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. e du/thir dc ir c uit_2001/226Filed October 3, 2001

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NO. 00-1250

IN RE: PATRICIA A. BRIGHTFUL

PATRICIA A. BRIGHTFUL

v.

PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY; SALLIE MAE TRUST; FIRST UNION BANK

CHRISTINE SHUBERT, ESQ., Chapter 7 Trustee;
FREDERICK BAKER, ESQ., U.S. TRUSTEE,

Trustees

Pennsylvania Higher Education Assistance Agency ("PHEAA"), Appellant

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 99-cv-06348) District Judge: Honorable Marvin Katz

Argued April 17, 2001

Before: ALITO, RENDELL and FUENTES, Circuit Ju dges
,

(Filed: October 3, 2001)Jason L. Swartley, Esq.

Byron F. Walker, Esq. [ARGUED] Pennsylvania Higher Education Assistance Agency

1200 North 7th Street Harrisburg, PA 17102 Counsel for Appellant Pennsylvania Higher Education Assistance Agency

Henry J. Sommer, Esq. [ARGUED] Miller, Frank & Miller

21 South 12th Street 640 PSFS Building Philadelphia, PA 19107 Counsel for Appellee Patricia A. Brightful

OPINION OF THE COURT

RENDELL, Circuit Judge.

The Pennsylvania Higher Education Assistance Agency ("PHEAA") appeals the District Court's affirmance o f the Bankruptcy Court's decision to discharge Patricia Brightful's student loan obligations. The issue pre sented by this appeal is whether Brightful's student loans bu rden her with an "undue hardship" that would render them dischargeable pursuant to 11 U.S.C. S 523(a)(8). Ap plying the three-pronged test we adopted in In re: Faish, 72 F.3d 298 (3d Cir. 1995), we hold that Brightful's studen t loans do not constitute an "undue hardship," and will rev erse the
District Court.

I. Facts and Procedural Background

This case arises out of an adversary proceeding fil ed by Brightful, seeking a determination that her student loans are dischargeable under 11 U.S.C. S 523(a)(8) becau se repayment of the loans would cause "undue hardship. " On November 8, 1999, after a hearing on the merits, th e Bankruptcy Court ruled that the loans were discharg eable.

2PHEAA appealed, and the District Court affirmed the

Bankruptcy Court's decision on February 28, 2000, b ased solely upon the Bankruptcy Court's Order and Memorandum. PHEAA now appeals the District Court's

order.1

The Bankruptcy Court made the following findings of fact. At the time of the Bankruptcy Court proceedin gs, Brightful was a 46-year-old single mother of a 14-y ear-old daughter. Due to their eviction from their former r esidence on July 19, 1999, Brightful and her daughter reside with Brightful's sister in a crowded three-bedroom home. The Bankruptcy Court characterized Brightful's living s ituation as "sub-marginal by any standards."

The Bankruptcy Court noted that Brightful has no degree, but has completed the equivalent of two yea rs of college education. Most recently, she attended the New School for Social Research in New York City, but sh e has also attended the Community College of Philadelphia
, Temple University, and Pierce Junior College. Durin g the late 1980's and early 1990's, Brightful was employe d fulltime as a legal secretary at the Dechert law firm i n Philadelphia. Since the early 1990's, she has worke d parttime at Dechert. At the time of the hearing, Bright ful was paid $18 per hour for her work at Dechert, but was only working nine to 30 hours per month, and estimated t hat she would earn approximately $8,500 in 1999. During 1998, she earned $20,000 at Dechert. Additionally, the Bankruptcy Court remarked that Brightful had filed sexual discrimination and sexual harassment charges agains t
Dechert in 1998.

