Court Opinion

ID: 9486808
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:00:45.185493+00
Date Added: 2024-06-11T17:51:56.674122
License: Public Domain

RALPH B. GUY, Jr., Circuit Judge,
dissenting.
The court concludes that the Cheesmans’ student loans are dischargeable pursuant to § 523(a)(8)(B) because requiring the Chees-mans to repay them would impose an undue hardship. The court then goes on to conclude that the bankruptcy court had the authority pursuant to § 105(a) to stay its discharge order. Since I disagree with both of these conclusions, I respectfully dissent.
While § 105(a) grants bankruptcy courts broad equitable powers, I do not believe this includes the power to effectively postpone a decision as to the dischargeability of a student loan. Neither a single ease nor any authority that stands for such a proposition has been brought to the court’s attention. The one case seemingly on point, which is quoted by the Cheesmans and cited by the court, In re Courtney, 79 B.R. 1004 (Bankr.N.D.Ind.1987), is distinguishable. The court in Courtney, referring to its broad powers under § 105(a), held:
[Although [this court] cannot modify the terms and conditions of any educational loan found to be nondisehargeable, it may, in the judgment, order that the automatic stay which would otherwise be vacated remain in effect for a period of time to give the Debtor additional “breathing room”, post-discharge, based on the prospects that he will have sufficient net income in the reasonably foreseeable future to repay an educational loan, although he may not have such net income at the time of the judgment.
Id. at 1013. At the very most, this passage indicates a court, after finding a debt to be not dischargeable, may use its equitable powers to give the debtor additional “breathing room” before making repayments. I do not dispute this proposition, and note that other courts have reached a similar conclusion. See, e.g., In re Conner, 89 B.R. 744 (Bankr.N.D.Ill.1988) (finding the debt was not dis-chargeable, but ordering a deferment in the collection of the debt to allow the debtor time to reorganize financially). Postponing the repayment of a nondisehargeable debt, however, is not the same as postponing the initial determination of whether the debt is dis-chargeable.
As the case currently stands, neither party benefits. If the court had ruled the debts were not dischargeable, TSAC could have taken actions to collect these loans and the Cheesmans would have known exactly where they stood. On the other hand, if the court had ruled the debts were dischargeable,' then TSAC would have been entitled to reimbursement from the United States Department of Education, see 34 C.F.R. § 682.-402(d) & (h) (1992), and the Cheesmans would have known that they were forever free from the burden of repayment. Here, however, as the ease waits “in limbo,” TSAC is foreclosed from taking any action, and the Cheesmans are left with the uncertainty of whether they ultimately will be responsible for having to pay these debts, Moreover, if a court can revisit a finding of undue hardship 18 months later, then does it not follow that, because a debtor’s financial position could worsen, a court may also revisit a finding of nondischargeability at a later date?
*362I also disagree with the court’s finding that requiring the Cheesmans to repay their loans would impose an undue hardship. The court bases this holding on the presence of three factors: (1) the Cheesmans could not maintain a minimal standard of living if they were required to repay their loans; (2) there is no indication that the Cheesmans’ financial situation will improve in the foreseeable future; and (3) there is no evidence that the Chees-mans did not act in good faith. Section 523(a)(8)(B) creates a presumption that student loans are nondischargeable in bankruptcy, and the burden of challenging that presumption falls on the debtor. See, e.g., United States v. Wood, 925 F.2d 1580, 1583 (7th Cir.1991). In my view, the Cheesmans failed to carry their burden in establishing the existence of the second and third factors.
The second factor requires a debtor to show “by a fair preponderance of the evidence, that additional circumstances exist indicating that the described state of affairs is likely to persist for a significant portion of the repayment period.... ” In re Healey, 161 B.R. 389, 395-96 (E.D.Mich.1993). “[T]he dischargeability of student loans should be based upon the certainty of hopelessness, not simply a present inability to fulfill financial commitment.” Matter of Roberson, 999 F.2d 1132, 1136 (7th Cir.1993) (citation omitted). While predicting future income is difficult, as evidenced by the bankruptcy court’s order to reexamine this issue 18 months later, the Cheesmans had the burden to establish “additional circumstances” that indicated a likelihood that their current inability to simultaneously repay the loans and maintain a minimal standard of living would extend for a significant portion of the loan repayment period. Healey, 161 B.R. at 396. The Cheesmans have not met this burden.
The Cheesmans are not disabled. They are not ill. They are not elderly. They are both college trained. At the time of the bankruptcy hearing, Mr. Cheesman held a job, and he testified that there was the possibility of a promotion with his current employer. Mrs. Cheesman is qualified to tutor or substitute teach, as she did prior to the filing of the Chapter 7 petition. These circumstances are inapposite of those in cases in which a court has found “additional circumstances” to exist. See, e.g., Matter of Diaz, 5 B.R. 253 (Bankr.W.D.N.Y.1980) (student loan was dischargeable when debtor could only work half a day because of physical problems, was impoverished, partially deaf, cardiac, divorced from her institutionalized husband, and had several children, some of whom required psychiatric and dental care); In re Bagley, 4 B.R. 248 (Bankr.D.Ariz.1980) (unemployed debtor subsisting at near welfare level, burdened with medical bills of a child with chronic respiratory illness whose condition required the care of the debtor and impeded her gainful employment, did not have any reasonable prospects of acquiring more wealth); cf. In re Webb, 132 B.R. 199, 201 (Bankr.M.D.Fla.1991) (no additional circumstances existed to indicate a likelihood that current inability to find any work would extend for significant period of time when debtor was not disabled or elderly, and was “educated, experienced, and articulate”). The record does not support a finding that the Cheesmans have demonstrated their current adverse financial condition will persist for a significant time.
Moreover, I do not believe the Cheesmans proved they acted in good faith. As discussed in the court’s holding, one element considered in evaluating a debtor’s good faith is the effort the debtor has made to repay his or her loans. Here, during the six-year period after the loans first became due and payable, the Cheesmans made only two $50 payments on each of their loans. There also is no evidence that the Cheesmans sought the less drastic remedy of a deferment of payments on their debts before attempting to discharge them. See Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 397 (2nd Cir.1987) (finding that debtor lacked good faith in attempting to discharge debt where she failed to seek a deferment of her loan); Healey, 161 B.R. at 397 (finding debtor’s attempt to discharge debt without first seeking to negotiate a payment arrangement with the lender evidenced bad faith).
“Undue hardship” is not defined in the Bankruptcy Code. The term “undue hardship,” however, indicates that the type of *363hardship involved in a particular circumstance must be significant. See In re Phillips, 161 B.R. 945 (Bankr.N.D.Ohio 1993). I do not believe the Cheesmans have carried their burden in demonstrating that circumstances will prevent their financial condition from improving in the future or that they have acted in good faith; thus, I would'find the undue hardship requirements have not been met. I would therefore vacate the bankruptcy court’s decision and remand with the instruction that the Cheesmans’ student loans be declared non-dischargeable.