Bronsdon v. Educ. Credit Mgmt. Corp..

• Decision Date: 21 September 2010
• Docket Number: BAP No. MB 10-009.,Bankruptcy No. 07-14215-FJB.,Adversary Proceeding No. 08-01062-MSH.
• Citation: 435 B.R. 791
• Parties: Denise Megan BRONSDON, Debtor. Denise Megan Bronsdon, Plaintiff-Appellee, v. Educational Credit Management Corporation, Defendant-Appellant.
• Court: U.S. Bankruptcy Appellate Panel, First Circuit

435 B.R. 791

Denise Megan BRONSDON, Debtor.Denise Megan Bronsdon, Plaintiff-Appellee,

v.Educational Credit Management Corporation, Defendant-Appellant.

BAP No. MB 10-009.

Bankruptcy No. 07-14215-FJB.

Adversary Proceeding No. 08-01062-MSH.

United States Bankruptcy Appellate Panelof the First Circuit.

Sept. 21, 2010.

COPYRIGHT MATERIAL OMITTED.

John F. White, Esq., and Troy A. Gunderman, Esq., on brief for Defendant-Appellant.

Denise M. Bronsdon, Pro Se, on brief for Plaintiff-Appellee.

Before HAINES, LAMOUTTE, and TESTER, United States Bankruptcy Appellate Panel Judges.

LAMOUTTE, Bankruptcy Judge.

This appeal arises out of an adversary proceeding filed by Denise Bronsdon (the “Debtor”) seeking to discharge her student loan obligations to Educational Credit Management Corporation (“ECMC”) on the grounds of undue hardship pursuant to § 523(a)(8). ¹ The bankruptcy court initially concluded that repayment of the student loans would impose an undue hardship on the Debtor and discharged the loans. ² On appeal, the U.S. District Court for the District of Massachusetts (the “district court”) vacated the bankruptcy court's decision and remanded the matter to the bankruptcy court to consider the impact that participation in the William D. Ford Federal Direct Loan Program (the “Ford Program”) would have on the undue hardship analysis. ³ On remand, the bankruptcy court concluded that the Debtor's failure to participate in the Ford Program was insufficient to overcome a finding of undue hardship under § 523(a)(8), and again discharged the loans. ⁴ ECMC appealed.

For the reasons set forth below, we AFFIRM.

BACKGROUND

A. The Debtor's Personal Background

At the time of trial in January 2009, the Debtor was 64 years old and single. She did not have any dependents nor did she suffer from any disability or debilitating medical condition. In 1994, the Debtor, at the age of 50, received a bachelor's degree in English from Wellesley College. Thereafter, from 1996 until 2002, she worked at various jobs as a legal secretary until she decided to go to law school. She enrolled in Southern New England School of Law, and graduated in the top half of her class in December 2005. To finance her law school education, the Debtor took out the student loans now at issue, which at some point were assigned to ECMC. As of September 8, 2008, the loans totaled $82,049.45.

After law school, the Debtor failed the bar exam three times, each time by a significant margin. She does not plan to take the bar exam again because she has no money to pay for the exam fee or preparation materials, and because she has not come close to passing.

After graduating from law school, the Debtor worked briefly as a receptionist and as a temporary patent prosecution secretary at two different law firms. Although she continually went on interviews, made telephone calls, and spoke with employment agencies in an effort to find any kind of secretarial, receptionist, or contract manager work, she was unable to find employment. The Debtor pursued alternate means of earning income, but her attempts were unsuccessful. ⁵ At the time of trial, the Debtor's only income was a monthly Social Security payment of $946.00. She owned no real property and lived temporarily in her father's house.

B. Procedural History

The Debtor filed a chapter 7 petition in July 2007, and received a discharge in December 2007. Thereafter, the Debtor filed an adversary complaint seeking to discharge her student loan obligations to ECMC. ⁶ At ECMC's request, the bankruptcy court took judicial notice of the Ford Program, 34 C.F.R. §§ 685.100, et seq. The Ford Program offers, among other things, a student loan consolidation repayment option known as the income contingent repayment plan (the “ICRP”).

After a trial, the bankruptcy court issued an order and decision (the “First Decision”) discharging the debts owed to ECMC. In the First Decision, the bankruptcy court applied a totality of the circumstances test to determine whether the Debtor would suffer an undue hardship. 2009 WL 95038, at *2-3, 2009 Bankr.LEXIS 69, at *7. In applying this standard, the bankruptcy court found that, given the Debtor's lack of recent work history, narrow work experience, failure to pass the bar exam, age, unsuccessful attempts to find employment in a variety of fields, and unsuccessful attempts to sell a novel and acquire a patent, the Debtor had no reasonably reliable future financial resources other than the Social Security payments. Id. at *4-5, 2009 Bankr.LEXIS 69, at *12-14.

