Brightful v. PA Higher Edu. Assistance Agency

• Decision Date: 03 October 2001
• Docket Number: No. 00-1250,00-1250
• Citation: Brightful v. PA Higher Edu. Assistance Agency, 267 F.3d 324 (3rd Cir. 2001)
• Parties: (3rd Cir. 2001) IN RE: PATRICIA A. BRIGHTFUL PATRICIA A. BRIGHTFUL, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY; SALLIE MAE TRUST; FIRST UNION BANK CHRISTINE SHUBERT, ESQ., CHAPTER 7 TRUSTEE; FREDERICK BAKER, ESQ., U.S. TRUSTEE, TRUSTEES PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY ("PHEAA"), APPELLANT
• Court: U.S. Court of Appeals — Third Circuit

Page 324

267 F.3d 324 (3rd Cir. 2001)

IN RE: PATRICIA A. BRIGHTFUL

PATRICIA A. BRIGHTFUL, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY; SALLIE MAE TRUST; FIRST UNION BANK CHRISTINE SHUBERT, ESQ., CHAPTER 7 TRUSTEE; FREDERICK BAKER, ESQ., U.S. TRUSTEE, TRUSTEES PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY ("PHEAA"), APPELLANT

No. 00-1250

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued April 17, 2001

Filed October 3, 2001

On Appeal from the United States District Court for the Eastern District of Pennsylvania District Judge: Honorable Marvin Katz (D.C. Civil No. 99-CV-06348)

Jason L. Swartley, Esq. Byron F. Walker, Esq. (Argued) Pennsylvania Higher Education Assistance Agency 1200 North 7th Street Harrisburg, PA 17102, Counsel for Appellant Pennsylvania Higher Education Assistance Agency

Henry J. Sommer, Esq. (Argued) Miller, Frank & Miller 21 South 12th Street 640 Psfs Building Philadelphia, PA 19107, Counsel for Appellee Patricia A. Brightful

Before: Alito, Rendell and Fuentes, Circuit Judges

OPINION OF THE COURT

Rendell, Circuit Judge

The Pennsylvania Higher Education Assistance Agency ("PHEAA") appeals the District Court's affirmance of the Bankruptcy Court's decision to discharge Patricia Brightful's student loan obligations. The issue presented by this appeal is whether Brightful's student loans burden her with an "undue hardship" that would render them dischargeable pursuant to 11 U.S.C. S 523(a)(8). Applying the three-pronged test we adopted in In re: Faish, 72 F.3d 298 (3d Cir. 1995), we hold that Brightful's student loans do not constitute an "undue hardship," and will reverse the District Court.

I. Facts and Procedural Background

This case arises out of an adversary proceeding filed by Brightful, seeking a determination that her student loans are dischargeable under 11 U.S.C. S 523(a)(8) because repayment of the loans would cause "undue hardship." On November 8, 1999, after a hearing on the merits, the Bankruptcy Court ruled that the loans were dischargeable.

PHEAA appealed, and the District Court affirmed the Bankruptcy Court's decision on February 28, 2000, based solely upon the Bankruptcy Court's Order and Memorandum. PHEAA now appeals the District Court's order.¹

The Bankruptcy Court made the following findings of fact. At the time of the Bankruptcy Court proceedings, Brightful was a 46-year-old single mother of a 14-year-old daughter. Due to their eviction from their former residence on July 19, 1999, Brightful and her daughter reside with Brightful's sister in a crowded three-bedroom home. The Bankruptcy Court characterized Brightful's living situation as "sub-marginal by any standards."

The Bankruptcy Court noted that Brightful has no degree, but has completed the equivalent of two years of college education. Most recently, she attended the New School for Social Research in New York City, but she has also attended the Community College of Philadelphia, Temple University, and Pierce Junior College. During the late 1980's and early 1990's, Brightful was employed full- time as a legal secretary at the Dechert law firm in Philadelphia. Since the early 1990's, she has worked part-time at Dechert. At the time of the hearing, Brightful was paid $18 per hour for her work at Dechert, but was only working nine to 30 hours per month, and estimated that she would earn approximately $8,500 in 1999. During 1998, she earned $20,000 at Dechert. Additionally, the Bankruptcy Court remarked that Brightful had filed sexual discrimination and sexual harassment charges against Dechert in 1998.

