Chapter 7

MEMORANDUM OPINION AND JUDGMENT GRANTING DISCHARGE OF STUDENT LOAN DEBT

K. Rodney May, United States Bankruptcy Judge.

Introduction

The United States Department of Education ("DOE") claims that the debtor owes $131,685.36 for 22 government insured student loans, all of which originated between 1983 and 1993.1 The debtor seeks to have these loans discharged, claiming that excepting the debt from discharge would impose an undue hardship on him pursuant to § 523(a)(8) of the Bankruptcy Code.2

In the Eleventh Circuit, debtors who wish to discharge their student loans must meet what is referred to as the "Brunner test."3 Therefore, the debtor must prove that: (1) he cannot maintain a minimal standard of living if forced to repay the loan; (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the loan repayment period; and (3) he has made a good faith effort to repay the loan. For the following reasons, the Court finds that the debtor has met his burden of proof on these issues and that his student loans should be discharged.

Background Facts

Terence K. Wolfe (the "debtor") filed this Chapter 7 case on June 3, 2011, at age 47. Some 23 years earlier, in 1988, he earned a bachelor's degree in English, magna cum laude, from Northeastern University. Thereafter, he enrolled in graduate school at the University of Virginia, where he first studied Philosophy, then, Government and Foreign Affairs. The debtor did not earn a graduate degree. In 1991, he enrolled in the night program at George Mason University Law School. The debtor was a Dean's Scholar, the winner of a moot court competition, and named "best oral advocate." He was also the editor of the independent Civil Rights Law Journal. But, in 1995, just six weeks before graduation, the debtor was expelled as a result of an honor code violation.4 The debtor made inquiries to other law schools, but did not seek admission. Thus, the debtor never graduated from law school and maintains that he has never recovered, either personally or professionally, from the expulsion.

Between 1983 and 1993, the debtor obtained student loans to finance his education. He testified that he made some payments on his undergraduate loans prior to 1991, but the amounts and dates of these payments were not specified. The debtor concedes that he has made no payments on any student loans since the repayment period began in 1996. In 2004, the debtor wrote to the Department of Education seeking an administrative review of his obligations; but, the debtor maintains that he received no response.5 The debtor has not applied to participate in any available income-contingent debt repayment program.

Even though the debtor is intelligent, well-educated and has distinct literary and professional skills, he has held full-time employment for only 35 months during the past 21 years. In 1992, he got a temporary job at the Copyright Royalty Tribunal, but lost that job in 1993. He was unemployed throughout 1994. During the loan repayment period, from 1996 through 2005, the debtor had no full-time employment.6 From 1998 to 2004, while living in West Virginia, the debtor worked part-time as a law clerk for a Martinsburg, West Virginia, law firm.7 The debtor supplemented his part-time income by working as a theater stagehand; these supplemental earnings ceased after he was injured in an accident.

In 2004, the debtor moved to Florida. Some 14 months later, he obtained his first full-time job, as a paralegal in a Jacksonville law firm at an annual salary of $40,000; but, he was fired in September 2006 after only six months.

Between June and October of 2006, the debtor sought treatment for depression, anxiety, and other issues. He attended seven sessions with a Jacksonville psychotherapist, Michael Pruitt, M.D., paid for by Florida Vocational Rehabilitation. The debtor lacked money to proceed any further after that subsidy ended. He testified that for a time he tried certain medications prescribed by Dr. Pruitt, but they ultimately were either too costly or ineffective.

At trial, the Court viewed the video deposition of Dr. Pruitt, who testified from his recollection and notes of his seven sessions in 2006.8 According to Dr. Pruitt, some of these issues are life-long, not likely to remit without active treatment, and are likely to interfere with work performance and relationships. In his view, these disorders are likely to make it difficult for the debtor to perform in a position where there is potential stress, or where there is any personal interaction required. Although Dr. Pruitt had not treated the debtor in nearly seven years (and could not say for certain that the debtor was currently suffering from the same issues), he found it plausible that, without treatment, the debtor will continue having the same difficulties finding and maintaining work.9