The bankruptcy court also recognized that if the Debtor participated in the Ford Program, her current financial status would not require monthly payments. Id. at *4, 2009 Bankr.LEXIS 69, at *11. It rejected ECMC's argument that repayment would not cause the Debtor an undue hardship because the Debtor would not be required to make monthly payments under the program. The bankruptcy court stated that if the Debtor were to participate in the Ford Program, “the student loan forgiveness at the conclusion of her participation in the program would result in a tax liability that would subject the Debtor's Social Security benefits to garnishment,” which would “promote a vicious cycle that could leave the Debtor in a financial state much more desperate than the one she is currently enduring.” Id. Additionally, the bankruptcy court referred to its reasoning in In re Denittis, 362 B.R. 57, 64-65 (Bankr.D.Mass.2007), in which it concluded that consideration of the Ford Program in the undue hardship analysis would, in effect, foreclose a conclusion of undue hardship whenever a debtor is eligible to participate. Bronsdon, 2009 WL 95038, at *4, 2009 Bankr.LEXIS 69, at *11.

On appeal to the district court, ECMC contested the bankruptcy court's factual findings regarding the Debtor's good faith efforts to find work and that she was not likely to earn income in the future. ECMC also argued that the bankruptcy court made errors of law concerning the ICRP. At the outset, the district court noted the two tests for determining undue hardship, but stated that the test to be applied was not a material issue in this case as the result was the same under both tests. The district court then determined that there was ample evidence supporting the bankruptcy court's factual findings and, therefore, that the findings were not clearly erroneous. It also concluded that the bankruptcy court had made a legal error by “giving no weight to the ICRP in the undue hardship analysis.” As a result, the district court vacated the First Decision and remanded the matter to the bankruptcy court to consider the impact that participating in the ICRP would have on the undue hardship analysis.

On remand, the bankruptcy court concluded that “the Debtor's failure to participate in the ICRP [wa]s insufficient to demonstrate a lack of good faith (again assuming such finding is integral to the test under § 523(a)(8)) when weighed against this Debtor's efforts to try to improve her financial circumstance,” and ordered that the student loans owed to ECMC were discharged. This appeal ensued.

JURISDICTION

Before addressing the merits of an appeal, the Panel must determine that it has jurisdiction, even if the issue is not raised by the litigants. See Boylan v. George E. Bumpus, Jr. Constr. Co. (In re George E. Bumpus, Jr. Constr. Co.), 226 B.R. 724 (1st Cir. BAP 1998). The Panel has jurisdiction to hear appeals from: (1) final judgments, orders, and decrees; or (2) with leave of court, from certain interlocutory orders. 28 U.S.C. § 158(a); Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998). A decision is considered final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment,” id. at 646 (citations omitted), whereas an interlocutory order “only decides some intervening matter pertaining to the cause, and requires further steps to be taken in order to enable the court to adjudicate the cause on the merits.” Id. (quoting In re Am. Colonial Broad. Corp., 758 F.2d 794, 801 (1st Cir.1985)). Generally, a bankruptcy court's order regarding the dischargeability of a debtor's student loans is a final order. See Educ. Credit Mgmt. Corp. v. Kelly (In re Kelly), 312 B.R. 200, 204 (1st Cir. BAP 2004).

STANDARD OF REVIEW

The Panel reviews the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. See TI Fed. Credit Union v. DelBonis, 72 F.3d 921, 928 (1st Cir.1995); Western Auto Supply Co. v. Savage Arms, Inc. (In re Savage Indus., Inc.), 43 F.3d 714, 719 n. 8 (1st Cir.1994). Generally, a bankruptcy court's undue hardship determination involves the application of a legal standard to the facts of a particular case and therefore poses a mixed question of law and fact. See TI Fed. Credit Union, 72 F.3d at 928; see also Nash v. Conn. Student Loan Found. (In re Nash), 446 F.3d 188, 191 (1st Cir.2006); Lorenz v. Am. Educ. Servs./Pa. Higher Educ. Assistance Agency (In re Lorenz), 337 B.R. 423, 429 (1st Cir. BAP 2006). “Appellate courts review bankruptcy court findings of fact under the clearly erroneous standard, but subject legal conclusion[s] drawn by such courts to de novo review.” TI Fed. Credit Union, 72 F.3d at 928.

The district court determined that the bankruptcy court's factual findings were not clearly erroneous, and, therefore, no factual issues were determined by the bankruptcy court on remand. Thus, the bankruptcy court's findings may not be challenged in this appeal. See Ellis v. U.S., 313 F.3d 636, 646 (1st Cir.2002) (quoting Flibotte v. Pa. Truck Lines, Inc., 131 F.3d 21, 25 (1st Cir.1997)) (holding that under the law of the case doctrine, a lower court may not relitigate issues that a higher court decided “whether explicitly or by reasonable implication, at an earlier stage of the same case.”). Therefore, the standard of appellate review is de...