In re Cox, No. 02-10788.

• Decision Date: 23 July 2003
• Docket Number: No. 02-10788.
• Citation: 338 F.3d 1238
• Parties: In Re: Ronald Jay COX, Debtor. Hemar Insurance Corporation of America, Illinois Student Assistance Commission, Plaintiffs-Appellees, v. Ronald Jay Cox, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

338 F.3d 1238

In Re: Ronald Jay COX, Debtor Hemar Insurance Corporation of America, Illinois Student Assistance Commission, Plaintiffs-Appellees, v. Ronald Jay Cox, Defendant-Appellant.

No. 02-10788.

United States Court of Appeals, Eleventh Circuit.

July 23, 2003.

Marilyn Sue Bright, Atlanta, GA, for Cox.

Luke A. Kill, Scoggins & Goodman, P.C., Alonzo H. Long, U.S. Atty., Atlanta, GA, Paul J. Morochnik, Thompson, O'Brien, Kemp & Nasuti, P.C., Norcross, GA, for Plaintiffs-Appellees.

Appeal from the United States District Court for the Northern District of Georgia.

Before EDMONDSON, Chief Judge, WILSON, Circuit Judge, and NELSON^*, District Judge.

PER CURIAM:

I. INTRODUCTION

Appellant, Ronald Jay Cox (Cox) filed a petition seeking protection from his creditors pursuant to Chapter 7 of the Bankruptcy Code, with the United States Bankruptcy Court for the Northern District of Georgia. As a part of his petition, he filed an adversary proceeding under 11 U.S.C. § 523(a)(8)¹; claiming that repayment of his student loans will result in "undue hardship" and seeking a full discharge of his student loan indebtedness.

This Circuit has yet to adopt a specific standard for determining "undue hardship" under § 523(a)(8). For the reasons stated herein, we adopt the standard set forth by the Court of Appeals for the Second Circuit in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir.1987) (per curiam). Further, we agree with the district court's conclusion that, because Cox will suffer no "undue hardship" in repaying his student loan debts, his student loan indebtedness is non-dischargeable.

II. BACKGROUND

Ronald Jay Cox has several degrees to his credit, namely an A.A. in business administration from Gainesville Junior College, a B.A. in business administration from North Georgia College, a J.D. from Thomas Cooley Law School, and an LL.M. in taxation from the University of Alabama. In addition to his considerable education, Cox is licensed to practice law in Michigan and Georgia. To fund his education, Cox acquired several student loans. Consequently, he now owes $65,340.35 to the Illinois Student Assistance Commission, $19,511.62 to the Educational Resources Institute, Inc., $18,000 to HEMAR Insurance Corp., and $11,388.91 to the United States Government, for a total of more than $114,000.

After obtaining his LL.M. in taxation, Cox established a law practice in Cumming, Georgia. Unfortunately, Cox's law practice turned out to be an unprofitable venture. As a result, Cox began winding down his failing law practice and secured employment with his brother's landscaping company, earning $24,000 per year. Because of his deteriorating financial situation, on March 19, 2001, Cox filed the underlying loan discharge action pursuant to § 523(a)(8), claiming that he could not pay off his student loan debts without suffering "undue hardship." 11 U.S.C. § 523(a)(8).

At the trial concerning Cox's claim, the bankruptcy court made the following findings: (1) Cox was unable to maintain a minimal standard of living, given the totality of the circumstances; (2) Cox had made good faith efforts to repay his student loans; and (3) given Cox's skills and education, his current inability to repay his student loans is not likely to be a permanent condition.² Because the bankruptcy court did not consider Cox's current financial situation to be a "permanent condition," it held that Cox did not make "out a case of undue hardship as contemplated by 11 U.S.C. § 523(a)(8) as would justify total discharge of [his] student loans." However, in light of "the magnitude of the amount of the existing student loans and the accumulation of interest," the bankruptcy court ordered a partial discharge reducing Cox's student loan indebtedness from approximately $114,000 to $50,000, and established a 25-year plan for repayment of that amount at a 7% annual interest rate.

Cox's creditors appealed the bankruptcy court's decision to the district court. The creditors argued that under the terms of § 523(a)(8), student debt cannot be discharged, even in part, absent a showing of "undue hardship." The district court agreed with the bankruptcy court that Cox had not demonstrated undue hardship. However, the district court held that in the absence of undue hardship, student loan debt could not be discharged, in whole or in part. It thus reversed the bankruptcy court's partial discharge of Cox's student debt. This appeal followed.