In August 2007 the debtor moved to Tampa, when he obtained a job as a paralegal at a salary of $50,000 per year, with the Solomon Tropp law firm. But, he was forced to resign, in the midst of conflict, less than seven months later.10

At trial, his supervisor at the firm, attorney Sabrina Solomon, described his problems through a series of internal office e-mails:

Mrs. Solomon testified that she believed the debtor was bright and capable, but he "rubbed a number of people the wrong way," got "very nervous when [the managing partner] sends out a `do it now' email," and that at times [the debtor] "gets really shaken up and anxious."13

The debtor promptly obtained another job, as a paralegal at Guarnieri, Martinez & Odom P.A., at a salary of $50,000 per year. Again, the debtor became embroiled in conflict. He filed an Equal Employment Opportunity ("EEO") complaint against the firm. At trial, the firm's managing partner, R. Eugene Odom, testified that the debtor "often communicated with others in an aggressive and unprofessional manner" and "lacked the temperament and responsibility required by his position."14 The debtor was fired from the Guarnieri firm in August, 2008. He has not worked full-time since.

In 2007, and again in 2009, the debtor sent his resume by email to thousands of members of the Florida Bar and government agencies in an effort to find employment. He received only a few interviews and no job offers. In 2011, the debtor sought employment as a jury clerk in the Tampa Division of the United States District Court. When he did not get an interview, he filed an EEO complaint against the Clerk of the District Court. Ultimately, the claim was dismissed.

When this adversary proceeding began, the debtor was receiving unemployment benefits of $1,182.50 per month; these ended in December 2011. Shortly before the trial, the United States Social Security Administration determined that the debtor is disabled. As a result, the debtor now receives disability payments of $1,126.00 per month, his sole source of income.

Mr. Wolfe testified that his monthly expenses as listed in his bankruptcy schedules, total about $1,061.42, including $0 for housing because he has been paying no rent to his landlord who is being foreclosed by the mortgagee. The debtor drives a 21 year old truck that he owns free and clear. The Chapter 7 trustee filed a Report of No Distribution, indicating that the debtor did not own any non-exempt assets that would be available for distribution to creditors.15

Analysis

I. The Amount Owed.

At trial, Rubio Canlas, a "loan analyst" and "records custodian" for DOE, testified about copies of documents regarding 22 student loans totaling $131,685.36. DOE's Exhibits 1B, 1D, and 1E are copies of (a) loan applications bearing Mr. Wolfe's signature and his promise to repay the stated amounts; and (b) payment histories for each of these loans. The defendant's Exhibit 1C, however, includes copies of "Indemnification Agreements" from American Student Assistance ("Guaranty Agency") when it purportedly assigned loans to DOE. There is nothing to establish that the debtor is the obligor on the $38,924.38 of student loan debt referenced in Def. Exh. 1C. Mr. Canlas conceded that he had no personal knowledge of any of the loans or statements and claims referenced in the Indemnification Agreements. Mr. Canlas could not testify from personal knowledge whether Mr. Wolfe owed any of the alleged debt evidenced by Exhibit 1C. Accordingly, the defendant has established only that the debtor owes $92,760.98.

II. The "Undue Hardship" Standard.

Educational loans guaranteed by the government are presumptively excepted from discharge unless a debtor can show, by a preponderance of evidence, that excepting the debt from discharge "will impose an undue hardship on the debtor and the debtor's dependents."16 The Bankruptcy Code does not define "undue hardship" or list any of the metrics by which such a finding is to be made.

Since 2003, bankruptcy courts in the Eleventh Circuit are required to apply the Brunner test, first developed in 1987 by the Second Circuit:

A determination of "undue hardship" is a case-specific, fact-dominated standard.18 If any one of the requirements of the Brunner test are not met, the student loan is not dischargeable.19 Some courts have boiled this test down to a "certainty of hopelessness."20

The debtor filed a motion requesting that this Court refrain from applying the Brunner test, arguing that it is inconsistent with the language of § 523(a)(8) and amounts to "judicial overkill" of the statutory requirement of "undue hardship."21 The debtor requests that the so-called "totality of the circumstances" test, applicable in the Eighth Circuit, be applied in this proceeding.

