In re Hicks

• Decision Date: 12 September 2005
• Docket Number: Adversary No. 03-04010.,Bankruptcy No. 02-44290-HJB.
• Citation: 331 B.R. 18
• Parties: In re Richard Kevin HICKS, Rebecca Grace Hicks, Debtors. Rebecca Grace Hicks, Plaintiff, v. Educational Credit Management Corp., Defendant.
• Court: U.S. Bankruptcy Court — District of Massachusetts

331 B.R. 18

In re Richard Kevin HICKS, Rebecca Grace Hicks, Debtors.

Rebecca Grace Hicks, Plaintiff, v. Educational Credit Management Corp., Defendant.

Bankruptcy No. 02-44290-HJB.

Adversary No. 03-04010.

United States Bankruptcy Court, D. Massachusetts.

September 12, 2005.

COPYRIGHT MATERIAL OMITTED

Mark L. Hare, Springfield, MA, for Debtors/Plaintiff.

MEMORANDUM OF DECISION

HENRY J. BOROFF, Bankruptcy Judge.

Before this Court is a complaint filed by Rebecca Hicks against the Educational Credit Management Corporation ("ECMC"), the current holder of her student loans. Through her complaint, Rebecca Hicks asks this Court to rule that those student loan obligations are dischargeable under § 523(a)(8) of the Bankruptcy Code.¹

I. INTRODUCTION

A. Background and Travel of the Case

Rebecca Hicks and her husband, Richard Hicks, (jointly, the "Debtors") filed a joint petition for relief under Chapter 13 of the Bankruptcy Code on July 10, 2002. Shortly thereafter, they converted their case to one under Chapter 7. On April 23, 2003, the Debtors received a discharge pursuant to § 727.²

In January of 2003, Rebecca Hicks commenced the present adversary proceeding by filing a complaint³ against ECMC, the current holder of student loans used by Rebecca to finance her graduate education.⁴ In her complaint, Rebecca alleges that repayment of her student loans would result in "undue hardship" for the Debtors and their dependents and the debt should therefore be discharged pursuant to § 523(a)(8).

ECMC filed an answer to the complaint in which it argued that the facts as alleged did not prove the requisite "undue hardship." A trial ensued, at the conclusion of which the parties filed post-trial memoranda addressing the legal standard to be used in determining "undue hardship" under § 523(a)(8). After the parties submitted the requested memoranda, the matter was formally taken under advisement.

II. THE STANDARD FOR "UNDUE HARDSHIP" UNDER 523(A)(8)

A. Positions of the Parties

Rebecca Hicks, through counsel, urges this Court to adopt the so-called "totality of the circumstances" approach toward determining undue hardship under § 523(a)(8). Pointing to the adoption of this standard by many courts within the First Circuit and relying primarily on Judge Haines' opinion in Kopf v. United States Department of Education (In re Kopf), 245 B.R. 731 (Bankr.D.Me.2000), she argues simply that a totality of the circumstances standard allows the Court to consider all relevant circumstances and facts as appropriate to the specific case without placing an unwarranted dispositive emphasis on any one factor.

Counsel for ECMC, however, argues that this Court should adopt the so called "Brunner test" as the singular standard for such undue hardship determinations. Because eight Circuit Courts of Appeals have expressly adopted the Brunner test, ECMC contends that the failure of this Court to do the same will result in "unpredictable and dissimilar results in cases presenting similar facts," because "in the absence of such guidance, courts in this Circuit will continue to be faced with a variety of `undue hardship' tests that can be adopted on an ad hoc basis or even hybridized." Furthermore, ECMC argues that the Brunner test represents the proper legal standard because it is understandable and workable, facilitates appellate review and advances the congressional policies underlying § 523(a)(8).

B. Discussion

1. Section 523(a)(8) and "Undue Hardship"

A debtor under Chapter 7 of the Bankruptcy Code is generally entitled to a discharge of all debts that arose before the filing of the bankruptcy petition. See 11 U.S.C. § 727(a), (b). Student loans, however, are excepted from this general discharge and, without more, a debtor will emerge from bankruptcy with the continued obligation to repay his or her student loans. See 11 U.S.C. § 523(a)(8). There is, of course, an exception to the exception. Under § 523(a)(8), student loans are excepted from discharge "unless excepting such debt from discharge ... will impose an undue hardship on the debtor and the debtor's dependents." (emphasis added).⁵

The Bankruptcy Code was amended to provide this special treatment for student loans in reaction to perceived abuses of the bankruptcy discharge — namely, that recent college graduates were filing for bankruptcy to rid themselves of student loan obligations "on the eve of a lucrative career." Andresen v. Neb. Student Loan Program, Inc. (In re Andresen), 232 B.R. 127, 130 (8th Cir. BAP 1999). Congress' purpose in excepting student loans from the general bankruptcy discharge provisions was "to `rescu[e] the student loan program from insolvency, and [to] prevent[ ] abuse of the bankruptcy process by undeserving student debtors.'" Id. (quoting Raymond L. Woodcock, Burden of Proof, Undue Hardship, and Other Arguments for the Student Loan Debtor Under 11 U.S.C. § 523(a)(8)(B), J.C. & U.L. 377, 381 (1998)); see also Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302, 1306-07 (10th Cir.2004); Cheesman v. Tenn. Student Assistance Corp. (In re Cheesman), 25 F.3d 356, 359 (6th Cir.1994), cert. denied, 513 U.S. 1081, 115 S.Ct. 731, 130 L.Ed.2d 634 (1995); Brunner v. N.Y. State Higher Educ. Servs. (In re Brunner), 46 B.R. 752, 754 (S.D.N.Y.1985), aff'd 831 F.2d 395 (2d Cir.1987).

