Court Opinion

ID: 3038988
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:59:48.744807+00
Date Added: 2024-06-11T09:55:22.722026
License: Public Domain

FOR PUBLICATION
 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

In re: KEITH MASON,                 
                          Debtor,
                                           No. 04-35988
                                            BAP Nos.
EDUCATIONAL CREDIT MANAGEMENT
CORPORATION,                           ID 04-01075 BMaP
                                        ID 04-01077 BMaP
                      Appellant,
                                          ORDER AND
              v.
                                            OPINION
KEITH MASON,
                       Appellee.
                                    
               Appeal from the Ninth Circuit
                Bankruptcy Appellate Panel
 Perris, Marlar, and Brandt, Bankruptcy Judges, Presiding

                  Argued and Submitted
            June 9, 2006—Seattle, Washington
            Memorandum Filed June 29, 2006

              Memorandum Withdrawn and
            Opinion Filed September 28, 2006

   Before: David R. Thompson, A. Wallace Tashima, and
           Consuelo M. Callahan, Circuit Judges.

          Opinion by Judge A. Wallace Tashima

                          17073
17076                   IN RE: MASON

                        COUNSEL

Daniel Fisher, Jones, Gledhill, Hess, Andrews, Fuhrman,
Bradbury & Eiden, PA, St. Paul, Minnesota, for the appellant.

Joseph M. Meier, Cosho Humphry, LLP, Boise, Idaho, for the
appellee.

                          ORDER

   Appellant’s unopposed request for publication is granted.
The mandate issued on July 26, 2006, is recalled and the
memorandum disposition filed on June 29, 2006, 2006 WL
1876890, is withdrawn, and replaced by the authored opinion
filed concurrently with this order. No further petitions for
rehearing may be filed.
                             IN RE: MASON                         17077
                              OPINION

TASHIMA, Circuit Judge:

   Educational Credit Management Corporation (“ECMC”)
appeals from the decision of the Bankruptcy Appellate Panel
(“BAP”), which affirmed the bankruptcy court’s partial dis-
charge of government-insured student loans held by Debtor-
Appellee Keith Mason (“Mason”). See Educ. Credit Mgmt.
Corp. v. Mason (In re Mason), 315 B.R. 554 (B.A.P. 9th Cir.
2004). The bankruptcy court held that full repayment of the
loans would cause Mason an undue hardship within the mean-
ing of 11 U.S.C. § 523(a)(8). It therefore discharged all
amounts that Mason owed to ECMC in excess of $32,400.1
The bankruptcy court had jurisdiction under 28 U.S.C.
§ 157(b). The BAP had jurisdiction under § 158(c). We have
jurisdiction under § 158(d), and we reverse.

                         BACKGROUND

   At the time of the bankruptcy adversary proceeding, Mason
was 33 years old, single, in good physical health, and had no
dependents. Mason is well-educated, having earned an under-
graduate degree in philosophy from Boise State University in
1995, and a law degree from Gonzaga University in 1999.
Mason financed his education by acquiring federally-insured
student loans from various lenders totaling approximately
$193,000 in principal and accrued interest. At issue in this
proceeding is approximately $100,000 owed to ECMC in its
capacity as successor-in-interest to Northwest Education Loan
Association.2
  1
   Mason owed ECMC approximately $100,000.
  2
   The record indicates that Mason has entered into a repayment plan with
another lender, Help Services Group, Inc., in order to repay a separate
$65,000 student loan obligation.
17078                     IN RE: MASON
   Despite his education, Mason has had difficulty putting his
education to use because of a learning disability that has
affected his ability to concentrate, focus on details, read, and
write. Mason’s mother testified that he was diagnosed with
the learning disability in the third grade, and that she initially
thought that he would be unable to complete high school.
Mason did, however, finish high school, and then served in
the Army and National Guard for eight years. Following his
service, Mason enrolled at Boise State, and earned a philoso-
phy degree in 1995. After college, Mason took the Law
School Admission Test and applied to law school. Despite his
low test scores and GPA, Mason was accepted at Gonzaga
University Law School. Although Mason initially struggled in
law school, the University provided for special testing accom-
modations, and Mason earned his law degree in 1999.

