Brightful v. Pennsylvania Higher Education Assistance Agency (In Re Brightful) ( 2001 )


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  •                                                                                                                            Opinions of the United
    2001 Decisions                                                                                                             States Court of Appeals
    for the Third Circuit
    10-3-2001
    In Re: Brightful
    Precedential or Non-Precedential:
    Docket 00-1250
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    Recommended Citation
    "In Re: Brightful" (2001). 2001 Decisions. Paper 226.
    http://digitalcommons.law.villanova.edu/thirdcircuit_2001/226
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    Filed October 3, 2001
    UNITED STATES COURT OF APPEALS
    FOR THE THIRD CIRCUIT
    NO. 00-1250
    IN RE: PATRICIA A. BRIGHTFUL
    PATRICIA A. BRIGHTFUL
    v.
    PENNSYLVANIA HIGHER EDUCATION ASSISTANCE
    AGENCY; SALLIE MAE TRUST; FIRST UNION BANK
    CHRISTINE SHUBERT, ESQ., Chapter 7 Trustee;
    FREDERICK BAKER, ESQ., U.S. TRUSTEE,
    Trustees
    Pennsylvania Higher Education Assistance
    Agency ("PHEAA"),
    Appellant
    On Appeal from the United States District Court
    for the Eastern District of Pennsylvania
    (D.C. Civil No. 99-cv-06348)
    District Judge: Honorable Marvin Katz
    Argued April 17, 2001
    Before: ALITO, RENDELL and FUENTES, Circuit Ju dges,
    (Filed: October 3, 2001)
    Jason L. Swartley, Esq.
    Byron F. Walker, Esq. [ARGUED]
    Pennsylvania Higher Education
    Assistance Agency
    1200 North 7th Street
    Harrisburg, PA 17102
    Counsel for Appellant
    Pennsylvania Higher Education
    Assistance Agency
    Henry J. Sommer, Esq. [ARGUED]
    Miller, Frank & Miller
    21 South 12th Street
    640 PSFS Building
    Philadelphia, PA 19107
    Counsel for Appellee
    Patricia A. Brightful
    OPINION OF THE COURT
    RENDELL, Circuit Judge.
    The Pennsylvania Higher Education Assistance Agency
    ("PHEAA") appeals the District Court's affirmance of the
    Bankruptcy Court's decision to discharge Patricia
    Brightful's student loan obligations. The issue presented by
    this appeal is whether Brightful's student loans burden her
    with an "undue hardship" that would render them
    dischargeable pursuant to 11 U.S.C. S 523(a)(8). Applying
    the three-pronged test we adopted in In re: Faish, 
    72 F.3d 298
    (3d Cir. 1995), we hold that Brightful's student loans
    do not constitute an "undue hardship," and will reverse the
    District Court.
    I. Facts and Procedural Background
    This case arises out of an adversary proceeding filed by
    Brightful, seeking a determination that her student loans
    are dischargeable under 11 U.S.C. S 523(a)(8) because
    repayment of the loans would cause "undue hardship." On
    November 8, 1999, after a hearing on the merits, the
    Bankruptcy Court ruled that the loans were dischargeable.
    2
    PHEAA appealed, and the District Court affirmed the
    Bankruptcy Court's decision on February 28, 2000, based
    solely upon the Bankruptcy Court's Order and
    Memorandum. PHEAA now appeals the District Court's
    order.1
    The Bankruptcy Court made the following findings of
    fact. At the time of the Bankruptcy Court proceedings,
    Brightful was a 46-year-old single mother of a 14-year-old
    daughter. Due to their eviction from their former residence
    on July 19, 1999, Brightful and her daughter reside with
    Brightful's sister in a crowded three-bedroom home. The
    Bankruptcy Court characterized Brightful's living situation
    as "sub-marginal by any standards."
    The Bankruptcy Court noted that Brightful has no
    degree, but has completed the equivalent of two years of
    college education. Most recently, she attended the New
    School for Social Research in New York City, but she has
    also attended the Community College of Philadelphia,
    Temple University, and Pierce Junior College. During the
    late 1980's and early 1990's, Brightful was employed full-
    time as a legal secretary at the Dechert law firm in
    Philadelphia. Since the early 1990's, she has worked part-
    time at Dechert. At the time of the hearing, Brightful was
    paid $18 per hour for her work at Dechert, but was only
    working nine to 30 hours per month, and estimated that
    she would earn approximately $8,500 in 1999. During
    1998, she earned $20,000 at Dechert. Additionally, the
    Bankruptcy Court remarked that Brightful had filed sexual
    discrimination and sexual harassment charges against
    Dechert in 1998.
