship under both the first and third prongs of the Brunner test.
The first prong of the Brunner test requires a debtor to show that at the debtor's current level of income and expenses, the debtor cannot maintain a minimal
In re Miller, 409 B.R. 299, 311 (Bankr. E.D.Pa.2009) (quoting In re Johnson, 400 B.R. 167, 173 (Bankr.M.D.Pa.2009) (internal citations omitted)). "It is well established that maintaining a minimal standard of living does not mean that [a][d]ebtor has to live at a poverty level to repay [a] student loan." In re Alston, 297 B.R. 410, 415 (Bankr.E.D.Pa.2003). "Given the absence of `bright lines,' perhaps the best that can be said is that `a minimal standard of living lies somewhere between poverty and mere difficulty.'" Miller, 409 B.R. at 311 (quoting In re McLaney, 314 B.R. 228, 234 (Bankr.M.D.Ala.2004), aff'd as modified, 375 B.R. 666 (M.D.Ala.2007)).
I adhere to the view, expressed in Miller, that the list of basic needs set forth in In re Ivory, 269 B.R. 890 (Bankr. N.D.Ala.2001) is helpful in assessing the contours of a minimal standard of living. See Miller, 409 B.R. at 311-312. Those elements of a "minimal standard of living" identified in Ivory are:
269 B.R. at 899.
Thus, in evaluating whether the Debtor has satisfied the first prong of the Brunner test, I must first consider the expected cost of providing for the basic needs for the Debtor and her dependents and then evaluate whether the Debtor has any additional funds available to make the necessary payments toward her student loan. In re Jones, 392 B.R. 116, 127 (Bankr.E.D.Pa.2008); see also In re Burton, 339 B.R. 856, 870-71 (Bankr.E.D.Va. 2006) (once the court determines the amount minimally necessary to ensure that the debtor's needs for food, shelter, clothing and medical treatment are met, "the question is whether the debtor has additional funds with which to make payments toward ... [the] student loans").
No extended discussion is necessary to justify a finding that the Debtor lacks sufficient income to provide a minimal standard of living for herself and her family. It is undisputed that the Debtor's monthly income is no more than $1,451.00 per month, plus food stamps, for a household of five (5). Based on my life experience alone, I conclude easily that a household of five (5) cannot maintain a minimal standard of living on this income level, even if no portion of the income is directed toward repayment of a student loan.
To the extent that reference to some objective standard is even necessary, I observe that the Debtor's monthly income of $1,451.00 per month is substantially below the 2010 poverty guidelines published by the U.S. Department of Health and Human Services. At the time of trial, the poverty level for a family of five (5) was $2,149.17 per month. See 75 Fed.Reg. 45628-02 (Aug. 3, 2010); see also In re Mosley, 330 B.R. 832, 841 (Bankr.N.D.Ga. 2005), aff'd 494 F.3d 1320 (11th Cir.2007) (debtor whose income falls below established poverty level presumptively meets first prong); In re Rutherford, 317 B.R. 865, 878-79 (Bankr.N.D.Ala.2004) (official poverty level is below minimal standard of living).
The Debtor's monthly income also is below the $1,633.00 in monthly expenses for food clothing and household and personal care items permitted in the IRS National Standards for Allowable Living Expenses and the IRS Local Housing and Utility Standards.
ECMC acknowledges that the Plaintiff's finances are "very tight" and that, in some circumstances, it might have conceded this prong. (See ECMC's Post-Trial Memo at
Regardless whether the Debtor participates in the ICRP, the fact remains that the Debtor cannot maintain a minimal standard of living if required to repay the loan at any payment level. This reality renders the ICRP irrelevant under the first prong, even when the payment level would be zero ($0.00). To hold otherwise would make eligibility in the ICRP outcome determinative in undue hardship determinations under § 523(a)(8) and would result in the delegation to an administrative agency, the Department of Education, the authority to determine the dischargeability of certain student loans. I agree with those courts and commentators who perceive such a result as depriving the bankruptcy court of its proper role—and the role intended by Congress—in dischargeability determinations. See Educational Credit Management Corp. v. Jesperson, 571 F.3d 775, 787-790 (8th Cir. 2009) (Bye, J., concurring and dissenting); In re Furrow, 2004 WL 2238536, at *3 (Bankr.W.D.Mo. Sept. 28, 2004); In re Limkemann, 314 B.R. 190, 195-96 (Bankr. N.D.Iowa 2004); In re Durrani, 311 B.R. 496, 506-09 (Bankr.N.D.Ill.2004); In re Johnson, 299 B.R. 676, 681-82 (Bankr. M.D.Ga.2003); Terrence L. Michael & Janie M. Phelps, "Judges?!—We Don't Need No Stinking Judges!!!": The Discharge of Student Loans in Bankruptcy Cases and the Income Contingent Repayment Plan, 38 Tex. Tech L.Rev. 73, 103-05 (2005) ("Michael and Phelps").