As to when the exception to discharge should not apply, however, Congress has been less than clear.⁶ The phrase "undue hardship" is not defined in the Bankruptcy Code, and the Congressional record provides little guidance as to what constitutes undue hardship under § 523(a)(8). See Nash v. Conn. Student Loan Found., 330 B.R. 323, 324, 2005 WL 2033372, *2 (D.Mass. August 17, 2005); Kopf, 245 B.R. at 736 n. 10, 743 n. 20 (reviewing the scant legislative history of § 523(a)(8) and describing indices of "legislative intent" relied on by other courts); In re Brunner, 46 B.R. at 753-54. Although several courts have formulated or adopted legal standards to guide the determination of whether a debtor has established undue hardship, see, e.g., Bryant v. Pa. Higher Educ. Assistance Agency (In re Bryant), 72 B.R. 913 (Bankr.E.D.Pa.1987) (creating the "Bryant Poverty Level Test"); Brunner v. N.Y. Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir.1987) (adopting the District Court's test in 46 B.R. 752, now known as the "Brunner test"); Andrews v. S.D. Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702 (8th Cir.1981) (articulating the framework for a "totality of the circumstances" test); Pa. Higher Educ. Assistance Agency v. Johnson (In re Johnson), 5 B.C.D. 532 (Bankr.E.D.Pa.1979) (creating the "Johnson test"), the First Circuit has not yet adopted any particular test to be used to evaluate the dischargeability of student loans under § 523(a)(8)(B).⁷ Nash, 330 B.R. at 325 n. 1; Smith v. Educ. Credit Mgmt. Corp. (In re Smith), 328 B.R. 605, 610-12 (1st Cir. BAP 2005).

Currently, the jurisprudential landscape is dominated by two tests, the "totality of the circumstances" test and the Brunner test,⁸ between which this Court is asked to choose and to which it now turns.

2. The Tests

a. The Totality of the Circumstances Approach

The totality of the circumstances approach to determining undue hardship under § 523(a)(8) is often associated with two cases from the Eighth Circuit, Andrews v. South Dakota Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702 (8th Cir.1981), and Andresen v. Nebraska Student Loan Program, Inc. (In re Andresen), 232 B.R. 127. See also Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 553 (8th Cir.2003) ("reaffirm[ing] the totality-of-the-circumstances approach as set forth in Andrews...."). Courts in other jurisdictions, including several in the First Circuit, also analyze undue hardship using the totality of the circumstances approach. See Kopf, 245 B.R. at 739-40 & n. 16 (collecting cases); see also Bourque v. Educ. Credit Mgmt. Corp. (In re Bourque), 303 B.R. 548, 550 (Bankr.D.Mass.2003); Lamanna v. EFS Servs., Inc. (In re Lamanna), 285 B.R. 347, 353 (Bankr.D.R.I.2002); Anelli v. Sallie Mae Serv. Corp. (In re Anelli), 262 B.R. 1, 8-9 (Bankr.D.Mass.2000).⁹

Under the totality of the circumstances approach, courts generally define undue hardship as the debtor's inability "to earn sufficient income to maintain himself (or herself) and his (or her) dependents and to repay the educational debt." In re Andresen, 232 B.R. at 140 n. 12; see also In re Smith, 328 B.R. at 610-13; Bourque, 303 B.R. at 550; Mallinckrodt v. Chem. Bank (In re Mallinckrodt), 260 B.R. 892, 898, 900 (Bankr.S.D.Fla.2001). To determine whether the debtor has demonstrated undue hardship, courts adhering to the totality of the circumstances approach generally consider:

1. the debtor's past, present, and reasonably reliable future financial resources;

2. a calculation of the debtor's and his dependents' reasonable necessary living expenses; and

3. any other relevant facts and circumstances surrounding that particular bankruptcy case.

In re Andresen, 232 B.R. at 139 (emphasis added); see also Educ. Credit Mgmt. Corp. v. Savage (In re Savage), 311 B.R. 835, 839 (1st Cir. BAP 2004); Kopf, 245 B.R. at 739, 745-47.

Courts that have adopted the totality of the circumstances approach to undue hardship usually do so on the grounds that a "`case-by-case approach that is fact sensitive' ... `affords a determination that contextually considers both the debtor's situation and the policies underlying § 523(a)(8)' and `ensures an appropriate, equitable balance [between] concern for cases involving extreme abuse and concern for the overall fresh start policy.'" Phelps v. Sallie Mae Loan Serv. Center (In re Phelps), 237 B.R. 527, 534-35 (Bankr.D.R.I.1999) (quoting Law v. Educ. Res. Inst., Inc. (In re Law), 159 B.R. 287, 292-93 (Bankr.D.S.D.1993)); see also In re Savage, 311 B.R. at 839; In re Andresen, 232 B.R. at 140; Crowley v. U.S. Dep't of Educ. (In re Crowley), 259 B.R. 361, 365 (Bankr.W...