Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-02348/USCOURTS-caed-2_05-cv-02348-2/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 11:101 Bankruptcy

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

CONNIE PATRICIA GARRIGAN

AFAMASAGA,

2:05-CV-2348-MCE

Debtor.

______________________________

EDUCATIONAL CREDIT MANAGEMENT

CORPORATION,

Appellant,

v. MEMORANDUM AND ORDER

CONNIE PATRICIA GARRIGAN

AFAMASAGA,

Appellee.

----oo0oo----

Through the present action, Educational Credit Management

Corporation (“Appellant”) is seeking review of the United States

Bankruptcy Court’s November 7, 2005, Order (“Bankruptcy Order”)

discharging a significant portion of Connie Patricia Garrigan

Afamasaga’s (“Appellee”) $33,000 educational debt.

Case 2:05-cv-02348-MCE Document 32 Filed 06/13/06 Page 1 of 11
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In its Bankruptcy Order, the Judge found that Appellee was

entitled to a partial discharge of her student debt pursuant to

the undue hardship exception set forth in 11 U.S.C. section 727. 

For the reasons set forth below, the Court finds the foregoing

conclusion to be in error and, accordingly, reverses. 

BACKGROUND

Appellee filed a bankruptcy petition seeking discharge of

debts totaling $104,000. In addition to her other secured and

unsecured debts, Appellee sought discharge of $33,000 in

educational loans. Appellee is a 43 year old woman with sole

physical and legal custody of her three children ages 9, 12 and

16. Neither she nor her children suffer from any physical or

psychological disability and all three children are full time

students. Appellee is currently unemployed and remains so by

choice. Her income is limited to monthly payments of $1348 and

$520 in child support and spousal support, respectively.

Appellee attended the Court Reporting Institute of Dallas

and the Arlington Court Reporting College from 1987 to 1990. In

addition, she completed a Ward Secretary Program in 1982. While

attending these programs, she amassed educational debts totaling

$16,731. Appellee’s loans went into repayment on or about

September 22, 1990. She obtained both deferments and forbearance

of payment for periods totaling 101 months. Her payments to date

total $13,626.49 and her remaining balance is slightly in excess

of $33,000.

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Appellee lives in low income housing making her rent $502

per month. She drives a 2003 Chevrolet Malibu on which she makes

a monthly car payment of $117. In addition, her monthly expenses

include $51 for local and cellular telephones, $14 for cable

television and internet service, $65 for dining out, $75 for

clothing, $50 for recreation expenses, $25 for allowances and $50

for charitable contributions.

Appellee sought employment with the Elk Grove Unified School

District and the United States Post Office (“USPS”). Shortly

after completing her application with the USPS, Appellee received

a letter indicating a job opening. She rejected that offer of

employment and has since elected to cease her employment search.

With respect to repayment options, Appellee is entitled to

consolidate her loans with programs such as the William D. Ford

Direct Loan Consolidation Program. In addition, Appellee can

seek enrollment in the income contingent repayment plan (“ICRP”). 

The ICRP plan adjusts the loan payment in accord with the

debtor’s income. Once a debtor has participated in the ICRP for

a period of twenty five years, any outstanding balance may be

forgiven. Pursuant to this repayment program, Appellee’s loan

payment at her current income level would be zero. When asked

about this repayment option during the trial in bankruptcy court,

Appellee explained “[m]y first thought – it was a 25 year plan. 

My first thought was 25? That’s 40 years with this thing hanging

over my head. It’s just hanging over my head and I feel like

there’s nothing I can do to minimize the debt amount. So my

instant reaction was, no, I don’t want to do that.” Accordingly,

Appellee has chosen not to seek alternative repayment options. 

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STANDARD

In reviewing appeals from bankruptcy court decisions,

district courts must apply a clearly erroneous standard to the

findings of fact and review de novo the Bankruptcy Court’s

conclusions of law. In re Lazar, 83 F.3d 306, 309 (9th Cir.

1996). The Bankruptcy Court’s decision with respect to any

equitable defenses is reviewed for abuse of discretion. A.C.

Aukerman Co. v. R.I. Chaides Constr. Co., 960 F.2d 1020, 1028

(Fed. Cir. 1992).

