Court Opinion

ID: 3034272
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:50:49.169329+00
Date Added: 2024-06-11T09:51:38.496239
License: Public Domain

FILED
                           NOT FOR PUBLICATION                              MAR 02 2010

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS

                            FOR THE NINTH CIRCUIT

In re: MICHAEL ERIC HEDLUND;                     No. 04-35806
STEPHANIE RAE HEDLUND,
                                                 BAP No. OR 04-1103 KMaMo
             Debtors,

                                                 MEMORANDUM *

MICHAEL ERIC HEDLUND,

             Appellant,

  v.

PENNSYLVANIA HIGHER
EDUCATION ASSISTANCE AGENCY,

             Appellee.

                          Appeal from the Ninth Circuit
                            Bankruptcy Appellate Panel
             Klein, Marlar, and Montali, Bankruptcy Judges, Presiding

                      Argued and Submitted July 7, 2009
                               Portland, Oregon
                  Submission Vacated and Deferred July 8, 2009
                         Resubmitted February 5, 2010

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before:      PREGERSON, RYMER, and TASHIMA, Circuit Judges.

      The essential question tendered for decision on this appeal is whether the

bankruptcy court erred in holding that debtor Michael Hedlund’s student loans

were partially dischargeable under 11 U.S.C. § 523(a)(8), or the bankruptcy

appellate panel (“BAP”) erred in reversing the bankruptcy court and holding that

Hedlund did not meet the dischargeability requirements of § 523(a)(8). We have

jurisdiction pursuant to 28 U.S.C. § 158(d), and vacate and remand.

      In his bankruptcy case, Hedlund attempted to discharge approximately

$85,000 in student loans to finance his education at Willamette University law

school.1 Hedlund never passed the bar exam and was employed as a juvenile

counselor for the Kalmath County Juvenile Department. The bankruptcy court

found that requiring Hedlund to repay more than $30,000 of his student loans

would impose an undue hardship on him and his dependents; it therefore

discharged his student loan debts in excess of $30,000.

      The creditor, Pensylvania Higher Education Assistance Agency appealed to

the BAP, which reversed. The BAP held that it would not be unconscionable for

      1
             Because the parties are familiar with the facts and prior proceedings in
the case, we recite the facts only as necessary to aid in understanding our
disposition.

                                         -2-
Hedlund to eliminate a number of claimed expenses, including a new car payment,

which would result in a monthly saving of $559. Hedlund timely appealed.

         In assessing undue hardship in student loan cases, we have adopted the

three-factor test from Brunner v. N.Y. State Higher Educ. Serv. Corp. (In re

Brunner), 46 B.R. 752, 753 (S.D.N. Y. 1985), aff’d, 831 F.2d 395 (2d Cir. 1987).

         Under the Brunner test, the debtor must prove that: (1) he cannot maintain,
         based on current income and expenses, a “minimal” standard of living for
         himself and his dependents if required 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) the debtor has made
         good faith efforts to repay the loans.

Educ. Credit Mgmt. Corp. v. Mason (In re Mason), 464 F.3d 878, 882 (9th Cir.

2006).

         Under the first Brunner factor, the bankruptcy court did not sufficiently

consider whether Hedlund could reduce his expenses to meet a greater portion of

loan expenses; instead, it found only that Hedlund’s expenses could not be reduced

enough to support an $800/month loan repayment, the amount required for a total

payoff. It further did not consider whether Hedlund could increase his income

either by his taking on a part-time job or his wife working part time. Similarly, the

bankruptcy court’s consideration of the second and third factors under the Brunner

test was incomplete. For example, the BAP found, not without justification, that

                                              -3-
“the bankruptcy court was too charitable” in making its finding under the good

faith prong. The BAP pointed out, inter alia, that the debtor and his wife have

taken no steps to maximize their income, nor have they attempted to minimize their

expenses, such as by eliminating “luxury items.”

      In these circumstances, we believe that the proper and equitable course is to

remand this proceeding for the bankruptcy court to reconsider all of the evidence in

light of the Brunner test,2 and to make more complete findings on each of the three

factors under the Brunner test so as to facilitate appellate review of whether

Hedlund has met the “undue hardship” requirement of § 523(a)(8). Each party

shall bear its own costs on appeal.

      VACATED and REMANDED with instructions to remand to the

bankruptcy court for further proceedings in accordance with this disposition.

      2
             We leave to the bankruptcy court’s discretion whether or not to
reopen the record for the reception of further evidence on these issues.

                                         -4-