There is merit to the argument that the rigors of the Brunner test are no longer appropriate to curb borrower abuse from a premature discharge amidst only temporary financial distress. When Brunner was decided in 1985, the version of § 528(a)(8) then in effect presumptively excepted from discharge government-backed student loans for five years after they first become due, unless the debtor could prove that such obligation would impose an undue hardship. Otherwise, such loans were automatically dischargeable after five years of the repayment period had lapsed. In Brunner, the debtor sought to discharge student loans less than a month after the first payment came due and only seven months after the debtor received her master's degree.22

In 1990, § 523(a)(8) was amended to lengthen to seven years the period before a student loan could be automatically discharged.23 In 1998, the provision was amended, again, to eliminate any automatmethod discharge, leaving a showing of "undue hardship" as the only means by which a student loan could ever be discharged.24 In 2005, § 523(a)(8) was amended yet again to add student loans from private lenders as being presumptively excepted from discharge.25

Over time, courts have grafted sub-elements to each of the three parts of the Brunner test. Proof of these sub-elements may force debtors into inconsistent positions or difficult burdens of proof. How does a debtor, for example, prove that financial circumstances will not improve in the future, a "future" which was five years long when the Brunner test was first adopted, but which may now be 25 years or longer? How do debtors prove that in the midst of a "certainty of hopelessness," they "attempted to maximize their income?"

Lately, there have been calls for rethinking the Brunner test. In a 2013 Ninth Circuit Bankruptcy Appellate Panel decision, Bankruptcy Judge Pappas stated in his concurring opinion that the Brunner test "is too narrow, no longer reflects reality, and should be revised by the Ninth Circuit when it has the opportunity to do so."26 Judge Pappas observed that the Brunner test now requires bankruptcy courts to "predict a debtor's potential to repay a six-digit educational obligation over his or her entire lifetime."27 He went on to state that courts should "focus on the contemporary world of student loan debt, not circumstances that existed thirty or more years ago."28

Likewise, in a 2013 decision the Seventh Circuit upheld a bankruptcy court's decision to discharge the student loans of a destitute 53 year old woman on a finding that her job search efforts were an utter futility. The court (per Judge Easterbrook) cautioned:

Notwithstanding the developing case law in this area, this Court is not free to abandon the Brunner test in favor of a legal standard that is not applicable in the Eleventh Circuit. In any event, doing so is not necessary because the debtor's proof meets the requirements of the Brunner test, as set forth below.

1. Can the debtor maintain, based on current income and expenses, a "minimal" standard of living for himself if forced to make payments on the loan debt alleged by the defendant?

Generally, there is no simple formula by which to assess a debtor's ability to maintain a "minimal" standard of living. This usually requires a detailed and complicated assessment of the debtor's income, expenses and lifestyle.30 And, courts while stopping short of requiring that the debtor live at the poverty level, generally require that the debtor show something more than temporary financial adversity.31

In this case, there is no dispute as to the debtor's minimal standard of living. For two decades, the debtor has had only 35 months of full-time employment. He does not own a home. He drives a 21-year old truck and has no other assets of value. The debtor's living expenses are modest, being only about $1,000 per month. He is not married and has no financial support from anyone. Furthermore, he does not seem to possess or enjoy any extravagances whatsoever.

The issue is whether excepting the student loans from the discharge will prevent the debtor from maintaining a minimal standard of living. For 21 years, the debtor's earned income has been sporadic, with multiple interruptions lasting for long periods of time. At times, the debtor's income, summarized below,32 has been no better than at the subsistence level (the years of the initial loan repayment period are shown in bold):

              Annual Income

1991          $ 26,294.82

1992                 0.00

1993            21,478.54

1994             2,103.13

1995            15,718.52

1996            18,807.69

1997            21,141.52

1998                 0.00

1999                18.00

2000             1,183.00

2001            20,259.00

2002             5,565.37

2003            22,620.47

2004            24,530.15

2005                 0.00

2006            25,936.71

2007            16,377.81

2008            35,529.19

2009             2,523.10
             ____________
              $260,082.02

During the entire ten-year loan repayment period — 1996 to 2005 — the debtor's average annual income was $11,412.00, or about $951.00 per month.33 Since 2010, the debtor has lived on unemployment benefits of $1,183.00 per month and, since mid-2012, SSI disability payments of about $1,126.00 each month. The debtor's monthly expenses will most likely increase when he loses his current rent-free lodging after his landlord is evicted by the foreclosing mortgagor. Whenever the debtor is required to pay for his lodging, the small difference between his current expenses and monthly income will be extinguished.