    The Bankruptcy Court described Brightful as "very
    intelligent" and "physically healthy." However, the court
    also determined that Brightful had "glaring psychiatric
    problems" and that she was "emotionally unstable." The
    court noted that Brightful had made two suicide attempts,
    one in the last year. The court concluded that it was
    _________________________________________________________________
    1. We have jurisdiction over this appeal pursuant to 28 U.S.C. S 158(d).
    The Bankruptcy Court had jurisdiction over the original adversary
    proceeding pursuant to 28 U.S.C. S 157(b), and the District Court had
    jurisdiction over the first appeal pursuant to 28 U.S.C. S 158(a).
    3
    unlikely that Brightful would ever attain her college degree,
    and that Brightful lacked useful vocational training. Finally,
    the court determined that Brightful's pursuit of sexual
    discrimination charges against Dechert had both scarred
    her future prospects with that firm and accounted for the
    sharp reduction in her income in 1999 as compared to
    1998.
    II. Standard of Review
    The trier of fact in this case was the Bankruptcy Court,
    not the District Court. Therefore "[w]e are in as good a
    position as the district court to review the findings of the
    bankruptcy court, so we review the bankruptcy court's
    findings by the standards the district court should employ,
    to determine whether the district court erred in its review."
    Fegeley v. United States, 
    118 F.3d 979
    , 982 (3d Cir. 1997)
    (quoting Universal Minerals, Inc. v. C.A. Hughes & Co., 
    669 F.2d 98
    , 102 (3d Cir. 1981)). We must accept the
    Bankruptcy Court's findings of fact unless they are clearly
    erroneous, but we exercise plenary review over legal issues.
    
    Id. We therefore
    exercise plenary review over the
    Bankruptcy Court's application of our three-pronged Faish
    test to the facts of this case. See Brunner v. New York State
    Higher Educ. Servs. Corp., 
    831 F.2d 395
    , 396 (2d Cir. 1987)
    (noting that whether debtor suffers "undue hardship" under
    11 U.S.C. S 523(a)(8) is a conclusion regarding the legal
    effect of the bankruptcy court's factual findings).
    III. Discussion
    The Bankruptcy Code provision at issue provides that:
    (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) for 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 for
    an obligation to repay funds received as an educational
    benefit, scholarship or stipend, unless excepting such
    4
    debt from discharge under this paragraph will impose
    an undue hardship on the debtor and the debtor's
    dependents;
    11 U.S.C. S 523(a)(8) (emphasis added).
    In In re: Faish, 
    72 F.3d 298
    (3d Cir. 1995), we analyzed
    this statutory section in detail.2 We noted the difficulty in
    applying the "undue hardship" exception of 11 U.S.C.
    S 523(a)(8), because the drafters of the Bankruptcy Code
    did not define "undue hardship." 
    Id. at 302.
    As a result, we
    had to look to the legislative purpose behind 11 U.S.C.
    S 523(a)(8) for guidance. Ultimately, we adopted the Second
    Circuit's three-pronged test for determining "undue
    hardship," found in Brunner v. New York State Higher
    Education Services Corp., 
    831 F.2d 395
    (2d Cir. 1987),
    because the Brunner test was the "most logical and
    workable of the established tests" for assessing"undue
    hardship." 
    Faish, 72 F.3d at 306
    .
    Under this test, "undue hardship" requires a three-part
    showing: (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 for student loans; and (3) that the
    debtor has made good faith efforts to repay the loans. 
    Id. at 304-05.
    The debtor has the burden of establishing each
    element of this test by a preponderance of the evidence. 
    Id. at 306;
    see also Grogan v. Garner, 
    498 U.S. 279
    , 291 (1991)
    (holding that "the standard of proof for the dischargeability
    exceptions in 11 U.S.C. S 523(a) is the ordinary
    preponderance-of-the-evidence standard"). If one of the
    elements of the test is not proven, the inquiry must end
    there, and the student loans cannot be discharged. 