The Bankruptcy Court described Brightful as "very intelligent" and "physically healthy." However, the court also determined that Brightful had "glaring psychia tric problems" and that she was "emotionally unstable." The court noted that Brightful had made two suicide att empts, one in the last year. The court concluded that it w as

___________________________________________________ ______________

1. We have jurisdiction over this appeal pursuant t o 28 U.S.C. S 158(d). The Bankruptcy Court had jurisdiction over the orig inal adversary proceeding pursuant to 28 U.S.C. S 157(b), and the District Court had jurisdiction over the first appeal pursuant to 28 U .S.C. S 158(a).

3unlikely that Brightful would ever attain her colle ge degree,

and that Brightful lacked useful vocational trainin g. Finally, the court determined that Brightful's pursuit of se xual discrimination charges against Dechert had both sca rred her future prospects with that firm and accounted f or the sharp reduction in her income in 1999 as compared t o 1998.

II. Standard of Review

The trier of fact in this case was the Bankruptcy C ourt, not the District Court. Therefore "[w]e are in as g ood a position as the district court to review the findin gs of the bankruptcy court, so we review the bankruptcy court 's findings by the standards the district court should employ,
to determine whether the district court erred in it s review." Fegeley v. United States, 118 F.3d 979, 982 (3d Cir . 1997) (quoting Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir. 1981)). We must accept the Bankruptcy Court's findings of fact unless they are clearly erroneous, but we exercise plenary review over lega l issues. Id. We therefore exercise plenary review over the Bankruptcy Court's application of our three-pronged Faish
test to the facts of this case. See Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Ci r. 1987) (noting that whether debtor suffers "undue hardship " under 11 U.S.C. S 523(a)(8) is a conclusion regarding the legal effect of the bankruptcy court's factual findings).

III. Discussion

The Bankruptcy Code provision at issue provides tha t:

(a) A discharge under section 727, 1141, 122 8(a), 1228(b), or 1328(b) of this title does not d ischarge an individual debtor from any debt -- . . .

(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmenta l unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institut ion, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless exce pting such

4debt from discharge under this paragraph wil l impose

an undue hardship on the debtor and the debt or's dependents;

11 U.S.C. S 523(a)(8) (emphasis added).

In In re: Faish, 72 F.3d 298 (3d Cir. 1995), we ana lyzed this statutory section in detail.2 We noted the dif ficulty in applying the "undue hardship" exception of 11 U.S.C

. S 523(a)(8), because the drafters of the Bankruptcy Code did not define "undue hardship." Id. at 302. As a r esult, we had to look to the legislative purpose behind 11 U. S.C. S 523(a)(8) for guidance. Ultimately, we adopted th e Second Circuit's three-pronged test for determining "undue hardship," found in Brunner v. New York State Highe r Education Services Corp., 831 F.2d 395 (2d Cir. 198 7), because the Brunner test was the "most logical and workable of the established tests" for assessing"un due hardship." Faish, 72 F.3d at 306.

Under this test, "undue hardship" requires a three- part showing: (1) that the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents if forced to repay t he loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a signifi cant portion of the repayment period for student loans; and (3) tha t the debtor has made good faith efforts to repay the loa ns. Id. at 304-05. The debtor has the burden of establishing e ach element of this test by a preponderance of the evid ence. Id. at 306; see also Grogan v. Garner, 498 U.S. 279, 29 1 (1991) (holding that "the standard of proof for the discha rgeability exceptions in 11 U.S.C. S 523(a) is the ordinary preponderance-of-the-evidence standard"). If one of the elements of the test is not proven, the inquiry mus t end there, and the student loans cannot be discharged. Faish, 72 F.3d at 306. Moreover, this test must be strictl y construed: equitable concerns or other extraneous f actors

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2. At the time that Faish was decided, the "undue h ardship" exception appeared in 11 U.S.C. S 523(a)(8)(B). In 1998, Cong ress amended the statute by incorporating this exception into 11 U.S .C. S 523(a)(8). This change is irrelevant to our analysis, however, beca use the language of the two versions is exactly the same.

5not contemplated by the test may not be imported in to the

analysis of "under hardship." Id.