III. STANDARD OF REVIEW.

This Court has jurisdiction over this matter under 28 U.S.C. § 158(d). The district court's and bankruptcy court's factual findings are reviewed for clear error. Lykes Bros., Inc. v. United States Army Corps of Engr's, 64 F.3d 630, 634 (11th Cir.1995). A factual finding is not clearly erroneous unless "this court, after reviewing all of the evidence, [is] left with the definite and firm conviction that a mistake has been committed." Id. (internal quotation marks omitted). This Court conducts a de novo review of "determinations of law, whether from the bankruptcy court or the district court." In re Bilzerian, 100 F.3d 886, 889 (11th Cir.1996) (per curiam).

IV. DISCUSSION

A. The Brunner test of "undue hardship."

Although § 523(a)(8) clearly requires a showing of "undue hardship," for discharge of student loan indebtedness in bankruptcy proceedings, the code neglects to define the term. As a result, "[b]ankruptcy courts use a wide variety of tests to determine whether the debtor has demonstrated undue hardship. While these tests have received varying degrees of acceptance, no particular test authoritatively guides or governs the undue hardship determination." In re: Faish, 72 F.3d 298, 302 (3d Cir.1995) (alteration in original) (internal quotation marks omitted). This court has yet to address the appropriate factors to be considered in determining when a debtor has shown "undue hardship." Several of our sister circuits have addressed this issue, however, and adopted the test set forth by the Second Circuit in Brunner. See In re Ekenasi, 325 F.3d 541, 546-50 (4th Cir.2003); In re Brightful, 267 F.3d 324, 327-28 (3d Cir.2001); In re Rifino, 245 F.3d 1083, 1087-88 (9th Cir. 2001); In re Roberson, 999 F.2d 1132, 1135-37 (7th Cir.1993). But see In re Long, 322 F.3d 549, 553 (8th Cir.2003) (applying "the totality-of-the-circumstances test"); In re Hornsby, 144 F.3d 433, 437 (6th Cir.1998) ("[d]eclining to adopt any one test"). As we find the reasoning of the majority of our sister circuits persuasive, we now hold that the Brunner test is the appropriate test for determining "undue hardship."

The Brunner court adopted the following three-part test for the "undue hardship" exception to § 523(a)(8):

[to establish "undue hardship," the debtor must show] (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 of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.

831 F.2d at 396.

Cox claims the 1998 amendments to the statute, removing the only alternative method of discharging student loans and leaving "undue hardship" as the sole avenue for relief, rendered the Brunner test inappropriate because "the Brunner test now produces harsh, and sometimes absurd, results." We disagree. As the Seventh Circuit recognized in In re Roberson,

The government is not twisting the arms of potential students. The decision of whether or not to borrow for a college education lies with the individual; absent an expression to the contrary, the government does not guarantee the student's future financial success. If the leveraged investment of an education does not generate the return the borrower anticipated, the student, not the taxpayers, must accept the consequences of the decision to borrow.

999 F.2d at 1137. Congress's intent to make it harder for a student to shift his debt responsibility onto the taxpayer is clear from the 1998 amendments. Moreover, the Brunner test leaves an avenue of relief and is an effective tool for identifying those debtors whose earning potential and circumstances make it unlikely that they will produce the means necessary to repay the student loans while maintaining a minimal standard of living. This situation, in essence, is what constitutes an "undue hardship" — not the mere inability to pay, but an inability to pay that is likely to continue for a significant time. The Brunner test is an effective tool in analyzing that potential.

B. Partial discharge pursuant to § 523(a)(8).

Although the Bankruptcy Court found, as a matter of fact, that repayment of his student loan indebtedness would not impose an "undue hardship" on Cox, the court granted Cox a partial discharge of his debt. Whether a partial discharge of student loan indebtedness is possible without a finding of "undue hardship" is a question of first impression for this Court.

The language of § 523(a)(8) clearly and unambiguously provides that the bankruptcy laws do "not discharge an individual debtor from any debt" arising from a student loan. 11 U.S.C. § 523(a)(8) (emphasis added). The only exception is that an individual debtor may be discharged of his student loan indebtedness upon a showing that "excepting such debt from discharge... will impose an undue hardship on the debtor." Id. (emphasis added). There is no other language within § 523(a)(8) that could reasonably be construed to permit a discharge, partial or otherwise, absent a finding of "undue hardship." "[T]he duty of interpretation does not arise" for a statute when the plain language of the statute admits to only one meaning. Caminetti v. United States 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917).

Cox contends this construction of § 523(a)(8)...