In re: Rifino v. USA.

• Decision Date: 13 April 2001
• Docket Number: No. 99-35378,99-35378
• Citation: 245 F.3d 1083
• Parties: (9th Cir. 2001) In re: ROSEMARY RIFINO, Debtor. ROSEMARY RIFINO, Plaintiff-Appellant, v. UNITED STATES OF AMERICA; SALLIE MAE; UNIVERSITY OF WASHINGTON; NORTHWEST EDUCATION LOAN ASSOCIATION; WILLIAM D. FORD FEDERAL DIRECT LOAN, Defendants-Appellees
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1083

245 F.3d 1083 (9th Cir. 2001)

In re: ROSEMARY RIFINO, Debtor.

ROSEMARY RIFINO, Plaintiff-Appellant, v. UNITED STATES OF AMERICA; SALLIE MAE; UNIVERSITY OF WASHINGTON; NORTHWEST EDUCATION LOAN ASSOCIATION; WILLIAM D. FORD FEDERAL DIRECT LOAN, Defendants-Appellees.

No. 99-35378

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

April 13, 2001

Argued and Submitted Feb. 12, 2001

Filed April 13, 2001

Amended May 10, 2001

[Copyrighted Material Omitted]

Peter S. Holmes, Miller, Nash, Wiener, Hager & Carlsen, LLP, Seattle, Washington, for the plaintiff-appellant.

Diane Tebelius, Assistant United States Attorney, Seattle, Washington; Bruce Fine, Aiken & Fine, P.S., Seattle, Washington; Donivan R. Irby, Office of the Attorney General, Seattle, Washington; Joann L. Pheasant, Attorney General's Office, Social & Health Services, Olympia, Washington, for the defendants-appellees.

Appeal from the United States District Court for the Western District of Washington; Barbara J. Rothstein, Chief District Judge, Presiding. D.C. No. CV-97-01860-R.

Before: Stephen Reinhardt, Kim McLane Wardlaw, and Ronald M. Gould, Circuit Judges.

GOULD, Circuit Judge:

This case involves the undue hardship provision of 11 U.S.C. 523(a)(8). After debtor-appellant Rosemary Rifino ("Rifino") filed an adversary proceeding seeking to discharge her student loan obligations, the bankruptcy court ruled that Rifino's loans were dischargeable as an undue hardship pursuant to 11 U.S.C. 523(a)(8). The defendants, holders of Rifino's student loan obligations, appealed to the district court, which reversed the bankruptcy court and reinstated Rifino's loans. We have jurisdiction over Rifino's appeal pursuant to 28 U.S.C. 158(d). We hold that the district court correctly determined that Rifino was not entitled to a discharge on undue hardship grounds, and affirm.

FACTS AND PROCEDURAL BACKGROUND

At the time of the bankruptcy adversary proceeding, Rifino was forty-one years old, and a single mother with a ten-year-old son. Rifino earned a Bachelor of Science degree from the University of Oregon in 1991 and a Master of Social Work ("MSW") degree from the University of Washington in 1994. Rifino financed her education by acquiring federally insured student loans totaling approximately $ 69,000 from various lenders, including Sallie Mae, the University of Oregon, the Oregon State Scholarship Commission, the University of Washington, the Northwest Education Loan Association, and the William D. Ford Federal Direct Loan Program. Most of Rifino's student loans obligations did not go into repayment status until August 1996.

At the time of the adversary proceeding, Rifino was a social worker at Ryther Child Center, earning a gross annual salary of $ 27,591.36 and a net monthly salary of $ 1,898. Rifino's stated monthly expenses totaled approximately $ 1,897, and included tanning salon visits, cable television, a new car payment, and expenses related to her son's enrollment at Seattle Country Day School, a private elementary school. Although Rifino's son had a partial scholarship to this school, the cost of tuition and fees not covered by the scholarship totaled $ 1,780 for the 1993-1994 academic year and $ 1,400 for the 1994-1995 academic year. These expenses were in addition to child care expenses. Rifino has paid for her son to participate in Aikido, swimming lessons, skating lessons, Little League, and cross country-CYO. Rifino's stated monthly expenses did not include child care during school breaks, clothing, or maintenance for her car.

Rifino filed a Chapter 7 bankruptcy petition in June 1996 seeking to discharge her consumer debt. The petition was granted on September 16, 1996. On September 17, 1996, Rifino commenced an adversary proceeding seeking an undue hardship discharge of her student loan obligations under 11 U.S.C. 523(a)(8). Rifino named Sallie Mae, the University of Oregon, the Oregon State Scholarship Commission, the University of Washington, the Northwest Educational Loan Association ("NELA"), and the William D. Ford Federal Direct Loan Program ("United States") as defendants in the adversary proceeding.

The adversary proceeding was tried before the bankruptcy court on September 23-24, 1997. The bankruptcy court entered judgment in favor of Rifino, ruling that Rifino would suffer an undue hardship if her student loans were not discharged.