  In December 1999, Mason began working for MicronPC in
Boise as a “process analyst” earning $26,000 per year. Mason
took the position with the hope of ultimately joining Micron-
PC’s legal department. In 2000, Mason took the Idaho bar
examination, but failed. In May 2001, Mason became a “gov-
ernment contracts technician” at MicronPC, earning $14.00
per hour, but was laid off in January 2002. After receiving
unemployment benefits for a few months, Mason began work-
ing as an independent contractor in April 2002, installing
home siding for Diamond Construction.

   The bankruptcy court found that Mason is currently earning
between $1,000 and $1,200 per month as a part-time contrac-
tor for Diamond Construction, and that his monthly expenses
average between $1,300 and $1,340. Mason has no fixed
schedule and works on an “as needed basis,” which allows
Mason to apply for other jobs and attend interviews. Mason
has worked with an employment service counselor, and con-
sidered a variety of jobs, but has had poor results. Based on
his experience, Mason has testified that he does not expect his
law degree will improve his chances of securing employment.
                         IN RE: MASON                    17079
While Mason has a commercial truck driver’s license, he has
been unable, or unwilling, to work as a truck driver.

   Mason filed a petition for relief under Chapter 7 of the
Bankruptcy Code on January 16, 2003. Mason owed a total of
$209,070.91 in unsecured, nonpriority claims, the majority of
which were for student loan debts. Mason sought discharge of
his student loan obligations pursuant to 11 U.S.C. § 523(a)(8).
Applying Brunner v. New York State Higher Education Ser-
vices Corp. (In re Brunner), 831 F.2d 395, 396 (2d Cir. 1987),
and Saxman v. Education Credit Management Corp. (In re
Saxman), 325 F.3d 1168, 1174-75 (9th Cir. 2003), the bank-
ruptcy court partially discharged Mason’s debt owed to
ECMC, to the extent it exceeded $32,400. The BAP affirmed,
and ECMC now appeals.

                STANDARD OF REVIEW

   “Because we are in as good a position as the BAP to review
bankruptcy court rulings, we independently examine the
bankruptcy court’s decision, reviewing the bankruptcy court’s
interpretation of the Bankruptcy Code de novo and its factual
findings for clear error.” Miller v. Cardinale (In re DeVille),
361 F.3d 539, 547 (9th Cir. 2004) (citation and internal quota-
tion marks omitted). We have held that whether repayment of
a student loan debt would impose an undue hardship requires
a determination of the “legal effect of the bankruptcy court’s
findings” regarding the student’s circumstances, a question of
law which we review de novo. Rifino v. United States (In re
Rifino), 245 F.3d 1083, 1087 n.2 (9th Cir. 2001).

                       DISCUSSION

   [1] An educational loan is dischargeable in bankruptcy if
“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). To determine if excepting student debt
from discharge will impose an undue hardship, we apply the
17080                      IN RE: MASON
three-part test first enunciated in In re Brunner, 831 F.2d at
396. See United Student Aid Funds, Inc. v. Pena (In re Pena),
155 F.3d 1108, 1112 (9th Cir. 1998) (adopting the Brunner
test). 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. Id. at
1111; Brunner, 831 F.2d at 396. “[T]he burden of proving
undue hardship is on the debtor, and the debtor must prove all
three elements before discharge can be granted.” In re Rifino,
245 F.3d at 1087-88 (citation omitted).

I.   Minimal Standard of Living

   The first prong of the Brunner test requires that Mason
prove that he cannot maintain a minimal standard of living if
he were required to repay the loans. See In re Saxman, 325
F.3d at 1173; In re Rifino, 245 F.3d at 1088. The bankruptcy
court found that Mason’s average monthly income generally
fluctuated between $1,000 and $1,200 per month, and that in
some months it was below that amount. The bankruptcy court
also found that Mason’s necessary average monthly expenses,
excluding his loan payments, were between $1,300 and
$1,340 per month. Based on these findings, the bankruptcy
court concluded that Mason satisfied the first prong of the
Brunner test because he would not be able to maintain a mini-
mal standard of living if required to repay the loans.

