In re Mosko

• Decision Date: 12 February 2008
• Docket Number: No. 06-2076.,06-2076.
• Citation: 515 F.3d 319
• Parties: In re Robert J. MOSKO, Jr., Debtor. Educational Credit Management Corporation, Creditor-Appellant, v. Robert J. Mosko, Jr.; Brenda Richley Mosko, Debtors-Appellees, v. Bruce Magers, Trustee, Appellee. Michael D. West, Bankruptcy Administrator, Movant.
• Court: U.S. Court of Appeals — Fourth Circuit

515 F.3d 319

In re Robert J. MOSKO, Jr., Debtor.

Educational Credit Management Corporation, Creditor-Appellant, v. Robert J. Mosko, Jr.; Brenda Richley Mosko, Debtors-Appellees, v. Bruce Magers, Trustee, Appellee.

Michael D. West, Bankruptcy Administrator, Movant.

No. 06-2076.

United States Court of Appeals, Fourth Circuit.

Argued: September 28, 2007.

Decided: February 12, 2008.

Julie K. Swedback, Educational Credit Management Corporation, St. Paul, Minnesota, for Appellant. Robert Edmunds Price, Jr., Winston-Salem, North Carolina, for Appellees.

Before TRAXLER and SHEDD, Circuit Judges, and Norman. K. MOON, United States District Judge for the Western District of Virginia, sitting by designation

Reversed by published opinion. Judge SHEDD wrote the opinion, in which Judge TRAXLER and Judge MOON joined.

OPINION

SHEDD, Circuit Judge:

Robert and Brenda Mosko filed bankruptcy and sought to discharge their government-backed student loan debt pursuant to 11 U.S.C. § 523(a)(8). The bankruptcy court granted the Moskos relief from their student loans and the district court affirmed that order. Educational Credit Management Corporation ("ECMC") appeals and because we conclude that the bankruptcy court erred in discharging the Moskos' loans, we reverse.

I.

During their bankruptcy case, the Moskos filed an adversary proceeding to discharge their student loans on December 30, 2004. On September 1, 2005, the bank-ruptcy court held a hearing and found the following facts. The Moskos lived in Mocksville, North Carolina, with their four-year-old son. Robert's and Brenda's student loans as of July 15, 2005, equaled $63,417.06 and $57,156.41, respectively. Robert received student loans for a bachelor of science degree in information systems from the University of North Carolina at Greensboro ("UNC-G"). Brenda received student loans for a bachelor of arts degree from Old Dominion University and a master's degree in music from UNC-G.

In 2002, 2003, and 2004, the Moskos' adjusted gross income equaled $75,546, $78,363, and $64,130, respectively. At the time of the bankruptcy court hearing, Brenda taught music at South Davie Middle School, where she earned approximately $38,000 annually. Robert worked at Wachovia Bank as a COBOL¹ programmer until Wachovia laid him off in August 2003. Thereafter, Robert briefly worked for a company contracting with Wachovia. He quit when that company informed him that he would receive his regular wage for overtime hours (instead of an overtime wage consisting of his regular wage multiplied by one-and-a-half). Then Robert worked at Lowe's until he was terminated.²

Lowe's terminated Robert because he suffers from excessive daytime sleepiness ("EDS"). He has severe obstructive sleep apnea, periodic limb movement, and chronic obstructive pulmonary disease, which all combine to cause EDS. Robert's EDS currently prevents him from driving, which limits his employment prospects.

After termination by Lowe's, Robert received unemployment benefits of approximately $420 per week until March 2005. During this time, Robert completed two computer related online courses at Davidson Community College which he testified might open possibilities of employment.

The bankruptcy court properly noted that it could discharge the Moskos' student loans only if repayment of those loans would constitute "an undue hardship on the debtor and the debtor's dependents." 11 U.S.C. § 523(a)(8). To determine whether the Moskos' repayment of their student loans would constitute an undue hardship, the bankruptcy court applied the three-part Brunner test adopted by this circuit. In re Frushour, 433 F.3d 393, 400 (4th Cir.2005). The Brunner test requires the Moskos to establish, by a preponderance of the evidence, that (1) they cannot maintain, based on current income and expenses, a minimal standard of living for themselves and their dependent 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 their student loans; and (3) they have made good-faith efforts to repay their student loans. See id.

