Difrancesco v. U.S. Dep't of Educ. (In re Difrancesco)

• Decision Date: 06 November 2019
• Docket Number: Adversary Number: 5:19-ap-00008-RNO,Case Number: 5:19-bk-00201-RNO
• Citation: 607 B.R. 463
• Parties: IN RE: Guy M. DIFRANCESCO, Debtor(s) Guy M. DiFrancesco, Plaintiff(s) v. U.S. Department of Education and Educational Credit Management Corporation, Defendant(s)
• Court: U.S. Bankruptcy Court — Middle District of Pennsylvania

607 B.R. 463

IN RE: Guy M. DIFRANCESCO, Debtor(s)Guy M. DiFrancesco, Plaintiff(s)

v.U.S. Department of Education and Educational Credit Management Corporation, Defendant(s)

Case Number: 5:19-bk-00201-RNO

Adversary Number: 5:19-ap-00008-RNO

United States Bankruptcy Court, M.D. Pennsylvania.

Signed November 6, 2019

Guy M. DiFrancesco, Larksville, PA, pro se.

D Brian Simpson, United States Attorney's Office, James J. Jarecki, PA Higher Ed. Assistance Agency/AES, Harrisburg, PA, Joseph P. Schalk, Barley Snyder, Lancaster, PA, for Defendants.

Nature of Proceeding: Adversary Complaint

OPINION ¹

Robert N. Opel, II, Chief Bankruptcy Judge Debtor filed an Adversary Complaint seeking to discharge his student loans alleging they posed an undue hardship. The United States Department of Education and the Educational Credit Management Corporation timely filed answers. For the reasons stated below, I will enter judgment for Defendants.

I. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

II. FACTS AND PROCEDURAL HISTORY

Guy M. DiFrancesco ("Debtor") is a healthy, forty-year-old male currently living with his seventy-six-year-old mother, Barbara DiFrancesco, at her home in Larksville, Pennsylvania. Debtor began pursuing a bachelor's degree in political science in 1998 at Luzerne County Community College, which degree he eventually obtained from Bloomsburg University of Pennsylvania in 2005. Subsequently, Debtor enrolled at East Stroudsburg University where he obtained his master's degree in American politics in 2008. Later that same year, Debtor enrolled at both Marywood University, where he pursued a PhD in human development, and King's College, where he pursued a teaching degree. However, Debtor dropped out of both programs prior to completion when he chose to provide 24/7 care to his mother who suffered a debilitating stroke in 2010. From 1998 to 2010, Debtor received multiple student loans ("Loans") from the United States Department of Education and the Pennsylvania Higher Education Assistance Agency ("PHEAA").² As of the date of this Opinion, Debtor has failed to make a single payment on any of his Loans³ which now collectively total more than $200,000.⁴

On January 17, 2019, Debtor, acting pro se , filed his voluntary Chapter 7 Bankruptcy Petition. He obtained a general Chapter 7 discharge on May 6, 2019. Discharge Order, 5:19-bk-00201-RNO, ECF No. 33. The discharge order provides some examples of debts that are not discharged. One example is, "debts for most student loans."

On January 24, 2019, Debtor commenced this Adversary Proceeding by filing a Complaint ("Complaint") against the United States Department of Education seeking a discharge of his Loans. Following a nunc pro tunc motion to extend time to file an answer, which I granted, the United States Department of Education filed its answer on March 8, 2019. Additionally, PHEAA timely filed its answer on February 25, 2019. Nonetheless, PHEAA does not appear on the case caption because, on March 21, 2019, the Educational Credit Management Corporation ("ECMC") filed a Motion to Intervene ("Motion") on the grounds that PHEAA had assigned its right, title, and interest in Debtor's Loans to ECMC.⁵ I granted the Motion on March 22, 2019. Subsequently, ECMC filed its answer on April 5, 2019.

A Trial was ultimately held on October 4, 2019 ("Trial"). Both Debtor and ECMC timely filed post-trial briefs.⁶ The Complaint is now ripe for decision.