Under the second prong of the Brunner test, the Debtor must demonstrate that "additional circumstances exist indicating that [the debtor's present state of economic distress] is likely to persist for a significant portion of the repayment period" for [the] student loans,
To satisfy the second prong, the Debtor must present "definitive evidence that the Debtor's earning potential will not improve in the future." In re Fabrizio, 369 B.R. 238, 248 (Bankr.W.D.Pa.2007). The types of circumstances that satisfy the second prong include "long-term physical or mental problems precluding employment, lack of marketable job skills, or the necessity of fully supporting several dependents which precludes sufficient income." Sperazza, 366 B.R. at 411.
"One of the best indicators of what will occur in the future, comes from events that have occurred in the past." Berry, 266 B.R. at 365-66. If past is prologue, there is nothing in the Debtor's history suggesting any trend toward economic stability that will enable her to repay her student loans without undue hardship. Nevertheless, under § 523(a)(8), the court's ultimate focus must be on the Debtor's future prospects; the essence of the inquiry under the second prong is forward-looking.
As explained below, the debtor's employment history combined with the evidence presented regarding her chronic medical problems convince me that the Debtor's current inability to repay her student loan will continue for a substantial period into the future and therefore, the Debtor has met her burden of proof on the second prong of the Brunner test.
In asserting that her present financial difficulties are not likely to improve, the Debtor points to the loss of her DPW employment, followed by the period of unemployment, and her various physical and emotional ailments. In response, ECMC urges this court to reject what it characterizes as the Debtor's "self-serving" testimony regarding her health conditions as insufficient to satisfy this requirement. (See ECMC's Post-Trial Mem. at 10). In effect, ECMC posits that the Debtor's testimony, without corroborative expert medical evidence, cannot provide the factual foundation to carry her burden of proof under the second Brunner prong.
The issue raised by ECMC—whether a debtor's testimony, standing alone without corroboration by medical or other expert testimony, is sufficient to establish that existing health problems will impair the debtor's future earning prospects—arises regularly in § 523(a)(8) litigation.
In Brightful, the Court of Appeals expressly rejected a rigid, per se rule that would require expert testimony in virtually all § 523(a)(8) dischargeability proceedings in this Circuit.
At the same time, however, a debtor who presents only his or her testimony runs a substantial risk that the evidence will fall short of meeting the evidentiary burden. Absent expert testimony, there may be an evidentiary deficit with respect to either the existence and nature of the asserted medical condition itself
Ultimately, the court's determination regarding the sufficiency of the debtor's evidence under the second Brunner prong is not susceptible to any simple,
In this proceeding, the Debtor testified that she suffers from certain medical conditions: hepatitis C, pernicious anemia, hypertension and depression.
With respect to her depression, she supported her testimony with written certifications from a physician, introduced into evidence with ECMC's consent. In a written certification submitted to DPW in 2005, the physician described the Debtor's depression as "severe" and a "lifetime" condition which would cause "episodic flareups periodically preventing [the Debtor] from performing his/her job functions." (Ex. P-1, at 7, 8). In two later certifications to DPW in 2009 (one in January, the other in July), the physician made much the same assessment as to the likelihood of episodic incapacity, stating that the Debtor "needs to be off work when severely depressed." (Id. at 14). A 2008 written certification to DPW from a different physician confirms the existence of the Debtor's anemia, which was described as "severe" and which, in conjunction with a fibroid condition, would require surgery that would render the Debtor unable to work. (Id. at 2). However, in the 2008 certification, the physician also opined that it would not be necessary for the Debtor to be absent from work intermittently or to work on a reduced-time schedule as a result of the condition following a six (6) week recovery period. (Id.).
Based on this record, I am satisfied that the Debtor suffers from significant health and psychological issues and it does not appear that ECMC disputes this. Thus, the determinative issue is whether the Debtor's health problems impair her ability to work and generate income to a sufficient degree to support a finding in her favor under the second Brunner prong.
While this second issue is a close call in the absence of corroborative expert testimony regarding the Debtor's prognosis, I find that the Debtor has met her burden of proof. I found credible the Debtor's testimony that she genuinely wants to work but can do so only on either a part-time or periodic basis.