Applying this test to Brightful's situation, we mus t first
determine whether she has met her burden of demonstrating that she cannot maintain, based on cu rrent income and expenses, a minimal standard of living f or herself and her dependent daughter if forced to rep ay the loans. We note that this inquiry is made difficult by the fact that the Bankruptcy Court made no factual findings regarding Brightful's expenses. Brightful did submi t some information and testified briefly regarding her exp enses, but
PHEAA contends that much of this information is inaccurate, incomplete and undocumented.

For its part, the Bankruptcy Court appeared merely to assume that Brightful could not maintain a "minimal " standard of living because her 1999 income, which t he court estimated at $8,500, was so low. While this m ight be a reasonable assumption, it is also true that Brigh tful earned significantly more money in 1998 ($20,000), is not on public assistance, and apparently has no signifi cant housing expenses because she is living in her siste r's home. Furthermore, in its November 8, 1999 order, the Bankruptcy Court did not even mention the amount of Brightful's loan payments. Our own examination of t he record, however, reveals that as of October 20, 199 9, Brightful's student loan indebtedness totaled $52,2 61.70 in principal and interest, which corresponds to a loan payment of $626 per month over the ten year life of the loans.3

Despite the dearth of information regarding Brightf ul's expenses, we nonetheless will assume, for the sake of argument, that at the time of the Bankruptcy Court proceedings, Brightful could not make her student l oan payments and still maintain a minimal standard of l iving for herself and her daughter. As detailed below, we think it clear that Brightful has failed to meet her burden under the second prong of the Faish test, and thus we will no t

___________________________________________________ ______________

3. PHEAA points out, however, that Brightful is eli gible to consolidate

her student loans for a period of twenty-five years, wh ich apparently would reduce her monthly payments to $355.57.

6concern ourselves with the deficient state of the r ecord

regarding the first prong.

Under the second element of the test, Brightful mus t prove that additional circumstances exist indicatin g that she cannot maintain a minimal standard of living fo r a significant portion of the repayment period if forc ed to repay her loans. This is a demanding requirement. A s we indicated in Faish, it is not enough for Brightful to demonstrate that she is currently in financial stra its; rather, she must prove "a total incapacity . . . in the future to pay [her] debts for reasons not within[her] cont rol." Id. at 307 (quoting In re: Brunner, 46 B.R. 752, 758 (S .D.N.Y. 1985)). In other words, "dischargeability of studen t loans should be based upon the certainty of hopelessness, not simply a present inability to fulfill financial com mitment." Brunner, 46 B.R. at 755 (quoting In re: Briscoe, 16 B.R. 128, 131 (Bankr. S.D.N.Y. 1981)); see also In re: B allard, 60 B.R. 673, 675 (Bankr. W.D. Va. 1986) (explaining th at "[a] finding of undue hardship is reserved for the excep tional case and requires the presence of unique or extraor dinary circumstances which would render it unlikely that t he debtor ever would be able to honor his obligations" ).

As noted earlier, the Bankruptcy Court concluded th at Brightful most likely would never attain her colleg e degree, lacks useful vocational training, suffers glaring p sychiatric problems, is emotionally unstable, and that her pur suit of sexual discrimination charges against Dechert had b oth scarred her future prospects with that firm and acc ounted for the sharp reduction in her income in 1999 as co mpared to 1998. On the basis of these factual findings, th e court
believed that there was a "substantial likelihood t hat [Brightful's] sub-marginal economic circumstances w ill persist for many years, probably for the rest of he r life," and that therefore she had satisfied the second prong o f the
Faish test.

At the outset, we think the Bankruptcy Court's find ing that Brightful lacks useful vocational training is clearly erroneous. It is undisputed that Brightful has work ed for over a decade in both a full-time and part-time cap acity as a legal secretary at Dechert. As part of this emplo yment, she is trained to operate office equipment and comp uter

7software. Brightful has never suggested that she la cked the

skills to perform the duties of a legal secretary-- indeed, such a suggestion would contradict the fact that sh e currently holds that position, albeit in a part-tim e capacity. Thus, we reject the Bankruptcy Court's unsupported conclusion that Brightful lacks useful vocational t raining.