All defendants timely appealed, electing to have their appeals reviewed by the district court as opposed to a bankruptcy appellate panel. See 28 U.S.C. 158(c)(1) (stating that an appeal is to be heard by a bankruptcy appellate panel unless any party elects to have such appeal heard by the district court); see also Fed. R. Bankr. P. 8001(e). Pursuant to a stipulation of all the parties, the University of Oregon and the Oregon State Scholarship Commission moved to dismiss their appeals and the district court granted the dismissal with prejudice.

The district court reversed the bankruptcy court's discharge order and reinstated Rifino's student loan debt. Addressing the "undue hardship" discharge provision of 11 U.S.C. 523(a)(8), the court held that the bankruptcy court erroneously applied the law to Rifino's claims. ¹ Specifically, the court explained that "there is nothing exceptional about Rifino's circumstances and there are no additional circumstances that indicate longterm hardship." On the issue of good faith, the court reasoned, "Rifino has not made any payments on her loans and has not made any effort to repay her loans at any time. The timing of Rifino's bankruptcy filing, her choice to file under chapter 7 rather than chapter 13, and her refusal to consolidate her loans further demonstrate an absence of good faith."

Rifino now appeals.

ANALYSIS

I

"Because this court is in as good a position as the district court to review the findings of the bankruptcy court, it independently reviews the bankruptcy court's decision. " Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir. 1986). We review the bankruptcy court's findings of fact under a clearly erroneous standard. In re Pena, 155 F.3d 1108, 1110 (9th Cir. 1998). "Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574, 84 L. Ed. 2d 518, 105 S. Ct. 1504, 84 L.Ed.2d 518 (1985). We review de novo the bankruptcy court's application of the legal standard in determining whether a student loan debt is dischargeable as an undue hardship. In re Taylor, 223 B.R. 747, 750 (B.A.P. 9th Cir. 1998).

II

Rifino contends that the district court improperly substituted its judgment ² for that of the bankruptcy court by concluding that she failed to establish that repayment of her student loans would present an "undue hardship. "We find Rifino's arguments unpersuasive.

Generally, student loan obligations are presumed to be nondischargeable in bankruptcy pursuant to 11 U.S.C. 523(a)(8). Section 523(a)(8) provides:

A discharge under section 727 ... does not discharge anindividual debtor from any debt --for an educationalbenefit overpayment or loan made, insured or guaranteedby a governmental unit, or made under any program fundedin whole or in part by a governmental unit or nonprofitinstitution, or for an obligation to repay fundsreceived as an educational benefit, scholarship orstipend, unless excepting such debt from discharge underthis paragraph will impose an undue hardship on thedebtor and the debtor's dependents.

11 U.S.C. 523(a)(8) (emphasis added). ³ Although "undue hardship" is not defined in the Bankruptcy Code, this court has recognized that "'the existence of the adjective 'undue' indicates that Congress viewed garden-variety hardship as insufficient excuse for a discharge of student loans. ...'" Pena, 155 F.3d at 1111 (quoting In re Brunner, 46 B.R. 752, 753 (Bankr. S.D.N.Y. 1985), aff'd 831 F.2d 395 (2d Cir. 1987)).

To determine if excepting student loans from discharge will create an undue hardship on a debtor, the Ninth Circuit has adopted the three-part test established by the Second Circuit in Brunner. See Pena, 155 F.3d at 1112. To obtain a discharge of a student loan obligation, the debtor must prove:

(1) that the debtor cannot maintain, based on currentincome and expenses, a "minimal" standard of living forherself and her dependents if forced to repay the loans;(2) that additional circumstances existindicating that this state of affairs is likely topersist for a significant portion of the repaymentperiod of the student loans; and (3) that the debtor hasmade good faith efforts to repay the loans.

Brunner, 831 F.2d at 396. Under this test, the burden of proving undue hardship is on the debtor, and the debtor must prove all three elements before discharge can be granted. In re Faish, 72 F.3d 298, 306 (3d Cir. 1995). If the debtor fails to satisfy any one of these requirements, "the bankruptcy court's inquiry must end there, with a finding of no dischargeability." Id.

A

The first prong of the Brunner test requires the debtor to prove that she "cannot maintain, based on current income and expenses, a 'minimal' standard of living for herself and her dependents if forced to repay the loans." Brunner, 831 F.2d at 396. To meet this requirement, the debtor must demonstrate more than simply tight finances. In re Nascimento, 241 B.R. 440, 445 (B.A.P. 9th Cir. 1999) (citation omitted). "In defining undue hardship, courts require more than temporary financial adversity, but typically stop short of utter hopelessness." Id. (citation omitted).

In this case, the bankruptcy court found that Rifino was "barely living within a minimal standard" and that "there are no excess funds in her budget which could be used for repayment of the loans." The bankruptcy court also noted that while "it is conceivable that [Rifino ] could reduce some of the items in her budget, ... such reductions would be minimal and...