Opinion
Case No. 17-42001 Adversary No. 18-4015
02-24-2021
IN RE: BRADLEY STEVEN EPPERSON xxx-xx-3599 Debtor BRADLEY STEVEN EPPERSON Plaintiff v. EDUCATIONAL CREDIT MANAGEMENT CORPORATION Defendant
Chapter 7 FINDINGS OF FACT AND CONCLUSIONS OF LAW
Upon trial of the complaint filed by the Plaintiff, Bradley S. Epperson ("Plaintiff"), in the above-referenced adversary proceeding, seeking a determination that the student loan indebtedness currently due and owed to the Defendant, Education Credit Management Corporation ("ECMC"), should be discharged because it imposes an undue hardship upon the Plaintiff and his dependents, the Court issues the following findings of fact and conclusions of law pursuant to Fed. R. Civ. P. 52, as incorporated into adversary proceedings in bankruptcy cases by Fed. R. Bankr. P. 7052.
FINDINGS OF FACT
These findings of fact and conclusions of law are not designated for publication and shall not considered as precedent, except under the respective doctrines of claim preclusion, issue preclusion, the law of the case or as to other applicable evidentiary doctrines.
1. The Plaintiff, Bradley S. Epperson, is a 54-year-old married man who resides with his wife of twenty years in a five-person household in Allen, Texas. 2. Between the fall of 1987 and the summer of 1996, the Plaintiff utilized various educational loans to finance certain tuition expenses, including payments made to the DeVry Institute of Technology in Phoenix, Arizona, where he graduated with a Bachelor of Science degree in Electronics Engineering Technology. 3. Prior to that time, the Plaintiff was awarded an Associate of Arts Degree in Computer Technology from the ABC Technical and Trade School in 1988. 4. The student loans procured by the Plaintiff qualified him to obtain various engineering positions over the course of a work career exceeding twenty years. 5. Over the life of the loans, the Plaintiff has paid approximately $48,901 in service of his student loan obligations. 6. On May 9, 1997, the Plaintiff consolidated his educational loans in the cumulative amount of $47,059.54. 7. Among other things, the consolidation paid the outstanding balances on the Plaintiff's various educational loans that had been tendered through both subsidized and unsubsidized disbursements through the United States Department of Education, as well as other non-governmental lenders, and consolidated them into a single loan with a fixed interest rate. 8. The Defendant, ECMC, is the present owner and holder of the consolidated note which it acquired by means of assignment on April 13, 2018 after the initiation of this adversary proceeding by the Plaintiff. 9. The Plaintiff acknowledges that the indebtedness currently owed to ECMC is an educational loan "made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit . . . " which meets the statutory definition of 11 U.S.C. § 523(a)(8)(A). 10. On September 11, 2017, the Plaintiff, acting in a pro se capacity, filed a petition for relief under Chapter 7 of the Bankruptcy Code in this Court, the Hon. Brenda T. Rhoades, presiding. 11. The Plaintiff's spouse, Viktoriya Epperson ("Ms. Epperson"), did not join in the bankruptcy petition. 12. The bankruptcy schedules filed under oath by the Plaintiff reveal that he owns a residential homestead in Allen, Texas which he valued in 2017 at $310,000, subject to an approximate mortgage debt of $192,000, thereby enjoying an equity cushion in that exempt real property asset of approximately $118,000. 13. In addition to his mortgage indebtedness of $192,000, the Plaintiff's initial bankruptcy schedules filed on the Petition Date revealed no priority debt and unsecured indebtedness totaling $29,146.70, excluding the student loan indebtedness currently under review, which was comprised primarily of accrued credit card indebtedness. 14. An additional $2,208.22 of unsecured indebtedness was added through an amended Schedule E/F filed on February 16, 2018. 15. The Plaintiff also disclosed typical personal property assets for which exemptions were claimed and allowed. 16. A Notice of No Distribution was filed by the Chapter 7 Trustee on November 3, 2017. 