   [2] “The method for calculating a debtor’s average monthly
expenses is a matter properly left to the discretion of the
bankruptcy court.” In re Pena, 155 F.3d at 1112. Because
ECMC does not dispute the bankruptcy court’s findings
regarding Mason’s monthly income and expenses, we will not
disturb them. See id.; Pa. Higher Educ. Assistance Agency v.
                              IN RE: MASON                           17081
Birrane (In re Birrane), 287 B.R. 490, 496 (B.A.P. 9th Cir.
2002).3

II.   Additional Circumstances

   The second prong of the Brunner test requires a debtor to
prove 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.” In re Brunner, 831
F.2d at 396. We recently clarified that a “debtor does not have
a separate burden to prove ‘additional circumstances,’ beyond
the inability to pay presently or in the future.” Educ. Credit
Mgmt. Corp. v. Nys (In re Nys), 446 F.3d 938, 945 (9th Cir.
2006) (holding that that bankruptcy court erred in requiring
debtor to show exceptional circumstances beyond the inability
to pay in the present and a likely inability to pay in the
future).
   3
     ECMC argues that the bankruptcy court erred because Mason failed to
establish that he maximized his income. As a preliminary matter, ECMC
did not raise this argument before the bankruptcy court or the BAP, and
therefore has waived it on appeal. See Burnett v. Resurgent Capital Servs.
(In re Burnett), 435 F.3d 971, 975-77 (9th Cir. 2006) (“[A]n issue is
waived if not presented to the BAP, unless exceptional circumstances exist
to justify consideration of the issue.”). Even if we were to reach the argu-
ment, however, ECMC’s contention that Mason must establish that he
maximized his income in order to meet the first prong of Brunner does not
find support in the case law. Although ECMC claims that United Student
Aid Funds, Inc. v. Nascimento (In re Nascimento), 241 B.R. 440 (B.A.P.
9th Cir. 1999), requires that Mason prove that he has maximized his
income, Nascimento appears to impose no such requirement. See In re
Nascimento, 241 B.R. at 444-45. In any event, even if Nascimento could
be read to require a debtor to prove that he maximized his income to meet
the first prong of the Brunner test, we have not specifically imposed such
a requirement. See In re Rifino, 245 F.3d at 1088 (requiring only that
debtor prove she could not maintain a minimal standard of living based on
her current income and expenses); In re Pena, 155 F.3d at 1112-13 (deter-
mining whether first prong of Brunner test was met by subtracting debt-
or’s average monthly expenses from their net monthly income).
Accordingly, ECMC’s contention fails.
17082                     IN RE: MASON
   Here, the bankruptcy court found that Mason’s learning
disability, and his inability to put his law degree to use, were
additional circumstances indicating that Mason’s financial cir-
cumstances would not improve for a significant period of
time. ECMC argues that the bankruptcy court erred because:
(1) Mason presented legally insufficient evidence of any dis-
ability; (2) Mason should not be permitted to rely on a pre-
existing circumstance (i.e., a disability that predated his deci-
sion to take out the loans); and (3) despite Mason’s learning
disability, there is every indication that Mason’s situation will
improve.

   ECMC’s first argument — that Mason presented legally
insufficient evidence of his disability — is being raised for the
first time on appeal; heretofore, ECMC has never disputed the
existence of Mason’s learning disability. In fact, ECMC’s
own vocational expert acknowledged that Mason had a learn-
ing disability that might affect his performance. See In re Bur-
nett, 435 F.3d at 975-77 (holding that an argument is
generally considered waived if not presented to the BAP). In
addition, Mason testified regarding his learning disability and
the impact it has had on his ability to succeed. Mason’s testi-
mony was also corroborated by his mother’s testimony and
the special accommodations he received in law school. Thus,
sufficient evidence supports the bankruptcy court’s finding
that Mason has a learning disability.