This is not a case in which the Debtor is relying solely on her own uncorroborated testimony in asking the court to make findings about her health problems and their impact on her future earning capacity. The Debtor's perception of her limitations finds support in the record in two places.
First, the Debtor's pessimism is rationally based on her past experience at DPW, which was marked by intermittent absences from work, with the accompanying loss of income. I have no reason to believe that the time the Debtor lost from work at DPW during almost a decade of employment was the result of the Debtor's conscious, voluntary choice. Her medical problems were verified by physicians and it is counterintuitive to believe that the Debtor would purposely put herself and her children through the hardships they faced due to the reduction in her income. Thus, although the Debtor has a college degree and has skills that may permit her to obtain employment at a salary level sufficient to permit some repayment of the
Further, there is at least some independent medical evidence indicating that the Debtor's two primary health problems (anemia and depression) that plagued her while she worked at DPW are chronic conditions. This further suggests that these health problems will continue to interfere with the Debtor's work life.
While the discharge of student loans obviously is disfavored under the Bankruptcy Code (for the reasons explained in Part IV.A.1., supra,) and the burden of proof is on the Debtor, the evidentiary burden nonetheless, is a preponderance of the evidence. Consideration of all of the evidence convinces me that it is more likely than not that even if the Debtor could obtain the type of job that she envisions, her future employment will not generate sufficient income to allow for repayment of the Student Loan without imposing undue hardship on the Debtor and her dependent children.
In reaching this conclusion, I am also influenced (to a lesser degree) by the Debtor's age (47) and the fact that she three (3) children, the youngest of which is 9 years old. Thus, she is looking at least nine (9) more years of child rearing and perhaps more, if she is obliged to maintain primary responsibility for raising her grandchild, who is currently only three (3) years old. Certainly, as each grown child leaves the house, the Debtor should experience some degree of financial relief. However, this will occur gradually and not for a number of years. Before the Debtor can expect to have a significantly reduced financial obligation for all of her dependents, she will be well into her late 50's and the Student Loan already will have been in pay status for almost thirty-five (35) years.
ECMC contends that I should not credit the Debtor's testimony regarding her asserted bleak future financial prospects on the ground that her testimony was inherently contradictory. ECMC points out that the Debtor not only applied for and was denied Social Security Disability benefits, but also has been receiving unemployment compensation, a public benefit for which the ability to work is a prerequisite. (Id. at 11). She also is appealing the decision to terminate her employment due to her absences because she believes she is able to do some work with an accommodation.
I do not perceive the Debtor's conduct to undermine the credibility of her trial testimony. At trial, she explained the circumstances that caused her to apply for the two (2) different types of public benefits. Without reviewing in detail the entire history of the Debtor's multiple applications for Social Security disability (in 2005, 2006, 2007 and 2010) and her unemployment compensation benefits application in 2009, suffice it to say that I credit her explanation that she applied for both types of public benefits because she believes that she is able to work in some capacity with an accommodation for her various physical conditions, but that she might also be disabled enough to qualify for some kind of consistent income assistance. (See N.T. at 28-29, 88). The Debtor's perception of the eligibility requirements for unemployment compensation and Social Security disability benefits may or may not be correct, but that does not cause me to question the veracity of her testimony regarding her health problems.
The third and final prong in the Brunner analysis requires the Debtor
ECMC's presents two arguments in support of its contention that the Debtor has not proven her good faith under the third prong: (1) her failure to participate in the ICRP and (2) her failure to make any voluntary payment on the Student Loan.
ECMC's first, and principal argument is grounded in the Debtor's failure to participate in the ICRP. (See ECMC's Post-Trial Mem. at 13-14). Under the ICRP, the Debtor would have a monthly payment of zero (0.00) based on her level of household income. (Id. at 13). If the Debtor participated in the ICRP, she would be treated as being current on her student loan, she would be eligible for deferments and forbearance and she would avoid further garnishment of her wages and tax returns. (Ex. ECMC-11, ¶ 16). ECMC suggests that her decision to not take advantage of this benefit evidences a lack of good faith.
There is a division in the case law regarding the applicability of the ICRP under the Brunner analysis. See Michael & Phelps, 38 Tex. Tech. L.Rev. at 92-102 (collecting cases). While all courts consider the Debtor's willingness to participate in the ICRP as a factor to be considered under the good faith prong of the Brunner test,
ECMC urges a relatively hard-line approach: that a debtor's decision whether to participate in the ICRP should be a significant factor to consider when evaluating good faith. (See ECMC's Post-Trial Mem. at 14).
