Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_05-cv-03655/USCOURTS-azd-2_05-cv-03655-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

In re

Christopher G. Shank,

Debtor, _________________________________

Christopher G. Shank, 

Appellant, 

vs.

American Education Services/SLFCLAW, 

Appellee. 

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No. CV-05-3655-PHX-FJM

ORDER

The court has before it debtor's opening brief (doc. 9), American Education Services'

(AES) answering brief (doc. 14), and debtor's reply brief (doc. 20). For the reasons set forth

below, we affirm the judgment of the bankruptcy court.

I

Debtor has a chemistry degree from Northern Arizona University, a law degree from

the University of Arizona, and was admitted to the practice of law in 1993. He served as a

prosecutor until a June 2000 felony conviction for sexual conduct with a minor and sexual

exploitation of a minor led to his disbarment. He served one year in jail, was fined $17,000,

and was placed on lifetime probation. On September 5, 2003, debtor filed a Chapter 13

Case 2:05-cv-03655-FJM Document 22 Filed 08/16/06 Page 1 of 5
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As of June 29, 2006, the outstanding balance of the student loan, including accrued

interest, totaled $41,096.81. 

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petition for bankruptcy, listing as part of his debt a student loan owed to AES. On November

14, 2004, debtor instituted an adversary proceeding seeking discharge of his student loan

debt under the "undue hardship" provision of 11 U.S.C. § 523(a)(8). The bankruptcy court

denied relief, declaring the student loan nondischargeable. Debtor now appeals that

determination.

The student loan note at issue is a consolidation of all of debtor's educational loans,

executed on November 16, 1994, in the principal amount of $30,670.49,with an interest rate

of 8% per annum. As of the bankruptcy filing date, debtor owed approximately $34,0001

 on

the student loan. During the pendency of the Plan, AES will receive some payment as a

general, unsecured creditor, Bankr. Order at 10, and following completion of the Plan the

unpaid balance will be amortized over 10 years, with a monthly payment of approximately

$574.41. AES Brief at 13.

II

A government guaranteed student loan cannot be discharged in bankruptcy 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). In order to prove undue hardship, a debtor

must show that the debtor (1) cannot maintain, based on current income and expenses, a

"minimal" standard of living if forced to repay the loan; (2) that additional circumstances

exist indicating that this state of affairs is likely to persist for a significant portion of the

repayment period; and (3) that he has made good faith efforts to repay the loan. United

Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108, 1111 (9th Cir. 1998) (citing In

re Brunner, 46 B.R. 752, 756 (S.D.N.Y. 1985), aff'd, 831 F.2d 395 (2d Cir. 1987)) (the

"Brunner test"). The burden of proving undue hardship is on the debtor, who must establish

all three elements before discharge will be granted. Rifino v. United States (In re Rifino),

245 F.3d 1083, 1088-89 (9th Cir. 2001). The bankruptcy court in the instant case found that

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debtor satisfied the good faith prong of the Brunner test, but failed to establish prongs one

and two.

On appeal, debtor first contends that the bankruptcy court erred in its application of

the first prong of the Brunner test by failing to counterbalance debtor's income with his

expenses, which he claims demonstrates, at least during the pendency of the Plan, that his

take-home income is roughly equal to his regular monthly expenses. A debtor, however,

must demonstrate more than simply tight finances; the proper inquiry is whether it is

unconscionable to require debtor to earn more income or reduce expenses. Pennsylvania

Higher Educ. Assistance Agency v. Birrane (In re Birrane), 287 B.R. 490, 495 (B.A.P. 9th

Cir. 2002).

Contrary to debtor's argument, the bankruptcy court made detailed findings regarding

debtor's monthly income and expenses. In particular, the court found that debtor's probation

terms require payment of a probation service fee, counseling and testing fees that total $204

to $260 per month. A criminal fine of $17,000 is paid at approximately $140 per month.

Debtor has been employed as a paralegal/law clerk with a Phoenix law firm since July, 2003,

earning $25.00 an hour, with an annual income of $42,860. He occasionally moonlights by

performing extra legal work and occasionally works as a disc jockey, earning $150 a night.

In addition, he has at least one tenant who pays $300 a month. He is unmarried and has no

dependents. In June 2002, debtor purchased a home for $109,000, financed $103,500 and

currently owes approximately $99,000. It is estimated that the property has increased in

value to $147,000. Additionally, debtor owns an automobile valued at $4,000. Under the

Plan, debtor will pay a total of $26,850 over 60 months, with monthly payments starting at

$250 and increasing to $550. 

The bankruptcy court considered all these facts in reaching its conclusion that debtor

failed to establish that he cannot maintain a minimal standard of living if forced to repay the

student loan. At the time the Plan is completed in October 2008, debtor will be making Plan

payments of $550 a month. He does not contend that his income is or will be insufficient to

satisfy these payments. Once the Plan is completed, the monthly Plan expense will be

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replaced with a roughly equivalent student loan payment of approximately $571.41 per

month. Moreover, it is undisputed that under the Ford Program, debtor has the option to

extend the repayment terms of the student loan and thereby significantly reduce the monthly

payment to as low as $316.17. Although debtor may not favor this option because it

increases the total amount of paid interest, it is nevertheless an option that would lessen the

impact of the loan payment on his monthly budget. An aversion to paying interest is not a

factor in determining an inability to maintain a minimal standard of living. The bankruptcy

court did not err in concluding that debtor failed to establish the first prong of the Brunner

test.

III

Although failure to establish any one prong of the Brunner test properly results in a

finding of nondischargeability, the bankruptcy court also concluded that debtor failed to

establish the second prong of the test, which requires that a debtor "prove that [his] present

inability to pay will likely persist throughout a substantial portion of the loan's repayment

period." Educ. Credit Mgmt. Corp. v. Nys (In re Nys), 446 F.3d 938, 945 (9th Cir. 2006).

A presumption exists that "the debtor's income will increase to a point where [he] can make

payments and maintain a minimal standard of living." Id. at 946. The burden is on the

debtor to rebut that presumption "with 'additional circumstances' indicating that [his] income

cannot reasonably be expected to increase and that [his] inability to make payments will

likely persist throughout a substantial portion of the loan's repayment period." Id. Stated

differently, the debtor must show "insurmountable barriers to the debtor's financial recovery

and inability to pay." Id.

Here, the bankruptcy court found that debtor has no physical or mental disabilities that

impede his ability to work, and that despite his felony conviction depriving him of a law

license, he has succeeded in maintaining long-term employment as a paralegal utilizing his

legal education, and has acquired an appreciating real estate asset. Furthermore, the court

considered "promising" debtor's plan to apply for readmission to the bar and again become

a practicing attorney. Bankr. Order at 9. Debtor now describes his prospects for readmission

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to the bar as "dim for the foreseeable future," and accordingly characterizes the bankruptcy

court's conclusion as "unreasonable and not supported by the record." Debtor's Opening

Brief. at 9-10. Instead, he relies solely on the stigma of his criminal conviction and his own

testimony that his income is "flat" as indicia of "additional circumstances" that will prolong

his inability to repay the loan in the future. 

This showing is insufficient to satisfy debtor's burden of proof, particularly given facts

which demonstrate an improved financial position, both in terms of increased income and

equity, notwithstanding debtor's felony conviction. The bankruptcy court did not err in

concluding that debtor failed to satisfy the second prong of the Brunner test. 

IV

Based on the foregoing, IT IS ORDERED AFFIRMING the judgment of the

bankruptcy court.

DATED this 15th day of August, 2006.

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