   [3] ECMC further argues that even if Mason has provided
corroborating evidence of the existence of his learning dis-
ability, he failed to provide any evidence of how his learning
disability impaired his ability to work. While ECMC’s posi-
tion has some merit, see Brightful v. Pa. Higher Educ. Assis-
tance Agency (In re Brightful), 267 F.3d 324, 330-31 (3d Cir.
2001) (holding that the bankruptcy court cannot merely
assume that debtor’s psychiatric problems precluded her from
finding employment, and requiring some showing of how dis-
ability affected debtor’s ability to earn income), the record
establishes that Mason’s learning disability has made it diffi-
                         IN RE: MASON                     17083
cult for him to hold positions that require particular attention
to detail or concentration. Moreover, unlike in Brightful, the
bankruptcy court in this case did make specific findings that
Mason’s learning disability diminished his prospects of suc-
ceeding in any professional career and has placed him at a rel-
ative disadvantage compared to other job applicants. Cf. id.
(“What is missing from the Bankruptcy Court’s analysis,
however, is any discussion of the nature of Brightful’s emo-
tional and psychiatric problems, or how these problems pre-
vent her from being gainfully employed.”). We conclude that
the bankruptcy court did not clearly err in finding that Mason
suffered from a learning disability that impaired his ability to
earn a sufficient income now or in the future.

   [4] ECMC next argues that Mason should not be permitted
to rely on an “additional circumstance” that predated his deci-
sion to take out the loans, relying on Thoms v. Educational
Credit Management Corp (In re Thoms), 257 B.R. 144, 149
(Bankr. S.D.N.Y. 2001). We have never drawn such a distinc-
tion between pre-existing and later-arising “additional circum-
stances,” and ECMC cites no binding authority supporting its
position. As the BAP aptly noted:

    [N]o circuit court has held that a circumstance or
    condition in existence at the time the debtor obtained
    the educational loan in question must be excluded
    from consideration in the persistence analysis, or that
    the debtor must show a worsening or exacerbation to
    carry his burden on the second Brunner prong.
315 B.R. at 561. We agree with the BAP’s reasoning and,
consequently, reject this argument. See also Educ. Credit
Mgmt. Corp. v. Nys (In re Nys), 308 B.R. 436, 446 (B.A.P.
9th Cir. 2004) (explaining that “[t]he ‘additional circum-
stances’ test does not focus on a debtor’s past choices, but on
currently existing circumstances and what those circum-
stances show with regard to the debtor’s future financial situa-
tion”), aff’d, 446 F.3d 938 (9th Cir. 2006).
17084                     IN RE: MASON
   Finally, ECMC argues that despite Mason’s learning dis-
ability, there is every indication that Mason’s situation will
improve. The bankruptcy court agreed, concluding that
Mason would, at some point, be able to make loan payments,
and thus granted Mason only a partial discharge of his loan
debt. Because ECMC does not argue that these findings are
erroneous, and the bankruptcy court held that Mason had sat-
isfied the second prong of the Brunner test only with respect
to a portion of his student loans, see In re Saxman, 325 F.3d
at 1174 (“A debtor who wishes to obtain a discharge of his
student loans must therefore meet the requirements of
§ 523(a)(8) as to the portion of the debt to be discharged
before that portion of his or her debt can be discharged.” (cita-
tion omitted) (emphasis added)), we reject this claim.

III.    Good Faith

   [5] The final prong of the Brunner test requires that the
debtor exhibit good faith in his efforts to repay the student
loans. See In re Pena, 155 F.3d at 1114. “Good faith is mea-
sured by the debtor’s efforts to obtain employment, maximize
income, and minimize expenses.” In re Birrane, 287 B.R. at
499 (citations omitted); see also In re Pena, 155 F.3d at 1114.
Courts will also consider “[a] debtor’s effort — or lack
thereof — to negotiate a repayment plan,” In re Birrane, 287
B.R. at 499, although a history of making or not making pay-
ments is, by itself, not dispositive, see id. at 499-500.