I decline to analyze the issue by adopting a single rule that quantifies the degree of "significance" of the ICRP under the good faith analysis required by the Brunner third prong. The role the ICRP plays in assessing a debtor's good faith is necessarily dependent on the circumstances of the particular debtor seeking discharge of his or her student loans. Because those circumstances vary tremendously, I do not find it helpful in evaluating a debtor's good faith to attach a universal label to the role of the ICRP, such as "significant" or "insignificant" or something in-between. The weight of the ICRP evidence could be any of the above depending on the debtor's circumstances. To reach a fair and just result, the court's consideration of the significance, if any, of the debtor's failure to participate in the ICRP must be tailored based on the individualized circumstances of the debtor who is before the court.
Based on the facts in this case, I conclude that the Debtor's decision not to participate in the ICRP is not indicative of a lack of good faith warranting denial of her request for discharge of the Student Loan based on undue hardship. Like many other courts, I do not find it determinative that the Debtor could have no payment under the ICRP. See, e.g., Durrani, 311 B.R. at 506; In re Rutherford, 317 B.R. 865, 880-81 (Bankr.N.D.Ala.2004). The Debtor's decision must be evaluated in a larger context.
The Debtor made her request for the discharge of the Student Loan almost twenty-five (25) years into the loan term. Prior to seeking discharge of the debt, she had made payments on the loan (albeit "involuntarily," which raises another issue, to be discussed below) during at least some of the years in which she was employed. She sought bankruptcy relief several times and only requested the discharge of the Student Loan in 2009. By that time, the Debtor had been struggling to make ends meet for herself and her children for more than ten (10) years, perhaps living below the poverty level at times during that period. She attributed her financial difficulties to her medical problems which limited her ability to work full-time at DPW.
In these circumstances, the decision to seek a discharge of the Student Loan appears motivated more by the Debtor's sincere belief that her situation was dire and would not improve and an implicit sense that participation in the ICRP would be
For these reasons, I conclude the Debtor's lack of participation in the ICRP should not result in a finding that she has not acted in good faith as required by the third prong of the Brunner test.
ECMC also argues that the Debtor failed to make a good faith effort to repay the Student Loan within the meaning of the third Brunner prong, because she made no voluntary payments on the Student Loan, even when she was gainfully employed. (ECMC's Post-Trial Mem. at 14). While this argument may have some superficial appeal, based on the circumstances in this case, I cannot agree that the absence of voluntary payments should bar the discharge of the Student Loan.
This is not a case in which the Debtor simply ignored her repayment obligation and attempted to avoid all contact with her lender.
Nor is this a case in which the Debtor made no payments at all.
While the Debtor's method of making payments was not truly "voluntary," it appears that the she acquiesced to the seizure of her money and offered no resistance until some time in the mid-2000's when she was concerned that the garnishment of her earnings left her with insufficient funds to provide life's necessities for herself and her children.
For these reasons, I do not construe the Debtor's conduct, in failing to make voluntary repayments indicative of a lack of good faith warranting denial of her request for a discharge of the Student Loan. Accord Douglas, 366 B.R. at 260.
What is initially most striking in this proceeding is the age of the loans the Debtor seeks to discharge. These loans have been in pay status for about a quarter of a century. The record is not fulsome for the entire twenty-five (25) year repayment period, but the evidence does demonstrate that during much of the repayment period, the Debtor's life has been marked by illness, erratic employment, reliance upon public assistance and food stamps and frequent worries about food, clothing, shelter and maintenance of utility service for herself and her two (and later three) minor children. Even when the Debtor found a position that paid an adequate salary in 2000 (fifteen (15) years into the repayment period), health problems prevented her from maximizing her income earning potential and eventually caused her to be terminated by her employer, DPW. Presently, she is living at or below the poverty level and the record also supports the conclusion that her inability to repay this loan is not likely to abate in the foreseeable future. Finally, the Debtor has not ignored her student loan obligation and, in fact, has made some meaningful payments on the loan, which leads me to conclude that she has acted in good faith.
Having met her burden under all three prongs of the Brunner test, the Debtor has established that repaying her student loans would impose an undue hardship. I therefore find that the Debtor's student loans currently held by ECMC should be discharged pursuant to 11 U.S.C. § 523(a)(8).
After this adversary proceeding commenced, the Debtor filed three other unsuccessful chapter 13 cases. The first, Bky. No. 10-12098, was dismissed due to the Debtor's failure to comply with the Code's pre-petition credit counseling requirements, see 11 U.S.C. § 109(h). The second, Bky. No. 10-12900, was dismissed for cause after the Debtor converted the case to chapter 7 because the Debtor was ineligible to receive a chapter 7 discharge, see 11 U.S.C. § 727(a)(8), and there seemed to be no further purpose to the bankruptcy proceeding. The third case, Bky. No. 11-10875, filed as a chapter 13 case on February 7, 2011, is pending.