ANALYSIS

An individual debtor petitioning for bankruptcy does so to

obtain a discharge of debts owed at the time of the filing. For

a bankruptcy brought under Chapter 7, the discharge is granted

pursuant to 11 U.S.C. Section 727. This discharge voids any

judgment against the debtor to the extent that it is a

determination of the personal liability of the debtor with

respect to the debt, and bars any effort on the part of creditors

to collect the debt. 11 U.S.C. § 524(a). A discharge pursuant

to that part encompasses virtually all pre-petition debts.

One exception to the general discharge of pre-petition debts

is debt incurred as the result of educational loans. 11 U.S.C. §

523(a). A debtor seeking to discharge all or part of his

educational loans must prove that “excepting such debt from

discharge ... will impose an undue hardship on the debtor and the

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debtor’s dependents.” 11 U.S.C. § 523(a)(8).

Since its initial enactment, Section 523(a)(8) has undergone

several amendments. Those amendments have made discharging

educational debt progressively more difficult. Hemar Ins. Corp.

v. Cox (In re Cox), 338 F.3d 1238, 1243 (11th Cir. 2003)

(“considering the evolution of § 523(a)(8), it is clear that

Congress intended to make it difficult for debtors to obtain a

discharge of their student loan indebtedness.”)

In United Student Aid Funds, Inc. v. Pena (In re Pena), 155

F.3d 1108, 1109 (9th Cir. 1998), the Ninth Circuit adopted the

three part test for undue hardship first articulated by the

Second Circuit Court of Appeals in In re Brunner, 831 F.2d 395,

396 (1987). Under the Brunner test, the debtor must establish

that 1) he 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) additional circumstances exist

indicating that this state of affairs is likely to persist for a

significant portion of the repayment period; and 3) he has made

good faith efforts to repay the loans. Pena, 155 F.3d at 1111;

Brunner, 831 F.2d at 396.

Appellee has the burden of proof as to all three elements.

In re Nascimento, 241 B.R. 440, 445 (9th Cir. BAP 1999) (citing

Pa. Higher Educ. Assistance Agency v. Faish (In re Faish), 72

F.3d 298, 306 (3d Cir. 1995)). Accordingly, if any one of the

requirements is not met, the bankruptcy court’s inquiry must end

and no part of the loan can be discharged. Id.

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1. Standard of Living

As noted above, the first prong of the Brunner test requires

the debtor to prove that she “cannot maintain, based on current

income and expenses, a ‘minimal’ standard of living for herself

and her dependents if forced to repay the loans.” Brunner, 831

F.2d at 396. To meet this requirement, the debtor must

demonstrate more than simply tight finances. Rifino v. U.S. (In

re Rifino), 245 F.3d 1083, 1088 (9th Cir. 2001) (citations

omitted). “In defining undue hardship, courts require more than

temporary financial adversity, but typically stop short of utter

hopelessness.” Id.

In this case, the bankruptcy court found that Appellee’s

case was “just different.” The bankruptcy court did not

elaborate what about this particular case was different, but

merely concluded as such. Appellant contends that the bankruptcy

court’s finding is clearly erroneous because Appellee’s budget

contains unnecessary items such as dining out, donations,

allowance, recreation, and internet service. Accordingly,

Appellants contend, Appellee’s budget does not constitute a

minimal standard of living rendering the bankruptcy court’s

conclusion clearly erroneous. 

Appellee argues that if she elected to join the workforce,

her expenses would spiral upward such that even her current

meager living would be compromised.

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In support of this position, she explains that her low

income benefits would be lost were she to commence earning a

wage. While the Court has no reason to doubt her assertion, it

is unpersuaded that obtaining employment would double her

expenses. Specifically, Appellee argues that, were she to become

employed, she would need to expand her current cable subscription

to entertain her children during the evenings when she would be

required to run her errands. She further argues that she would

be required to dine out more often because she would be too

rushed to make meals at home. In addition, she explains that she

would need to increase her monthly donations as well as the

allowance she gives the children. While one might desire a more

comprehensive cable subscription and more meals out, these

amenities are clearly beyond a “minimum” standard of living.

Nonetheless, while a number of courts have declined to

discharge student loan obligations in circumstances similar to

the case at bar and this Court would have declined to discharge

Appellee on the facts of this case, the bankruptcy court’s

refusal to do so here is not clearly erroneous. See Anderson,

470 U.S. at 574 (“Where there are two permissible views of the

evidence, the factfinder’s choice between them cannot be clearly

erroneous.”)