    Faish, 72 F.3d at 306
    . Moreover, this test must be strictly
    construed: equitable concerns or other extraneous factors
    _________________________________________________________________
    2. At the time that Faish was decided, the "undue hardship" exception
    appeared in 11 U.S.C. S 523(a)(8)(B). In 1998, Congress amended the
    statute by incorporating this exception into 11 U.S.C. S 523(a)(8). This
    change is irrelevant to our analysis, however, because the language of
    the two versions is exactly the same.
    5
    not contemplated by the test may not be imported into the
    analysis of "under hardship." 
    Id. Applying this
    test to Brightful's situation, we must first
    determine whether she has met her burden of
    demonstrating that she cannot maintain, based on current
    income and expenses, a minimal standard of living for
    herself and her dependent daughter if forced to repay the
    loans. We note that this inquiry is made difficult by the fact
    that the Bankruptcy Court made no factual findings
    regarding Brightful's expenses. Brightful did submit some
    information and testified briefly regarding her expenses, but
    PHEAA contends that much of this information is
    inaccurate, incomplete and undocumented.
    For its part, the Bankruptcy Court appeared merely to
    assume that Brightful could not maintain a "minimal"
    standard of living because her 1999 income, which the
    court estimated at $8,500, was so low. While this might be
    a reasonable assumption, it is also true that Brightful
    earned significantly more money in 1998 ($20,000), is not
    on public assistance, and apparently has no significant
    housing expenses because she is living in her sister's home.
    Furthermore, in its November 8, 1999 order, the
    Bankruptcy Court did not even mention the amount of
    Brightful's loan payments. Our own examination of the
    record, however, reveals that as of October 20, 1999,
    Brightful's student loan indebtedness totaled $52,261.70 in
    principal and interest, which corresponds to a loan
    payment of $626 per month over the ten year life of the loans.3
    Despite the dearth of information regarding Brightful's
    expenses, we nonetheless will assume, for the sake of
    argument, that at the time of the Bankruptcy Court
    proceedings, Brightful could not make her student loan
    payments and still maintain a minimal standard of living
    for herself and her daughter. As detailed below, we think it
    clear that Brightful has failed to meet her burden under the
    second prong of the Faish test, and thus we will not
    _________________________________________________________________
    3. PHEAA points out, however, that Brightful is eligible to consolidate
    her
    student loans for a period of twenty-five years, which apparently would
    reduce her monthly payments to $355.57.
    6
    concern ourselves with the deficient state of the record
    regarding the first prong.
    Under the second element of the test, Brightful must
    prove that additional circumstances exist indicating that
    she cannot maintain a minimal standard of living for a
    significant portion of the repayment period if forced to
    repay her loans. This is a demanding requirement. As we
    indicated in Faish, it is not enough for Brightful to
    demonstrate that she is currently in financial straits;
    rather, she must prove "a total incapacity . . . in the future
    to pay [her] debts for reasons not within[her] control." 
    Id. at 307
    (quoting In re: Brunner, 
    46 B.R. 752
    , 758 (S.D.N.Y.
    1985)). In other words, "dischargeability of student loans
    should be based upon the certainty of hopelessness, not
    simply a present inability to fulfill financial commitment."
    
    Brunner, 46 B.R. at 755
    (quoting In re: Briscoe, 
    16 B.R. 128
    , 131 (Bankr. S.D.N.Y. 1981)); see also In re: Ballard, 
    60 B.R. 673
    , 675 (Bankr. W.D. Va. 1986) (explaining that "[a]
    finding of undue hardship is reserved for the exceptional
    case and requires the presence of unique or extraordinary
    circumstances which would render it unlikely that the
    debtor ever would be able to honor his obligations").
    As noted earlier, the Bankruptcy Court concluded that
    Brightful most likely would never attain her college degree,
    lacks useful vocational training, suffers glaring psychiatric
    problems, is emotionally unstable, and that her pursuit of
    sexual discrimination charges against Dechert had both
    scarred her future prospects with that firm and accounted
    for the sharp reduction in her income in 1999 as compared
    to 1998. On the basis of these factual findings, the court
    believed that there was a "substantial likelihood that
    [Brightful's] sub-marginal economic circumstances will
    persist for many years, probably for the rest of her life," and
    that therefore she had satisfied the second prong of the
    Faish test.