(N.T. at 47).
(N.T. at 3-4) (emphasis added).
A careful reading of Lien suggests that the court was expanding the temporal scope of the undue hardship inquiry, not restricting it. The court stated that it could consider the debtor's circumstance existing from the entry of discharge to slightly more than a year after the entry of discharge, because that happened to be a time period between the entry of the discharge and when the adversary trial was held and made the statement referenced by ECMC in response to the creditor's argument that post-petition circumstances should not be considered. Indeed, the court stated that "[t]he law seems to be almost universal that the court is
The IRS uses these expense standards to evaluate the financial condition of delinquent taxpayers to determine, for example, whether to initiate enforcement action, accept a taxpayer's offer in compromise or enter into an instalment repayment plan with the taxpayer. It publishes these standards in its Financial Analysis Handbook, which is part of its Internal Revenue Manual ("the IRM"). See 4 I.R.M. Abr. & Ann. § 5.15.1.1 (West 2009). These expenses standards are also employed in evaluating whether a chapter 7 bankruptcy case is presumptively an "abuse" of chapter 7 and a debtor's ability to pay unsecured creditors in a chapter 13 case. See 11 U.S.C. §§ 707(b)(2)(A)(ii)(I), 1325(b)(3).
As I stated in Miller, the § 523(a)(8) undue hardship test should not be measured solely by reference to IRS expense standards. 409 B.R. at 320 (scrutiny of debtor's expenses is "more rigid" under § 523(a)(8) than under §§ 707(b) and 1325(b)). However, the IRS expense standards can be "helpful" in providing "a frame of reference." Id.
In re Nys, 308 B.R. 436, 446-47 (9th Cir. BAP 2004) (citations omitted).
The Debtor's inability to pay has already persisted for a substantial portion of the loan repayment period. Indeed, subject to any extensions of the loan term through deferments and forbearance granted at the discretion of the lender (and the record does not reflect that any deferments or forbearances were granted by the lender), the Student Loan matured about nine (9) years prior to the trial of this matter. If it were not for the existence of the ICRP, my analysis of the second Brunner prong would end here because the Debtor established an inability to repay the loan over a substantial period of the contractual term of her student loans. However, because the ICRP permits a borrower to modify the term of the student loan, most courts, without discussion, that the second Brunner prong requirement (that the hardship persist for a substantial portion of the loan repayment period) refers to the ICRP repayment period. This assumption has been questioned and criticized. See In re Coatney, 345 B.R. 905, 910 (Bankr.C.D.Ill.2006); see also Michael & Phelps, 38 Tex. Tech. L.Rev. at 104.
Because I have determined the Debtor's student loans satisfy the second Brunner prong, even considering the more expansive time frame that includes the ICRP "extension" of the contractual loan term, it is unnecessary for me to decide the issue. In the balance of the Opinion, I assume, without deciding, that the second Brunner prong requires consideration of the loan term as extended by the ICRP.
267 F.3d at 329-30.
While the testimony at issue in Brightful involved the debtor's psychiatric problems, it is fair to assume that the court's holding applies to other health and medical conditions that are commonly the subject of expert testimony in civil litigation.
One bankruptcy court in the Ninth Circuit has suggested that the First Circuit's decision in In re Nash, 446 F.3d 188 (1st Cir.2006) is to the contrary. See In re Ristow, 2011 WL 2604841, at *4 n. 5 (Bankr.D.Ariz. June 30, 2011). However, a bankruptcy court in the First Circuit has not read Nash so broadly. See In re Tucker, 2009 WL 2877906, at *9 (Bankr.D.N.H. Sept. 3, 2009) ("Nash never created a rule requiring debtors with mental conditions seeking to discharge student loans to offer corroborating medical evidence to prove future inability to work. The court only found that the bankruptcy court did not err in finding the debtor had not met her burden of proof."). The Tucker court also makes the incisive point that the shorter the time period between the onset of the condition's symptoms or the debtor's diagnosis and the debtor's decision to file bankruptcy and discharge the student loans or stop working, the greater need for some independent, corroborating medical evidence on the debtor's future prospects.
Interestingly, the decision in Cekic-Torres was the exception that proves the rule as the court ultimately concluded:
Id. (citation omitted).
(See id. at 33). I credit this testimony regarding the Debtor's subjective intent.