17. On August 18, 2018, an order of discharge was entered in Plaintiff's favor in the underlying Chapter 7 bankruptcy case. 18. Despite having received a discharge of a considerable amount of unsecured debt, the Plaintiff nevertheless contends that his ongoing obligation to address his student loan indebtedness in the post-discharge period imposes an undue hardship upon himself and his dependents. 19. Thus, on February 23, 2018, the Plaintiff initiated the present action seeking a discharge of his student loan indebtedness to ECMC as an "undue hardship" within the meaning of § 523(a)(8) of the Bankruptcy Code. 20. The Plaintiff was the only witness in support of his case-in-chief. 21. With regard to his student loan indebtedness, the principal balance of the Plaintiff's loans as of April 20, 2018 was $39,246.14, at an interest rate of 9%. 22. The Plaintiff first contends that he and his family are currently unable to maintain a minimal standard of living because of his ongoing obligation to satisfy his student loan obligations which remain due and owing to the Defendant. 23. The Plaintiff is currently employed on a full-time basis as a Quality Assurance Engineer for Abbott Laboratories for which he evaluates the efficacy and safety of various healthcare-related products to determine their fitness for distribution and sale to certain labs and medical hospitals. 24. As of November 2020, the Plaintiff has been employed by Abbott for four (4) years. 25. The Plaintiff currently enjoys a gross monthly income of $7,176 arising from his employment at Abbott, for an annual gross salary of $86,112. 26. Over his four-year tenure at Abbott, the Plaintiff has received multiple performance-based pay increases, although such increases are provided solely at his employer's discretion. 27. The Plaintiff deducts on a pretax basis the following monthly amounts:
| (a) | health insurance premiums: | $ 516 |
| (b) | flex payments: | $ 121 |
| (c) | 401(k) contribution: | $ 215 |
| Expense | Amount |
|---|---|
| Mortgage | $1,860.00 |
| Electricity | $300.00 |
| Water | $75.00 |
| Telephone | $390.00 |
| Internet | $75.00 |
| Food | $1,000.00 |
| Children's Private School Tuition | $1,279.00 |
| Clothing | $100.00 |
| Medical/Dental | $200.00 |
| Gas | $185.00 |
| Recreation | $200.00 |
| Car 1 | $280.00 |
| Car 2 | $480.00 |
| Vehicle Registration | $80.00 |
| Personal Care/Grooming | $100.00 |
| HOA Fees | $50.00 |
| Housekeeping | $45.00 |
| Car Insurance | $290.00 |
|---|---|
| Total: $6,989.00 |
Ex. P.
Ex. A.
On May 7, 2018, this Court entered an order which authorized ECMC to intervene as a party-in-interest and thereby dismissing all other parties from the suit. ECMC is a non-profit corporation organized under the laws of Minnesota that was created under the direction of the U.S. Department of Education to provide specialized services to the department as its statutory representative responsible for defending student loan dischargeability claims in the context of consumer bankruptcies. See generally, Note, Forgive and Forget: Bankruptcy Reform in the Context of For-Profit Colleges, 128 HARV. L. REV. 2018, 2036 (2015).
Ex. F at 1.
Ex. F at 23. But see Ex. Q showing that the 2020 assessed value of the Plaintiff's home by the Collin County Appraisal District was $325,371.
Ex. F at 11-34.
Amended Schedule E/F [dkt #11] in bankruptcy case number 17-42001.
The Trustee's Notice is not assigned a docket number in the CM/ECF system. It appears between dkt ## 8-9 in bankruptcy case 17-42001.
Order of Discharge [dkt #24] in bankruptcy case number 17-42001.
Ex. L at 24.
The Plaintiff is paid $3,312 in gross salary on a bi-weekly basis. Ex. 13 at 1.
Ex. 13 at 1.
It is now well-settled that § 523(a)(8) of the Code requires bankruptcy courts to consider the income of a non-debtor spouse when deciding whether excepting a debtor's student loans from discharge will impose an "undue hardship" on the debtor. Lozada v. Educ. Credit Mgmt. Corp. (In re Lozada), 594 B.R. 212, 224 (Bankr. S.D.N.Y. 2018); Augustin v. U.S. Dep't. of Educ. (In re Augustin), 588 B.R. 141, 150 (Bankr. D. Md. 2018); Wynn v. Educ. Credit Mgmt. Corp. (In re Wynn), 378 B.R. 140, 148 (Bankr. S.D. Miss. 2007); Barron v. Tex. Guar. Student Loan Corp. (In re Barron), 264 B.R. 833, 838 (Bankr. E.D. Tex. 2001) and cases cited therein.
Ex. 13 at 3.