   The bankruptcy court concluded that Mason exhibited good
faith because he attempted to maximize his income, minimize
his expenses, and negotiate with his student loan creditors.
The court rejected ECMC’s argument that Mason has not
shown good faith based on his failure to attempt the bar exam
a second time, his failure to obtain a second part-time job in
the evening, and his failure to sign up for the Income Contin-
gent Repayment Plan (“ICRP”). ECMC now renews these
arguments on appeal.
                              IN RE: MASON                          17085
   [6] In In re Biranne, the Ninth Circuit BAP recently
reversed the bankruptcy court, inter alia, because the debtor
did not use her “best efforts to maximize her income” and
failed to take steps towards re-negotiating a repayment sched-
ule under the ICRP. See 287 B.R. at 499-500; 34 C.F.R.
§ 685.209.4 There, the BAP reasoned that the debtor failed to
maximize her income because she worked only part-time and
provided no evidence that “she explored the possibility, or
was even willing, to take a second job outside her field.” Id.
at 499. While the BAP recognized that the debtor had “previ-
ously made some effort in negotiating repayment of her stu-
dent debt,” it further reasoned that the debtor’s failure to
explore the ICRP option that became available to her also
weighed against finding that she had met her burden of proof
on the issue of good faith. Id. at 499-500.

   [7] We conclude that, like the debtor in In re Biranne,
Mason has not met his burden of establishing good faith in
attempting to pay back the student loans. While Mason has
minimized his expenses, he has not maximized his income,
nor has he made adequate efforts to obtain full-time employ-
ment. Mason works only part-time as a home siding installer,
despite holding a bachelor’s degree in philosophy and a law
degree. Mason sought to justify his unwillingness to find a
second part-time job on the ground that it would make it diffi-
cult for him to continue his ongoing search for a full-time
position. The record belies this testimony, instead revealing
that Mason’s search for full-time employment has been inade-
quate in light of the significant free time his schedule provides
him. See In re Birrane, 287 B.R. at 499-500 (finding lack of
good faith, in part, because debtor declined to obtain a second
part-time job).

   [8] Mason also claims that he is unable to seek work as an
  4
   Under the ICRP, a debtor’s monthly payments vary based on the debt-
or’s ability to pay. After 25 years, any debt remaining on the consolidated
loans is forgiven. See 34 C.F.R. § 685.209(c)(4)(iv).
17086                    IN RE: MASON
attorney because he cannot pass the bar examination. Mason
has, however, made only one attempt to pass the Idaho bar
exam, without requesting special testing accommodations,
despite blaming his failure on his learning disability. Mason
further testified that he does not intend to take the bar exam
a second time, even though he acknowledged that he has sub-
stantial free time that he could dedicate to studying. See
Pobiner v. Educ. Credit Mgmt. Corp. (In re Pobiner), 309
B.R. 405, 418 (Bankr. E.D.N.Y. 2004) (“In general, courts
have found that failure to pass the bar exam is not a sufficient
reason for the discharge of student loans.” (citations omit-
ted)); Parks v. Graduate Loan Ctr. (In re Parks), 293 B.R.
900, 904 (Bankr. N.D. Ohio 2003) (refusing to discharge law
school loans after debtor failed bar exam primarily due to
insufficient effort to retake exam).

   [9] Finally, while Mason appears to have made some previ-
ous efforts to negotiate repayment of his debt, his efforts have
been inadequate. The record demonstrates that Mason could
have attempted renegotiation of his debt under the ICRP, but
failed to pursue this option with diligence. See In re Birrane,
287 B.R. at 500 (finding lack of good faith, where debtor pre-
viously made some effort in negotiating repayment of her stu-
dent debt but failed to pursue ICRP option when it became
available). For the foregoing reasons, we conclude that the
bankruptcy court clearly erred in finding that Mason demon-
strated good faith efforts to repay his loans.

                       CONCLUSION

  Accordingly, the BAP’s decision is REVERSED and
REMANDED for further proceedings consistent with this
opinion.