DOE argues that the debtor would likely not be required to make any payments under its contingent-income repayment program, particularly if the debtor's income falls below the poverty level — currently $11,490.00 per year for a single person.34 In effect, the DOE argues that a required payment of $0 cannot, by definition, push a debtor below a minimal standard of living.

But, in this case, where the debtor is living just above the poverty level and has no excess income, a contingent-income program would likely do him more harm than good. Courts have reasoned that enrollment in a program offering the contingent obligation to pay even $0 need not be considered decisive of the first part of the Brunner test if a debtor's minimal expenses exceed income.35 In this case, the debtor has no excess income and is likely unable to make any future payments on his student loans. Further, during the contingent repayment period, which could last as long as 25 years, interest will continue to accrue on the debt. After the expiration of the repayment period, the loan will likely be forgiven, at which time debtor will incur a tax liability due to the taxable income arising from the debt forgiveness.36 If the debtor is unable to pay the forgiveness-of-income tax liability (a non-dischargeable debt). The debtor may be exposed to setoffs by the government against future Social Security payments to collect the taxes. Therefore, I conclude that the debtor has met his burden of showing that he cannot maintain a minimal standard of living if forced to repay his student loan debt.

2. Do "additional circumstances" exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period?"

It is generally stated that a debtor must show that the inability to pay student loan debt in the future arises from reasons beyond his control.37 Courts must consider any "additional circumstances," such as education, work history, health and other relevant circumstances, and how they will influence the debtor's ability to repay the student loans.38

The debtor's hardship must be more than the normal hardship that accompanies bankruptcy.39 Although the extended inability to pay may be premised on some form of illness or disability, it is sufficient for the debtor to establish that there are additional circumstances, which are linked to the inability to pay for a significant portion of the repayment period.40

In this case, the evidence shows a pattern, of more than two decades' duration, of the debtor's inability to obtain or hold a decent job for any significant time. The debtor testified credibly about his dysfunctional upbringing, his persistent low energy level, and his recurring feelings of sadness. He also testified that the medications prescribed by Dr. Pruitt were either too expensive or ineffective. The debtor testified credibly about his history of conflicts with employers and his difficulty relating to people. The debtor's testimony is replete with examples of interpersonal conflict. And, the debtor's testimony on these matters is substantially corroborated by the testimony of his recent employers, Ms. Solomon and Mr. Odom.

Dr. Pruitt testified that, in 2006, he believed the debtor suffered from depression and other personality disorders. Dr. Pruitt also found plausible the nexus between these disorders and the debtor's unusual work history. He opined further that the debtor would be unable to retain employment on a long-term basis and these disorders are likely to persist for a significant time into the future, and most likely for the rest of his life.41 Dr. Pruitt was a credible witness.

In 2012, shortly before the trial, the Social Security Administration determined that the debtor is disabled, entitling him to monthly SSI payments. The Social Security Administration's determination is quite likely a result of Dr. Pruitt's assessment of the debtor's personality and anxiety disorders.42

The DOE has challenged these claims, arguing that the debtor cannot be unemployable because he has held jobs in several occupations over the last 15 to 20 years. The DOE also cites examples of the debtor's ability to function at a high level and of inconsistencies between the debtor's claim to have disabling depression and his failure to claim that disability in his earlier job searches. The DOE, in effect, challenges the debtor's claim that he suffers disabling depression.

But, in 2007, the Eleventh Circuit declined to adopt a rule requiring independent medical evidence to corroborate a debtor's testimony.43 In Mosley, the debtor was the sole witness regarding his medical problems, work history and living situation. The Eleventh Circuit affirmed the discharge of the student loans where the finding of undue hardship was based primarily on the debtor's detailed testimony.