This is a reduction of $2,362 from the salary figure provided for Ms. Epperson in the Plaintiff's Schedule I filed in his bankruptcy case in 2017. Ex. F at 37.
No monthly statements from the shared Wells Fargo savings account appear in the record.
CONCLUSIONS OF LAW
1. This Court has subject matter jurisdiction to consider the complaint pursuant to 28 U.S.C. §§ 1334 and 157. This Court has authority to enter a final judgment on all issues raised in this adversary proceeding since it statutorily constitutes a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(I) and (O) and meets all constitutional standards for the proper exercise of full judicial power by this Court. 2. Section 523(a)(8) of the Bankruptcy Code excepts from an individual's discharge "a loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit . . . unless excepting such debt from discharge . . . will impose an undue hardship on the debtor and the debtor's dependents." 3. "In its entirety, § 523(a)(8) balances two competing policy objectives: (1) the debtor's right to a fresh start; and (2) the need to protect the financial integrity of educational loan programs and to induce lenders to lend to students who cannot qualify for loans under traditional underwriting standards." De La Rosa v Kelly (In re Kelly) 582 B.R. 905, 909 (Bankr. S.D. Tex. 2018). 4. "The debtor bears the burden of proof on each prong of the test and if even one prong is not satisfied, the debt is not dischargeable." Lewis v. Mass. Higher Educ. Assistance Corp. (In re Lewis), 2020 WL 489222 (Bankr. S.D. Miss. Jan. 29, 2020). 5. "The appropriate standard of proof for § 523(a)(8) is a preponderance of the evidence. Johnson v. U.S. Dep't. of Educ. (In re Johnson), 541 B.R. 759, 764 (Bankr. N.D. Ala. 2015). 6. Surprisingly, there is no precise definition of the term "undue hardship." It is not defined in the Bankruptcy Code nor has any particular judicial definition been endorsed by any decision of the United States Supreme Court. Kettler v. Great Lakes Higher Educ. Serv. Corp. (In re Kettler), 256 B.R. 719, 722 (Bankr. S.D. Tex. 2000). 7. However, as courts have attempted to balance a debtor's need for a fresh start with the recognized need to protect student loan programs and their participants, a growing consensus has emerged regarding the evidentiary foundation necessary to establish an undue hardship. 8. Most of the circuit courts of appeal have endorsed a three-prong test first articulated by the Second Circuit Court of Appeals in Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395 (2d Cir. 1987) under which a debtor is required to show:
(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for himself and his dependents if forced to repay the loan;9. This test was expressly adopted in 2003 by the Fifth Circuit. U.S. Dep't. of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89 (5th Cir. 2003). 10. "The test is conjunctive; a debtor's failure to satisfy any of the prongs means the debtor cannot establish that the student loans are an undue burden, and the student loans cannot be discharged." Little v. U.S. Dep't. of Educ. (In re Little), 607 B.R. 853, 858 (Bankr. N.D. Tex. 2019); Russ, 365 B.R. at 644. 11. Under the first Brunner element, the Debtor is required to show that he cannot maintain, based on his current income and expenses, a "minimal" standard of living for himself and his dependents if he is forced to repay the student debt. 12. "The first part of Brunner—that the debtor cannot maintain a minimal standard of living while repaying the student loan debt—comports with the legislative policy behind § 523(a)(8), that student loans should not as a matter of policy be dischargeable before [the debtor] has demonstrated that for any reason he is unable to earn sufficient income to maintain himself and his dependents and to repay the educational debt." Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302, 1309-10 (10th Cir. 2004) (internal quotations omitted). 13. This analysis is actually a two-step process encompassing: (1) an evaluation of the debtor's present standard of living based upon his present lifestyle attributes which appear from the record, and (2) whether the forced repayment of the student loan obligation will preclude the debtor from maintaining a minimal standard of living. Hoffman v. Tex. Guar. Student Loan Corp. (In re Williams) 2017 WL 2303498, at *5 (Bankr. E.D. Tex. May 25, 2017) (citing Naranjo v. Educ. Credit Mgmt. Corp. (In re Naranjo), 261 B.R. 248, 254-55 (Bankr. E.D. Cal. 2001)). 14. "The first step in determining the minimal standard prong is to determine the debtor's monthly income. Next, the Court reviews the debtor's actual monthly expenses and determines which are 'reasonable and necessary.' The Court must apply its common sense knowledge gained from ordinary observations in daily life and general experience to determine whether Debtor's expenses are reasonable and necessary." Graddy v. Educ. Credit Mgmt. Corp., 615 B.R. 336, 348 (N.D. Ga. 2020). 15. As a neighboring court recently observed,
(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 loan; and
(3) that the debtor has made good faith efforts to repay the loan.