III. DISCUSSION

Debtor's Complaint requests I discharge his student loans arguing that repaying them places an undue hardship on him.⁷ Both ECMC and the United States Department of Education argue that, at the very least, Debtor cannot satisfy the third prong of the Third Circuit's undue hardship test which governs whether a Debtor can discharge his student loans pursuant to 11 U.S.C. § 523(a)(8).⁸

Section 523(a)(8) provides:

(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) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for--

(A)(i) 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

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

* * *

" Section 523(a)(8) protects four categories of educational loans from discharge: (1) loans made, insured, or guaranteed by a governmental unit; (2) loans made under any program partially or fully funded by a government unit or nonprofit institution; (3) loans received as an educational benefit, scholarship, or stipend; and (4) any ‘qualified educational loan’ as that term is defined in the Internal Revenue Code." In re Rumer , 469 B.R. 553, 561 (Bankr. M.D. Pa. 2012) (citation omitted). If a debt falls within the scope § 523(a)(8), the debt is nondischargeable unless the debtor establishes that excepting the debt from discharge would "impose an ‘undue hardship’ on the debtor or the debtor's dependents." Id. at 560. A creditor has the initial burden to establish that the debt falls within § 523(a)(8).⁹ Id. at 561 (citations omitted). If the creditor meets that burden, the debtor then bears the burden of proving an undue hardship. In re Faish , 72 F.3d 298, 301 (3d Cir. 1995) (citations omitted).

In 1995, the Third Circuit adopted the Brunner "undue hardship" standard to determine whether student loan debt can be discharged pursuant to § 523(a)(8). In re Faish , 72 F.3d at 307. According to the Brunner test, student loan debt may be discharged pursuant to § 523(a)(8) only if three conditions are met:

1. 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. 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; and

3. The debtor has made good faith efforts to repay the loans.

Brunner v. New York State Higher Educ. Servs. Corp. , 831 F.2d 395, 396 (2d Cir. 1987) ; see also In re Faish , 72 F.3d at 304-05. All three prongs of the test must be established by a preponderance of the evidence for a discharge to be obtained. In re Faish , 72 F.3d at 306. This standard is high and difficult to meet. In re Armstrong , 394 B.R. 43, 51 (Bankr. M.D. Pa. 2008). If any one of the three prongs are not met, the student loan(s) cannot be discharged. In re Faish , 72 F.3d at 306 (citation omitted). "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 ‘undue hardship.’ " In re Brightful , 267 F.3d 324, 328 (3d Cir. 2001) (citing In re Faish , 72 F.3d at 306 ). Because Debtor cannot satisfy the third prong of the Brunner test, I will begin and end my inquiry there.

As stated above, the third prong of the Brunner test requires the debtor to establish that he made a good faith effort to repay his loans from the date on which the first loan payment became due to the date on which the debtor filed for bankruptcy. Pelliccia v. U.S. Dep't of Educ. , 67 F. App'x 88, 90 (3d Cir. 2003) (non-precedential opinion). In determining good faith in this context, a court must consider "(1) whether the debtor incurred substantial expenses beyond those required to pay for basic necessities and (2) whether the debtor made efforts to restructure his loan before filing his petition in bankruptcy." Id. at 91.

First, it is clear that Debtor went to commendable lengths to minimize his expenses. Debtor testified that he has had no income from 2010 to present and that he pays all of his and his mother's expenses with her social security benefits of a little more than $15,000 a year. Trial Tr. at 17-19, ECF No. 35. To name a few, these expenses include food, little to no entertainment, heating, water, telephone, and roughly $4,000 a year on county/municipal and school property taxes. Id. at 18-19; ECMC Trial Ex. 3 at 11. Additionally, to keep his expenses down, Debtor does not own his own car or his own home, and he attempts to perform all repairs on his mother's car and her house. Trial Tr. at 18-19, ECF No. 35. Furthermore, based upon his schedules, his testimony, and his answers to interrogatories, Debtor appears to live modestly without incurring substantial expenses beyond those required to pay for basic necessities. Therefore, this weighs in favor of a finding that Debtor made a good faith effort to repay his Loans.

Second, and more persuasively, it is also clear that Debtor did not make sufficient efforts to restructure his Loans for me to find that he satisfied his burden under the third prong of the Brunner test. Specifically, it is uncontested that Debtor did not make a single payment on his Loans during the subject time period. Additionally, he did not maximize his earning potential by seeking employment of any kind; nor did he apply for an income-based repayment plan or income-contingent repayment plan. Further, the Loans account for almost all of the debt he is attempting to discharge in bankruptcy. Multiple courts in the Third Circuit have found a lack of good faith under the third prong of the Brunner test based upon similar actions. See In re Davis , 526 B.R. 136, 141-42 (Bankr. W.D. Pa. 2015) ; In re Lepre , 466 B.R. 727, 736 (Bankr. W.D. Pa. 2012) ; In re Jones , 392 B.R. 116, 130-31 (Bankr. E.D. Pa. 2008) ; In re Sperazza , 366 B.R. 397, 412-14 (Bankr. E.D. Pa. 2007).

...