Even though the present record may not support a finding of the debtor's precise medical or mental conditions, the record supports a finding that his failures in the workplace are the result of involuntary "additional circumstances." This Court has carefully observed the demeanor of the debtor and has carefully considered his testimony and the corroborating testimony of the other witnesses. The Court has considered the debtor's age, education, and work history as they bear on his claim that he is unable to earn a stable income or improve his financial situation in the future.

As the DOE concedes in its brief, the debtor has not been able to hold down any job for more than a period of months.44 There is a long pattern of abnormal employment that could not have been contrived just for this litigation. Even though the debtor has been employed in jobs paying up to $50,000 per year, he soon thereafter became disengaged or aggrieved; then he subsequently quit or was fired, with the result that he never earned a full year's salary. At least three times, the debtor has sued a former or prospective employer over such perceived grievances. A similar pattern occurred in the debtor's academic pursuits at the University of Virginia and George Mason University Law School. It is entirely credible, and the Court so finds, that (a) the debtor's mental and personality disorders are real, involuntary and long-term and (b) he is unable to function in a work environment for any sustained period. The Court also finds it highly unlikely that this pattern of dysfunction will change in the future to enable the debtor to earn enough income to make any meaningful payment on his student loans.

By the debtor's testimony, the record of his sporadic work history over 21 years, Dr. Pruitt's testimony of a plausible nexus between personality disorders and the abnormal work history, and the corroborating testimony of recent employers, the debtor has established by a preponderance of the evidence that the state of his financial affairs derives from additional circumstances that likely existed throughout the initial ten-year repayment period and will likely persist for the rest of his life. Because the debtor has a long, sustained history of not being able to hold a mid-level job for more than short, sporadic periods, which pattern plausibly derives from mental health or personality problems, it is unlikely he will ever be able to repay his student loans.

3. Has the debtor made a good faith effort to repay the loans?

Under the Brunner test, "good faith" is to be measured by a debtor's efforts to obtain employment, maximize income, minimize expenses, and repay the loans.45 The issue, ultimately, is whether the defaults result, not from voluntary choices, but from factors beyond the debtor's reasonable control."46 The DOE argues that the debtor cannot satisfy the good faith requirement because he has not made a payment since at least 1995, despite being employed on several occasions at as much as $50,000 a year, and because he never enrolled in a contingent-income payment plan.47

During most of the last 21 years, however, the debtor has been unemployed or underemployed. After his expulsion from law school, from 1996 through 2005, the debtor's work and income were unstable. His annual income fluctuated from $24,530.00 to $0 and averaged only $11,412.52 per year, or $951.00 per month, over the decade in which the student loans were due to be repaid. During that period, he did obtain jobs that paid $18,807.00 (1996), $21,141.00 (1997), $20,259.00 (2001), $22,620.00 (2003) and $24,530.00 (2004); but, in the other five years, (1998 to 2000, 2002 and 2005), his earned income was next to nothing.

Over the entire initial repayment period, the debtor was able to maintain only a "minimal" standard of living. He testified credibly that he lacked the means to make any meaningful payments on his student loans while earning income only sporadically. He worked part-time at the West Virginia law firm for seven years in anticipation of more than part-time work; but he was never elevated to full-time employment.

The debtor also has a pattern of obtaining a decent paying job, only to lose it amidst conflict, then suffer through periods of greatly reduced income. None of that appears to be voluntary or intentional. The debtor testified credibly that he was not able to make payments on his student loans because of the necessity to pay for living expenses in the intervening "down" periods. Failure to make even minimal voluntary payments is not a lack of good faith if a debtor did not have sufficient income to make them.48

There is no evidence that the debtor took out the student loans with an intention of defaulting, or of discharging them. The debtor's testimony that he had made payments on his undergraduate loans before going to law school was unrebutted. There is nothing in the record to suggest that while not making any payments on the subject loans, the debtor was accumulating assets or incurring other debts. The Court concludes that the debtor's failure to make payments on his loans since 1996 is justified.