Id. at 396.
Tight finances [are] not enough. Generally, maintaining a minimal standard of living requires that a debtor be able to purchase "basic necessities," but what qualifies as a basic necessity varies among courts. Some courts adopt a narrow view, including only food, clothing, housing, and medical treatment. Other courts are more generous and have held that basic necessities should also include transportation, hygiene expenses, and modest recreation. Under either definition, courts agree that after purchase of basic necessities, a debtor may not use any discretionary income to the detriment of [the debtor's] student loan creditors. If some "belt-tightening" in the debtor's expenses could create an ability to repay, [a debtor] cannot satisfy the first prong.
16. In other words, the "minimal standard of living" element also requires the debtor to demonstrate that he or she is attempting to "minimize living expenses and maximize financial resources." Justice v. Educ. Credit Mgmt. Corp. (In re Justice), 2016 WL 6956642, at *3 (Bankr. N.D. Miss. Nov. 28, 2016). 17. A debtor seeking a hardship discharge of student loan indebtedness under § 523(a)(8) is not "entitled to maintain whatever standard of living [he] has previously attained, nor the level [he] would maintain if required to repay the debt. 'Minimal' does not mean preexisting, and it does not mean comfortable." Halatek v. U.S. Dep't. of Educ. (In re Halatek), 592 B.R. 86, 97 (Bankr. E.D.N.C. 2018). 18. "A minimal standard of living is living within the strictures of a frugal budget in the foreseeable future . . . " Murray v. Educ. Credit Mgmt. Corp. (In re Murray), 563 B.R. 52, 58 (Bankr. D. Kan. 2016). 19. The test does not require a debtor to demonstrate that repayment of the loan would cause the Plaintiff and his family to live at or below the poverty level. Hutsell v. Navient (In re Hutsell), 620 B.R. 604, 612 (Bankr. N.D. Ohio 2020); Augustin, 588 B.R. at 149. 20. However, a minimal standard of living "does not accommodate luxury-type expenses." Halatek, 592 B.R. at 98; Crawley v. Educ. Credit Mgmt. Corp. (In re Crawley), 460 B.R. 421, 436 (Bankr. E.D. Pa. 2011). 21. The evidence presented by the Debtor does not reflect compliance with the established legal requirement that "a debtor has a heightened obligation to apply his or her income to the repayment of a student loan before the loan may be discharged under § 523(a)(8)." Miller v. Sallie Mae, Inc. (In re Miller), 409 B.R. 299, 319 (Bankr. E.D. Pa. 2009). 22. Absent a compelling reason, a debtor's decision to send a child to a private school reveals a discretionary use of income that reflects a conscious decision by a debtor to ignore the mandated repayment of his student loan obligation. Russ, 365 B.R. at 645. 23. Indeed, though rare even under the more liberal standards of a Chapter 13 plan confirmation context, this Court has previously determined that private education expenses were "reasonable and necessary" under circumstances in which the debtor's son had a medically-documented learning disability and a social disorder which were proven through medical testimony. In re Webb, 262 B.R. 685 (Bankr. E.D. Tex. 2001). 24. However, "[a]lthough compelling circumstances may distinguish a given case, the authorities uniformly hold that a debtor's mere preference for private schooling is insufficient to qualify the attendant expense as necessary and reasonable." Educ. Credit Mgmt. Corp. v. Savage (In re Savage), 311 B.R. 835, 841 (B.A.P. 1st Cir. 2004). 25. Instead, "private school tuition is most often considered a luxury expense that amounts to a debtor requiring his or her creditors to donate toward his children's education." Id . at n. 9 [concluding that since $322.50 in private school expenses "can be eliminated from [Debtor's] budget without creating undue hardship, her student loans cannot be discharged under § 523(a)(8)."]. 26. Because the Plaintiff has failed to establish the first element of the Brunner test by a preponderance of the evidence, the Court's inquiry regarding the dischargeability of the Plaintiff's student loan obligation concludes and the referenced student loan remains nondischargeable. 27. The Court need not decide whether the Plaintiff would have satisfied the second and third elements of the Brunner standards. Faish, 72 F.3d at 306; Davis v. Conduent (In re Davis), 608 B.R. 693. 705 (Bankr. N.D. Ill. 2019) ["Such failure to succeed on the first element of the Brunner test . . . means that the student loans cannot be discharged."]. 28. Without regard to the foregoing result, the Court feels compelled to respond to the Plaintiff's persistent urging throughout this proceeding for this Court to abandon the strictness of the Brunner test and apply a more liberal ad hoc standard of review. 29. This Court, of course, has no such freedom and is bound by the precedents established by the Fifth Circuit Court of Appeals in this regard. 30. However, the Fifth Circuit recently responded to a similar plea from a debtor with sympathetic circumstances with this unequivocal response:
Trejo v. Navient (In re Trejo), 2020 WL 1884444 at *5 (Bankr. N.D. Tex. Apr. 15, 2020).