As to part one of the Bruner test, the bankruptcy court found that the Moskos satisfied their burden because the household's reasonable monthly expenses of $2,600 exceeded the couple's monthly income of $1,400. From Brenda's gross monthly income of $3,833, the bankruptcy court calculated the household's net monthly income by subtracting amounts for mandatory state retirement; federal and state taxes; life, dental, health, vision and teacher's liability insurance; repayment of a loan from Brenda's 401(k); an income deferral to pay Brenda during the summer months; and a nominal charitable contribution. The bankruptcy court found that the household's reasonable monthly expenses equaled $2,600 for rent, utilities, telephone, long distance service, day care, car payment, car insurance, groceries, trash, gasoline, and medical expenses related to Robert's EDS. The bankruptcy court found that Robert would need to earn at least $30,000 annually (for a total household income of approximately $68,000) before the household's monthly net income would equal their expenses.³

The bankruptcy court held that Brenda met part two of the Brunner test because her salary was unlikely to increase beyond cost-of-living pay increases. However, the bankruptcy court ruled that Robert did not satisfy part two because he had presented no evidence indicating that his EDS permanently prevented him from returning to work. The bankruptcy court noted that if his EDS improved or if he returned to work despite his EDS, then he could contribute to the household income. Finally, the bankruptcy court determined that the Moskos proved part three because they made 24 regular payments on their loans, made sporadic payments when they could, and requested loan deferments and forebearances. The bankruptcy court discharged all of Brenda's student loans, but granted Robert only a partial discharge. ECMC then appealed to the district court the bankruptcy court's discharge order.

The district court also noted that a debtor must meet all three parts of the Branner test to receive any discharge. However, because the district court found the bankruptcy court order could be interpreted to indicate that Robert had not met the second requirement, it remanded the case for clarification. Additionally, the district court instructed the bankruptcy court to analyze the discharge of each of the Moskos' student loans in light of the hOusehold's income.

On remand, the bankruptcy court found that Robert did meet the second requirement and that his EDS prevented him from repaying any portion of his student loans. The bankruptcy court then fully discharged both Robert's and Brenda's student loans. ECMC appealed and the district court affirmed. ECMC then appealed to this court.

II.

Debtors seeking to discharge their student loans bear the burden of proving that they are "in the limited class of debtors for which § 523(a)(8) meant to allow discharge." In re Frushour, 433 F.3d at 404 (emphasis added). On an appeal from a district court, we review the bankruptcy court's decision directly. Banks v. Sallie Mae Servicing Corp., 299 F.3d 296, 300 (4th Cir.2002). We review de novo whether a debtor has demonstrated each of the three parts of the Brunner test by a preponderance of the evidence, and we review for clear error the facts underlying that legal conclusion. See In re Frushour, 433 F.3d at 399. A finding of fact is clearly erroneous when, "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 92 L.Ed. 746 (1948).

We need not decide whether the Moskos have satisfied the first and second parts of the Brunner test because we find that they have failed to satisfy the third part.⁴

III.

Applying part three of the Brunner test, we find that the Moskos have not made a good-faith effort to repay their loans. See Brunner v. New York State Higher Educ. Services, 831 F.2d 395 (2d Cir.1987). Good faith consists of the debtor's "efforts to obtain employment, maximize income, and minimize expenses." O'Hearn v. Educ. Credit Mgmt. Corp., 339 F.3d 559, 564 (7th Cir.2003) (internal quotation marks omitted)(emphasis added). Furthermore, a debtor may not "willfully or negligently cause his own' default, but rather his condition must result from factors beyond his reasonable control." Id. (internal quotation marks omitted). Finally, the debtor must seriously pursue loan consolidation options. See In re Frushour, 433 F.3d at 402.

The Moskos have not demonstrated a good-faith effort to obtain employment and maximize income. Brenda does not work during the summer months because she wishes to spend time with her son and care for her mother. While this desire may be understandable, it is not an undue hardship for her to endure the sacrifice most parents experience in working a full calendar year. See In re Wegrzyniak, 241 B.R. 689, 695 (Bankr.D.Idaho 1999)(stating that requiring a teacher to work during the summer months merely "requi[resl the debtor to do what so many parents must.").

Aside from his unemployment benefits, Robert Mosko has not contributed to the household income since Lowe's terminated his employment in August 2004. The record does not show that his medical condition precludes him from all part-time employment, self-employment, or other work from home.⁵ Furthermore, Robert refused a job offer because he would have been paid his regular hourly wage for the overtime hours he worked.⁶ This refusal does not constitute good faith because many in Robert's financial situation must work two jobs, see In re Koch, 144 B.R. 959, 965 (Bankr.W.D.Pa.1992) (finding no good faith where a debtor did not seek...