Similarly, we reject the Bankruptcy Court's conclus ions that Brightful's pursuit of sexual discrimination c harges against Dechert had both scarred her future prospec ts with that firm and accounted for the sharp reduction in her income in 1999 as compared to 1998. During the Bankruptcy Court proceedings, neither the circumsta nces surrounding Brightful's sexual discrimination charg es nor the consequences flowing from these charges were adequately explored. Rather, as the Bankruptcy Cour t noted in the beginning of its opinion, the circumst ances surrounding the charges were "unexplained." There i s simply no basis in the record for the Bankruptcy Co urt's conclusion that Brightful was the victim of retalia tion for bringing charges against Dechert. Indeed, such a conclusion would seem to be contradicted by Brightf ul's continued employment at Dechert a higher rate of pa y ($18 per hour) than she received prior to filing her cha rges. In any event, the Bankruptcy Court's conclusions on th is matter were purely speculative, and accordingly, we reject

them.4

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4. Furthermore, even were we to accept the Bankrupt cy Court's conclusions, they would not support a finding of"ad ditional circumstances" indicating that Brightful cannot mai ntain a minimal standard of living for a significant portion of her loan repayment period. If Brightful's employment prospects at Dechert were foreclosed, it would be her responsibility to diligently pursue employme nt elsewhere -- something that the record indicates she has not don e, as evidenced by
her failure to have a current resume and her inabil ity to recall the names of temporary employment agencies that she all egedly contacted in the past. See, e.g., In re: Greco, 251 B.R. 670, 67 7 (Bankr. E.D. Pa. 2000) (holding that the debtor had failed to meet h er burden under the second prong of Faish because "[t]he testimony offe red by the Debtor at trial does not reveal a diligent effort on her part to secure a stable, salaried job," and "the Debtor has not demonstrated any efforts to seek employment in another field").

8The Bankruptcy Court gave great weight to Brightful 's

alleged emotional and psychiatric infirmities, conc luding from Brightful's testimony that she was emotionally unstable and that she had "glaring" psychiatric pro blems. We think these findings have some support in the re cord, especially considering that Brightful has apparentl y attempted suicide twice in her life. PHEAA argues, however, that such findings require expert testimony, and ca nnot be made simply on the basis of the debtor's testimony. We disagree. It was appropriate for the Bankruptcy Cou rt, as the trier of fact, to assess Brightful's testimony and draw reasonable conclusions regarding her mental and emo tional state. E.g., In re: Cline, 248 B.R. 347, 350 (B.A.P . 8th Cir. 2000) (explaining that "[t]here is no reason to vie w the trial court's findings [regarding the debtor's emotional state] as unreliable merely because no expert evidence was introduced").

What is missing from the Bankruptcy Court's analysi s, however, is any discussion of the nature of Brightf ul's emotional and psychiatric problems, or how these pr oblems prevent her from being gainfully employed. The Bank ruptcy Court seems to have merely assumed that Brightful's emotional and psychiatric problems would automatica lly preclude her from holding full-time employment. Yet Brightful's testimony, while perhaps supporting the general conclusion that she has emotional and psychiatric problems, is notable for its lack of detail. It con tains no explanation of the precise nature of her problems, and no explanation of how her condition would impair her a bility to work as a legal secretary. Nor does she claim that her problems have greatly intensified in 1999, and are therefore responsible for the sharp reduction in her hours in 1999 as compared to 1998. Rather, it is clear from her test imony
that her mental and emotional difficulties have exi sted throughout her adult life.

