Source: https://openjurist.org/446/f3d/938/in-re-lorna-kaye-nys
Timestamp: 2017-09-21 20:09:47
Document Index: 360165608

Matched Legal Cases: ['§ 523', '§ 157', '§ 158', '§ 158', '§ 523', '§ 523', '§ 523', '§ 105']

446 F3d 938 In Re Lorna Kaye Nys | OpenJurist
446 F. 3d 938 - In Re Lorna Kaye Nys
446 F3d 938 In Re Lorna Kaye Nys
446 F.3d 938
In re Lorna Kaye NYS, Debtor,
Lorna Kaye Nys, Appellee.
Nys appealed to the Bankruptcy Appellate Panel ("BAP"). In a published decision, Nys v. Educ. Credit Mgmt. Corp. (In re Nys), 308 B.R. 436 (9th Cir. BAP 2004), the BAP reversed and remanded, directing the bankruptcy court to reevaluate Nys's claim using the correct legal standard. The BAP reasoned that the three-prong test we adopted in United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108 (9th Cir.1998),1 for determining whether the repayment of student loans would impose an "undue hardship" on the debtor or her dependents requires the debtor to show "additional circumstances" that prove that her inability to pay in the present will likely persist for a significant portion of the loan's repayment period. Nys, 308 B.R. at 444. We affirm the BAP. "Undue hardship" does not require an exceptional circumstance beyond the inability to pay now and for a substantial portion of the loan's repayment period.
* Nys filed a Chapter 7 bankruptcy petition in the Northern District of California on June 12, 2002.2 Shortly thereafter, she filed an adversary complaint against Educational Credit Management Corporation ("ECMC"), the holder of her federally guaranteed student loans, to have those loans fully discharged under 11 U.S.C. § 523(a)(8).3
The bankruptcy court had jurisdiction under 28 U.S.C. § 157(b), the BAP had jurisdiction under 28 U.S.C. § 158(b), and we have jurisdiction under 28 U.S.C. § 158(d). We independently review the bankruptcy court's decision. Rifino v. United States (In re Rifino), 245 F.3d 1083, 1086 (9th Cir.2001). The bankruptcy court's findings of fact are reviewed for clear error and its application of the legal standard is reviewed de novo. Id. at 1086-87.
The issue we must decide is whether "undue hardship" requires an additional or exceptional circumstance beyond an impervious financial situation that will continue to impede the debtor's ability to make payments on her student loans and maintain a minimal standard of living. Section 523(a)(8) provides that a student loan is 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). "Undue hardship" is not defined in the Bankruptcy Code; however, we and a majority of the other circuits have expressly adopted the Brunner test. See supra note 1.
Congress provided little in the way of express legislative intent specifically addressing the "undue hardship" requirement when it passed the statute. Id. at 753. Nonetheless, the phrase "undue hardship" was lifted verbatim from a bill proposed by the Commission on the Bankruptcy Laws of the United States ("Commission"), and with no clear indication to the contrary, we may impute the Commission's intent to Congress. Id. at 754; see also McClendon v. Cal-Wood Door (In re Wadsworth Bldg. Components, Inc.), 711 F.2d 122, 124 (9th Cir.1983) (looking to the Commission's report to interpret congressional intent). The Commission recognized that there was a high incidence of students filing for bankruptcy after finishing their education. Brunner, 46 B.R. at 754.
Consequently, in an effort to comply with congressional intent and to provide some guidance for the lower courts that are primarily responsible for administering the "undue hardship" standard, the Second Circuit adopted the three-prong test formulated by the district court. See Brunner, 831 F.2d at 396. The dispositive issue in this appeal is what is meant by the phrase "additional circumstances" as it is used in the second prong. ECMC argues that the "[m]ere inability to repay one's student loans in the future has never been the test for determining undue hardship." ECMC contends that "Pena and Brunner require a debtor to show not just future inability to repay, but that `additional circumstances' preclude future repayment." In other words, ECMC contends that "undue hardship" requires the debtor to show (1) the inability to pay now and in the foreseeable future and (2) some additional or exceptional circumstance beyond the mere inability to repay. ECMC misinterprets our case law and the purpose of the "additional circumstances" language in the Brunner test.6
In support of its contrary position, ECMC cites the Sixth Circuit's decision in Cheesman v. Tennessee Student Assistance Corp. (In re Cheesman), 25 F.3d 356 (6th Cir.1994). In Cheesman, although the Sixth Circuit discussed Brunner, it did not expressly adopt Brunner's three-prong test. Id. at 359. Rather, it found that the debtor's "loans were dischargeable under any undue hardship test the [trial] court may have used." Id. In reaching that conclusion, the Sixth Circuit stated that "there is no indication that the Cheesmans' financial situation will improve in the foreseeable future." Id. at 360.
In Pena, although we recognized the semantical difference in language employed between Cheesman and Brunner, we concluded that "[i]t does not appear that the Sixth Circuit in Cheesman was proclaiming a test distinct from Brunner." 155 F.3d at 1112. Accordingly, we reject ECMC's argument, but will set forth here the manner in which Pena and Brunner apply to a court's effort to predict a debtor's future income. We do not presume that an individual's present inability to make loan payments will continue indefinitely. Rather, we hold that the burden is on the debtor to provide the court with additional circumstances, i.e., "circumstances, beyond the mere current inability to pay, that show that the inability to pay is likely to persist for a significant portion of the repayment period. The circumstances need be `exceptional' only in the sense that they demonstrate insurmountable barriers to the debtors' financial recovery and ability to pay." Nys, 308 B.R. at 444.7 However, although the trial court should look to "additional circumstances" to make this finding, the determinative question is whether the debtor's inability to pay will, given all we know about the salient features of her existence, persist throughout a substantial portion of the loan's repayment period.
On remand, the bankruptcy court must also determine whether Nys has made a good faith effort to repay her student loans, since all three prongs of the Brunner test must be met before a court can make a finding of undue hardship. See Rifino, 245 F.3d at 1087-88. This determination will require the bankruptcy court to consider the evidence regarding the Ford program, and whether Nys, in good faith, considered consolidation options. See Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 412 F.3d 1200, 1206 (10th Cir.2005) (agreeing that "[although] participation in a repayment program is not required to satisfy the good-faith prong" it is considered "an important indicator of good faith" (internal quotation marks omitted)).
InPena, we adopted the three-prong test set forth by the Second Circuit in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987) (per curiam). Under this test, the debtor must show: "(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 the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans." Id. at 396. Hereinafter, we will refer to this test as the Brunner test.
In relevant part, § 523(a)(8) provides that a Chapter 7 discharge does not discharge an individual debtor from any debt "unless excepting such debt from discharge ... would impose anundue hardship on the debtor and the debtor's dependents, for ... an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution." 11 U.S.C. § 523(a)(8) (emphasis added).
It may be that Nys is entitled to only a partial discharge due to the amount of the debt and the unlikelihood that her income will increase substantially between now and her retirement. Nys conceded that she has the ability to pay a portion of the debt. Therefore, on remand, the bankruptcy court should consider whether Nys is entitled to only a partial dischargeSee Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1175 (9th Cir.2003) (holding that before a bankruptcy court can use its equitable powers under 11 U.S.C. § 105(a) to partially discharge a student loan, it must find undue hardship).