The Bankruptcy Court described Brightful as "very intelligent" and "physically healthy." However, the court also determined that Brightful had "glaring psychiatric problems" and that she was "emotionally unstable." The court noted that Brightful had made two suicide attempts, one in the last year. The court concluded that it was unlikely that Brightful would ever attain her college degree, and that Brightful lacked useful vocational training. Finally, the court determined that Brightful's pursuit of sexual discrimination charges against Dechert had both scarred her future prospects with that firm and accounted for the sharp reduction in her income in 1999 as compared to 1998.

II. Standard of Review

The trier of fact in this case was the Bankruptcy Court, not the District Court. Therefore "[w]e are in as good a position as the district court to review the findings of the bankruptcy court, so we review the bankruptcy court's findings by the standards the district court should employ, to determine whether the district court erred in its review." Fegeley v. United States, 118 F.3d 979, 982 (3d Cir. 1997) (quoting Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d Cir. 1981)). We must accept the Bankruptcy Court's findings of fact unless they are clearly erroneous, but we exercise plenary review over legal issues. Id. We therefore exercise plenary review over the Bankruptcy Court's application of our three-pronged Faish test to the facts of this case. See Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987) (noting that whether debtor suffers "undue hardship" under 11 U.S.C. S 523(a)(8) is a conclusion regarding the legal effect of the bankruptcy court's factual findings).

III. Discussion

The Bankruptcy Code provision at issue provides that:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt...

(8) 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, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents;

11 U.S.C. S 523(a)(8) (emphasis added).

In In re: Faish, 72 F.3d 298 (3d Cir. 1995), we analyzed this statutory section in detail.² We noted the difficulty in applying the "undue hardship" exception of 11 U.S.C. S 523(a)(8), because the drafters of the Bankruptcy Code did not define "undue hardship." Id. at 302. As a result, we had to look to the legislative purpose behind 11 U.S.C. S 523(a)(8) for guidance. Ultimately, we adopted the Second Circuit's three-pronged test for determining "undue hardship," found in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987), because the Brunner test was the "most logical and workable of the established tests" for assessing "undue hardship." Faish, 72 F.3d at 306.

Under this test, "undue hardship" requires a three-part showing: (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 for student loans; and (3) that the debtor has made good faith efforts to repay the loans. Id. at 304-05. The debtor has the burden of establishing each element of this test by a preponderance of the evidence. Id. at 306; see also Grogan v. Garner, 498 U.S. 279, 291 (1991) (holding that "the standard of proof for the dischargeability exceptions in 11 U.S.C. S 523(a) is the ordinary preponderance-of-the-evidence standard"). If one of the elements of the test is not proven, the inquiry must end there, and the student loans cannot be discharged. Faish, 72 F.3d at 306. Moreover, this test must be strictly construed: equitable concerns or other extraneous factors not contemplated by the test may not be imported into the analysis of "under hardship." Id.

Applying this test to Brightful's situation, we must first determine whether she has met her burden of demonstrating that she cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependent daughter if forced to repay the loans. We note that this inquiry is made difficult by the fact that the Bankruptcy Court made no factual findings regarding Brightful's expenses. Brightful did submit some information and testified briefly regarding her expenses, but PHEAA contends that much of this information is inaccurate, incomplete and undocumented.

For its part, the Bankruptcy Court appeared merely to assume that Brightful could not maintain a "minimal" standard of living because her 1999 income, which the court estimated at $8,500, was so low. While this might be a reasonable assumption, it is also true that Brightful earned significantly more money in 1998 ($20,000), is not on public assistance, and apparently has no significant housing expenses because she is living in her sister's home. Furthermore, in its November 8, 1999 order, the Bankruptcy Court did not even mention the amount of Brightful's loan payments. Our own examination of the record, however, reveals that as of October 20, 1999, Brightful's student loan indebtedness totaled $52,261.70 in principal and interest, which corresponds to a loan payment of $626 per month over the ten year life of the loans.³

Despite the dearth of information regarding Brightful's expenses, we nonetheless will assume, for the sake of argument, that at the time of the Bankruptcy Court proceedings, Brightful could not make her student loan payments and still maintain a minimal standard of living for herself and her daughter. As detailed below, we think it clear that Brightful has failed to meet her burden under the second prong of the Faish test, and thus we will not concern ourselves with the deficient state of the record regarding the first prong.

Under the second element of the test, Brightful must prove that additional circumstances exist indicating that she cannot maintain a minimal standard...