Without any further explanation of Brightful's ment al and emotional condition (or at least some indication th at this condition will deteriorate in the future), there is simply no record basis for the conclusion that Brightful's em otional and psychiatric problems constitute the sort of"add itional circumstances" contemplated by Faish's second prong

.

9While we do not belittle Brightful's problems, neve rtheless

Brightful has the burden of demonstrating how these problems impair her ability to work. In our view, s he has not even attempted to meet this burden. At the very least, such an attempt would include an explanation as to how she was able to work full-time as a legal secretary in the past (and indeed was able to work a significant num ber of hours in 1998), and yet cannot do so in the future. E.g., In re: Wardlow, 167 B.R. 148, 152 (Bankr. W.D. Mo. 199 3) (holding that the debtor had failed to satisfy the second prong of the Brunner test because the debtor"offere d no proof of the severity of [her] medical condition. [ She] is sufficiently healthy to perform her job, and offere d no indication she would be unable to perform in the fu ture.").

In sum, Brightful has failed to demonstrate the typ e of exceptional circumstances that are necessary in ord er to meet her burden under the second prong of Faish . S he is intelligent, physically healthy, currently employed
, possesses useful skills as a legal secretary, and h as no extraordinary, non-discretionary expenses. While sh e does have one dependent, her daughter is now only two ye ars from the age of majority, and therefore this legal dependency is nearly at end. Thus we readily conclu de that Brightful has failed to satisfy her burden. E.g. , In re: Roberson, 999 F.2d 1132, 1137 (7th Cir. 1993) (expl aining that the second prong of the test requires a showin g of "the type of barrier that would lead us to believe [the debtor] will lack the ability to repay for several years," such as psychiatric problems preventing work, lack of usabl e job skills and severely limited education, or the neces sity of fully supporting several dependents); Brunner , 831 F.2d at 396-97 (holding that the debtor had failed to carry her burden under the second prong because, inter alia, "[s]he is not disabled, nor elderly," and "[n]o evidence was presented indicating a total foreclosure of job prospects in her area of training"); Brunner, 46 B.R. at 755 (noting that circumstances that would satisfy the second prong"h ave been found most frequently as a result of illness . . . a lack of usable job skills . . . the existence of a large number of dependents . . . or a combination of these"). Becau se Brightful has failed to meet her burden under the s econd prong of the Faish test, we hold that her student l oans are

10not dischargeable, and there is no need for us to a ddress

the third prong of the test. Faish, 72 F.3d at 306.

We realize that our result in this case might appea r harsh, especially given the fact that Brightful doe s not have her college degree and is unlikely ever to attain i t, as the Bankruptcy Court found. Therefore, unlike many stud ent loan debtors, she cannot anticipate significantly i ncreased earnings in the future that would flow from her edu cational investment. Instead, she must for the foreseeable f uture rely upon her existing legal secretarial skills to fund her expenses and educational debt. This situation is unfortunate, but it does not excuse Brightful from meeting her student loan obligations. As we observed in Fai sh:

[F]ederal student loan programs were not des igned to turn the government into an insurer of educa tional value. Students who benefit from guaranteed loan programs normally would not be eligible to r eceive any financing or only financing at a higher rate of interest.
Since the decision of whether or not to borr ow for a college education lies with the individual, it is the student, not the taxpayers, that must accept the consequences of the decision to borrow.

Id. at 305 (internal quotations marks and citations omitted).

In other words, when a student loan borrower accept s money from the government, she strikes a bargain. A nd "[l]ike all bargains, it entails risk. It is for ea ch student individually to decide whether the risks of future hardship outweigh the potential benefits of a deferred-payme nt education." Brunner, 46 B.R. at 756. Here, Brightfu l struck her bargain, she took her risk, and unfortunately, things did not work out as planned. Brightful's hardship i s real, but under the Faish test, it is not "undue," and th erefore we cannot discharge her obligation to repay her stu dent

loans.

In light of the foregoing, we will REVERSE the Febr uary 28, 2000 order of the District Court.

11A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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