    At the outset, we think the Bankruptcy Court's finding
    that Brightful lacks useful vocational training is clearly
    erroneous. It is undisputed that Brightful has worked for
    over a decade in both a full-time and part-time capacity as
    a legal secretary at Dechert. As part of this employment,
    she is trained to operate office equipment and computer
    7
    software. Brightful has never suggested that she lacked the
    skills to perform the duties of a legal secretary-- indeed,
    such a suggestion would contradict the fact that she
    currently holds that position, albeit in a part-time capacity.
    Thus, we reject the Bankruptcy Court's unsupported
    conclusion that Brightful lacks useful vocational training.
    Similarly, we reject the Bankruptcy Court's conclusions
    that Brightful's pursuit of sexual discrimination charges
    against Dechert had both scarred her future prospects with
    that firm and accounted for the sharp reduction in her
    income in 1999 as compared to 1998. During the
    Bankruptcy Court proceedings, neither the circumstances
    surrounding Brightful's sexual discrimination charges nor
    the consequences flowing from these charges were
    adequately explored. Rather, as the Bankruptcy Court
    noted in the beginning of its opinion, the circumstances
    surrounding the charges were "unexplained." There is
    simply no basis in the record for the Bankruptcy Court's
    conclusion that Brightful was the victim of retaliation for
    bringing charges against Dechert. Indeed, such a
    conclusion would seem to be contradicted by Brightful's
    continued employment at Dechert a higher rate of pay ($18
    per hour) than she received prior to filing her charges. In
    any event, the Bankruptcy Court's conclusions on this
    matter were purely speculative, and accordingly, we reject
    them.4
    _________________________________________________________________
    4. Furthermore, even were we to accept the Bankruptcy Court's
    conclusions, they would not support a finding of"additional
    circumstances" indicating that Brightful cannot maintain a minimal
    standard of living for a significant portion of her loan repayment period.
    If Brightful's employment prospects at Dechert were foreclosed, it would
    be her responsibility to diligently pursue employment elsewhere --
    something that the record indicates she has not done, as evidenced by
    her failure to have a current resume and her inability to recall the
    names of temporary employment agencies that she allegedly contacted in
    the past. See, e.g., In re: Greco, 
    251 B.R. 670
    , 677 (Bankr. E.D. Pa.
    2000) (holding that the debtor had failed to meet her burden under the
    second prong of Faish because "[t]he testimony offered by the Debtor at
    trial does not reveal a diligent effort on her part to secure a stable,
    salaried job," and "the Debtor has not demonstrated any efforts to seek
    employment in another field").
    8
    The Bankruptcy Court gave great weight to Brightful's
    alleged emotional and psychiatric infirmities, concluding
    from Brightful's testimony that she was emotionally
    unstable and that she had "glaring" psychiatric problems.
    We think these findings have some support in the record,
    especially considering that Brightful has apparently
    attempted suicide twice in her life. PHEAA argues, however,
    that such findings require expert testimony, and cannot be
    made simply on the basis of the debtor's testimony. We
    disagree. It was appropriate for the Bankruptcy Court, as
    the trier of fact, to assess Brightful's testimony and draw
    reasonable conclusions regarding her mental and emotional
    state. E.g., In re: Cline, 
    248 B.R. 347
    , 350 (B.A.P. 8th Cir.
    2000) (explaining that "[t]here is no reason to view the trial
    court's findings [regarding the debtor's emotional state] as
    unreliable merely because no expert evidence was
    introduced").
    What is missing from the Bankruptcy Court's analysis,
    however, is any discussion of the nature of Brightful's
    emotional and psychiatric problems, or how these problems
    prevent her from being gainfully employed. The Bankruptcy
    Court seems to have merely assumed that Brightful's
    emotional and psychiatric problems would automatically
    preclude her from holding full-time employment. Yet
    Brightful's testimony, while perhaps supporting the general
    conclusion that she has emotional and psychiatric
    problems, is notable for its lack of detail. It contains no
    explanation of the precise nature of her problems, and no
    explanation of how her condition would impair her ability to
    work as a legal secretary. Nor does she claim that her
    problems have greatly intensified in 1999, and are therefore
    responsible for the sharp reduction in her hours in 1999 as
    compared to 1998. Rather, it is clear from her testimony
    that her mental and emotional difficulties have existed
    throughout her adult life.