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2. Additional Circumstances

The “additional circumstances” prong of the Brunner test “is

intended to effect ‘the clear congressional intent exhibited in §

523(a)(8) to make the discharge of student loans more difficult

than that of other nonexcepted debt.’” Rifino, 245 F.3d at

1088-89 (citations omitted). There must be evidence that the

debtor’s “road to recovery is obstructed by the type of barrier

that would lead [the court] to believe he will lack the ability

to repay for several years.” In re Roberson, 999 F.2d 1132, 1137

(7th Cir. 1993) (citations omitted). Examples of such barriers

may include psychiatric problems, lack of usable job skills and

severely limited education. Id. (citations omitted); compare In

re Brightful, 267 F.3d 324, 330 (3rd Cir. 2001) (bankruptcy court

found that second prong of Brunner test was met because debtor

most likely would never attain her college degree, lacked

vocational training, suffered psychiatric problems and was

emotionally unstable. The Third Circuit reversed finding that

the debtor was nonetheless “intelligent, physically healthy,

currently employed, possessed useful skills ... and had no

extraordinary, non-discretionary expenses”).

In this case, the bankruptcy court stated “under the second

Brunner test ... I think in this next year or so, it’s obviously

not going to be paid and it’s going to be several years before

I’m convinced that she can make payments and reduce that amount.” 

Tr. Trans. 54:12-19. The Court finds the foregoing conclusion to

be clearly erroneous.

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a. No Insurmountable Barriers.

The record is devoid of evidence demonstrating any mental,

physical, or other barriers that are either insurmountable or

that impair Appellee’s ability to work. In fact, Appellee

demonstrated quite the opposite in her conduct during these

proceedings. Appelle’s brief in this matter was extremely

articulate as was her oral argument. The bankruptcy court found,

and this Court agrees, that Appellee is quite “bright.” Appellee

argues that being labeled bright “although flattering, is not a

marketable skill in the job market.” App’ee Opp. p. 21. The

Court disagrees. Appellee is intelligent, physically healthy and

possesses highly marketable skills making her highly employable. 

Therefore, the Court finds Appellee has failed to demonstrate any

insurmountable barrier in her ability to repay her educational

loans.

b. Persistence of Current State of Affairs.

Although the bankruptcy court essentially found that

Appellee was unable to obtain sufficiently high paying work to

make any meaningful payments on the principle of her educational

loans, the Court finds the record supports the converse. 

Appellee repeatedly points to the implications employment would

have on her children as her basis for declining employment. She

asserts that the balance of obtaining employment versus remaining

unemployed tips sharply in favor of unemployment when noting the

increase in child related expenses attendant with employment.

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Even assuming the cogency of Appellee’s argument, the Court

finds that this condition certainly will not persist for a

significant portion of the repayment period. In fact, precisely

the opposite is true. As her children progress toward maturity,

her expenses in regard to their care will necessarily diminish. 

The cost of their food, clothing, dining, recreation and

allowances will all but cease as they reach the age of majority. 

In addition, certain other costs such as the $400 per month for

child care will cease years before that point. Appellee argues

that even as her eldest child reaches the age of majority she

will nonetheless continue to bear a financial burden because her

child will be in pursuit of a college degree. Tr. Trans. 33:16-

34:3. The Court recognizes the value of higher education. 

However, the Court cannot and will not shift Appellee’s loan

burden to tax payers in order to finance the potential

educational costs of her child. 

This prong of the Brunner test necessarily looks to the

future and the Court must consider the likelihood that the

debtor’s financial situation will improve sufficiently to permit

her to resume paying her educational loans. Without reservation,

the Court finds there are simply no “additional circumstances”

that would impair Appellee’s ability in this regard. Therefore,

the Court finds that the bankruptcy court erred as a matter of

law in holding that Appellee’s circumstances rise to the level of

“additional circumstances” necessary to satisfy the second prong

of the Brunner test.

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Generally, if one of the elements of the three part “undue

hardship” test is not proven, the inquiry must end and the

student loan cannot be discharged. Accordingly, the Court need

not proceed to whether Appellee has shown good faith. Her

educational loans cannot be discharged as she has failed to meet

her burden of showing an undue hardship. 

CONCLUSION

For the reasons stated above, the bankruptcy court’s Order

discharging $23,000 of Appellee’s educational loans is reversed.

IT IS SO ORDERED.

DATED: June 12, 2006

_____________________________

MORRISON C. ENGLAND, JR

UNITED STATES DISTRICT JUDGE

Case 2:05-cv-02348-MCE Document 32 Filed 06/13/06 Page 11 of 11