No doubt because so many student loans are ultimately backed by the taxpayers, Congress intended to make student loan debt harder to discharge than other types of consumer debt, and the courts' adoption of a linguistically accurate and demanding standard fulfills that intent. The consequence of the Brunner/Gerhardt test is that sympathetic debtors . . . are held to the same standard as debtors who are less sympathetic. But that is an outcome for Congress to address, should it desire. The text of § 523(a)(8) draws no distinction between debtors perceived as sympathetic or unsympathetic. It is undoubtedly true that each case of claimed "undue hardship" must be examined on its own facts, but reducing the Brunner/Gerhardt test to a nebulous 'totality of the circumstances' standard risks creating intolerable inconsistency of results. The proposed weaker standard would inevitably judicially expand an area of bankruptcy law that Congress has unambiguously sought to restrict.
31. As the Circuit has advised, "Ultimate policy issues . . . are for Congress, not the courts." Id . at 455. 32. Because the Plaintiff, Bradley S. Epperson, has failed to establish by a preponderance of the evidence the existence of an undue hardship pursuant to § 523(a)(8) of the Bankruptcy Code, in accordance with the three-prong Brunner test adopted by the Fifth Circuit in U.S. Dept. of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89 (5th Cir. 2003), the Court concludes that the relief sought by the Plaintiff's complaint must be denied. 33. To the extent any of these conclusions of law constitute findings of fact, the Court expressly adopts them as such. 34. An appropriate judgment shall be entered which is consistent with these findings and conclusions.
Thomas, 931 F.3d at 454-55.
Having originated in the Second Circuit, the Brunner test has also now been adopted in the Third, Fourth, Sixth, Seventh, Ninth and Eleventh Circuits. Third: Penn. Higher Educ. Assistance Agency v. Faish (In re Faish), 72 F.3d 298, 306 (3d Cir. 1995); Fourth: Educ. Credit Mgmt. Corp. v. Frushour (In re Frushour), 433 F.3d 393 (4th Cir. 2005); Sixth: Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382, 295 (6th Cir. 2005); Seventh: Ill. Student Assistance Comm'n v. Roberson (In re Roberson), 999 F.2d 1132, 1135 (7th Cir. 1993); Ninth: United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108, 1111-12 (9th Cir. 1998); Tenth: Educ. Credit Mgmt. Corp. v. Polleys (In re Polleys), 356 F.3d 1302 (10th Cir. 2004); and Eleventh: Hemar Ins. Corp. v. Cox (In re Cox), 338 F.3d 1238, 1241-42 (11th Cir. 2003). The Eighth Circuit has elected to embrace a "totality of the circumstances" test in lieu of the Brunner factors. Educ. Credit Mgmt. Corp. v. Jesperson (In re Jesperson), 571 F.3d 775, 779 (8th Cir. 2009). The First Circuit saw "no need ... to pronounce our views of a preferred method of identifying a case of undue hardship," Nash v. Conn. Student Loan Found. (In re Nash), 446 F.3d 188, 190 (1st Cir. 2006), although its bankruptcy appellate panel has criticized Brunner. Bronsdon v. Educ. Credit Mgmt. Corp. (In re Bronsdon), 435 B.R. 791, 798-800 (B.A.P. 1st Cir. 2010). --------
Signed on 02/24/2021
/s/_________
THE HONORABLE BILL PARKER
CHIEF UNITED STATES BANKRUPTCY JUDGE