    Without any further explanation of Brightful's mental and
    emotional condition (or at least some indication that this
    condition will deteriorate in the future), there is simply no
    record basis for the conclusion that Brightful's emotional
    and psychiatric problems constitute the sort of"additional
    circumstances" contemplated by Faish's second prong.
    9
    While we do not belittle Brightful's problems, nevertheless
    Brightful has the burden of demonstrating how these
    problems impair her ability to work. In our view, she has
    not even attempted to meet this burden. At the very least,
    such an attempt would include an explanation as to how
    she was able to work full-time as a legal secretary in the
    past (and indeed was able to work a significant number of
    hours in 1998), and yet cannot do so in the future. E.g., In
    re: Wardlow, 
    167 B.R. 148
    , 152 (Bankr. W.D. Mo. 1993)
    (holding that the debtor had failed to satisfy the second
    prong of the Brunner test because the debtor"offered no
    proof of the severity of [her] medical condition. [She] is
    sufficiently healthy to perform her job, and offered no
    indication she would be unable to perform in the future.").
    In sum, Brightful has failed to demonstrate the type of
    exceptional circumstances that are necessary in order to
    meet her burden under the second prong of Faish . She is
    intelligent, physically healthy, currently employed,
    possesses useful skills as a legal secretary, and has no
    extraordinary, non-discretionary expenses. While she does
    have one dependent, her daughter is now only two years
    from the age of majority, and therefore this legal
    dependency is nearly at end. Thus we readily conclude that
    Brightful has failed to satisfy her burden. E.g. , In re:
    Roberson, 
    999 F.2d 1132
    , 1137 (7th Cir. 1993) (explaining
    that the second prong of the test requires a showing of "the
    type of barrier that would lead us to believe [the debtor] will
    lack the ability to repay for several years," such as
    psychiatric problems preventing work, lack of usable job
    skills and severely limited education, or the necessity of
    fully supporting several dependents); Brunner , 831 F.2d at
    396-97 (holding that the debtor had failed to carry her
    burden under the second prong because, inter alia, "[s]he is
    not disabled, nor elderly," and "[n]o evidence was presented
    indicating a total foreclosure of job prospects in her area of
    training"); 
    Brunner, 46 B.R. at 755
    (noting that
    circumstances that would satisfy the second prong"have
    been found most frequently as a result of illness . . . a lack
    of usable job skills . . . the existence of a large number of
    dependents . . . or a combination of these"). Because
    Brightful has failed to meet her burden under the second
    prong of the Faish test, we hold that her student loans are
    10
    not dischargeable, and there is no need for us to address
    the third prong of the test. 
    Faish, 72 F.3d at 306
    .
    We realize that our result in this case might appear
    harsh, especially given the fact that Brightful does not have
    her college degree and is unlikely ever to attain it, as the
    Bankruptcy Court found. Therefore, unlike many student
    loan debtors, she cannot anticipate significantly increased
    earnings in the future that would flow from her educational
    investment. Instead, she must for the foreseeable future
    rely upon her existing legal secretarial skills to fund her
    expenses and educational debt. This situation is
    unfortunate, but it does not excuse Brightful from meeting
    her student loan obligations. As we observed in Faish:
    [F]ederal student loan programs were not designed to
    turn the government into an insurer of educational
    value. Students who benefit from guaranteed loan
    programs normally would not be eligible to receive any
    financing or only financing at a higher rate of interest.
    Since the decision of whether or not to borrow for a
    college education lies with the individual, it is the
    student, not the taxpayers, that must accept the
    consequences of the decision to borrow.
    
    Id. at 305
    (internal quotations marks and citations
    omitted).
    In other words, when a student loan borrower accepts
    money from the government, she strikes a bargain. And
    "[l]ike all bargains, it entails risk. It is for each student
    individually to decide whether the risks of future hardship
    outweigh the potential benefits of a deferred-payment
    education." 
    Brunner, 46 B.R. at 756
    . Here, Brightful struck
    her bargain, she took her risk, and unfortunately, things
    did not work out as planned. Brightful's hardship is real,
    but under the Faish test, it is not "undue," and therefore
    we cannot discharge her obligation to repay her student
    loans.
    In light of the foregoing, we will REVERSE the February
    28, 2000 order of the District Court.
    11
    A True Copy:
    Teste:
    Clerk of the United States Court of Appeals
    for the Third Circuit
    12