Likewise, to say that a debtor is always obligated to agree to a long-term repayment plan and forego a discharge to prove "good faith" is simply an incorrect proposition of law.49 As discussed above, a contingent-income repayment plan is likely to be severely prejudicial to this debtor, whose working life is mostly behind him and who shows no likelihood of ever making meaningful payments on his student loans. There is no per se rule in the Eleventh Circuit that a debtor must enroll in a contingent income repayment plan to satisfy the "good faith" requirement.50 Eventually, enrollment in such a program will likely lead to a future forgiveness of an even larger debt and a significant income tax liability. In the circumstances of this case, the debtor's failure to participate in a long term repayment plan is not a lack of good faith.

The DOE also argues that the debtor has not diligently sought work, describing his email job search as purposefully ineffective. To support its argument, the DOE points to the debtor's being contacted in 2007 about a legal secretary position, but turning the job offer down.51 The DOE alleges that the debtor is being too picky in his career search to warrant a good faith finding.

The debtor testified, however, that he accepted a different job offer less than a month after he declined the legal secretary position. The Court is not persuaded that this single occurrence evidences a failure by the debtor to maximize his income. In fact, he later moved across the state to take the paralegal job in Tampa. The debtor's testimony about searching for jobs across a broad spectrum — including paralegal, tour coordinator, teacher, electrician and a dozen other types of jobs — was also credible. Indeed, the debtor did seek out and obtain several professional-level jobs during and after the loan repayment period, all of which were short-lived. In light of the debtor's efforts, the Court concludes that the debtor has made sufficient attempts to find employment and to maximize income.52

There is no evidence in the record that the debtor failed to minimize his expenses. He does not have any assets of value and, as of trial, did not pay any rent. There is no indication that the debtor has made any unnecessary purchases or enjoys any material extravagances. There is no real issue that the debtor has minimized his expenses, as a necessity, to match his low average income.

Thus, the debtor has satisfied the good faith requirement. The Court is not persuaded otherwise by DOE's argument that bad faith is evidenced by the debtor's "off-the-cuff' remark at the hearing on its motion to continue the trial:

It is not plausible that after two decades of failure in the workplace, the debtor will be able to flip the switch and succeed. The debtor is not Ms. Brunner, who sought to discharge her student loan at the beginning of her career and less than a month after the first payment came due. Although this debtor may hold hope for a better future, it is not a lack of good faith to do so.

Conclusion

In the late 1980's, the Brunner test performed a necessary gatekeeping function when the statute allowed an automatic discharge after only five years. Relying on comments in the legislative history, courts developed and refined the Brunner test to focus more on whether a debtor was gaming the system (by discharging student loan debts while looking to reap the future financial rewards from the financed education), than on the nature or extent of the undue hardship. An "overly restrictive interpretation of the Brunner test fails to further the Bankruptcy Code's goal of providing a `fresh start' for the honest but unfortunate debtor."54

Nevertheless, the Court has evaluated this debtor's "undue hardship" through the Brunner framework. Although the debtor is intelligent and is able, from time to time, to perform at a very high level, he has been unable, for more than two decades, to maintain full-time employment for any meaningful length of time. The debtor is living at a minimal standard of living and it is unlikely that he will ever be able to repay these loans. The debtor testified, credibly and in great detail as to the origins and consequences his personality difficulties have had in his life and, in particular, in the workplace. The debtor's work history was not contrived to support his claims in for this case. The debtor's testimony is corroborated by Dr. Pruitt and two former employers and establishes the presence of some combination of personality and mental disorders that are plausibly linked to his abnormal work history. Because most of the debtor's working years are behind him, and because the debtor struggles to maintain a minimal standard of living, the failure to make meaningful payments on his student loans and the failure to participate in an income-contingent repayment plan are not a lack of good faith.

Therefore, the debtor has met his burden to prove that excepting the student loans guaranteed by DOE will be an "undue hardship" on him.

JUDGMENT

Accordingly, it is hereby

ORDERED that the plaintiff's Motion for Abandonment of Brunner and Substitution for it of the Totality of the Circumstances Test (Adv. Doc. No. 194) is denied;

And, it is further

ORDERED that final judgment be entered for the plaintiff that he is hereby discharged by 11 U.S.C. § 523(a)(8) from any and all liability on student loans owed to, or guaranteed by, the defendant, United States Department of Education. DONE and ORDERED in Tampa, Florida, on October 4, 2013.