Floyd v. Educational Credit Management Corp.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MICHAEL ALLAN FLOYD, 
Plaintiff-Appellant,
v.
EDUCATIONAL CREDIT MANAGEMENT  No. 02-1919
CORPORATION; PENNSYLVANIA HIGHER
EDUCATION ASSISTANCE AGENCY,
Defendants-Appellees.

MICHAEL ALLAN FLOYD, 
Plaintiff-Appellant,
v.
 No. 02-1920
PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY,
Defendant-Appellee.

Appeals from the United States District Court
for the District of South Carolina, at Spartanburg.
Henry M. Herlong, Jr., District Judge.
(CA-02-1288-7-20, BK-01-2604, AP-01-80124, CA-02-1321-7-20)
Submitted: November 25, 2002
Decided: December 19, 2002
Before NIEMEYER, LUTTIG, and MICHAEL, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
2 FLOYD v. EDUCATIONAL CREDIT MANAGEMENT CORP.
COUNSEL
Michael Allan Floyd, Appellant Pro Se. Kevin Joseph Heiser, NEL-
SON, MULLINS, RILEY & SCARBOROUGH, Columbia, South
Carolina; Anna Shedden Gorman, POYNER & SPRUILL, Charlotte,
North Carolina; Lillia Ann Gray, COOPER, COFFAS & MEGNA,
P.A., Columbia, South Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
Michael Allan Floyd appeals from the district court’s order revers-
ing the bankruptcy court’s order determining that his student loans
should be partially discharged pursuant to 11 U.S.C. § 523(a)(8)
(2000), because repayment of the loans would constitute an undue
hardship. Because we find that the bankruptcy court’s determinations
were not clearly erroneous, we vacate the district court’s order.
Floyd filed a petition for relief under Chapter 7 of the Bankruptcy
Code in March 2001, and sought a discharge of his student loan debt
based on undue hardship. After a dischargeability hearing, during
which Floyd testified as to his employment history and future pros-
pects and his income and expenses, the bankruptcy court determined
that Floyd "met his burden of proof, that most of this debt should be
discharged based on hardship." The court determined that after paying
his monthly expenses, Floyd had about $100 per month that could be
applied to the debt. Utilizing that amount for repayment of the loans,
the court discharged Floyd’s student loan debts, except for $4044.24
owed to Educational Credit Management Corporation ("ECMC") and
$887.76 owed to Pennsylvania Higher Educational Assistance
Agency ("PHEAA"). The district court reversed the bankruptcy
court’s order and determined that the full amounts of the loans were
non-dischargeable in bankruptcy. Floyd appeals from this order.
FLOYD v. EDUCATIONAL CREDIT MANAGEMENT CORP. 3
Because the district court sits as the appellate court in bankruptcy,
this court’s review of the district court’s decision is plenary. See
Brown v. Pennsylvania State Employees Credit Union, 851 F.2d 81,
84 (3d Cir. 1988). Using the same standard as the district court, this
court will set aside a finding of fact made by the bankruptcy court
only if it is clearly erroneous. See Bankr. R. 8013; In re Johnson, 960
F.2d 396, 399 (4th Cir. 1992). A finding 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 mis-
take has been committed. See Anderson v. Bessemer City, 470 U.S.
564, 573-74 (1985). The bankruptcy court’s conclusions of law are
reviewed de novo. See In re Bryson Props., XVIII, 961 F.2d 496, 499
(4th Cir. 1992).
Government guaranteed student loans cannot be discharged in
bankruptcy unless "excepting such debt from discharge . . . will
impose an undue hardship on the debtor and the debtor’s dependents."
11 U.S.C. § 523(a)(8). The Second Circuit established a three-part test
to determine whether a debtor has shown such "undue hardship." See
Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395(2d Cir. 1987). First, the debtor must establish "that she cannot main-
tain, 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.
Here, the bankruptcy court made factual findings that Floyd is 33
and has no dependents, he borrowed a total of $27,781 in student
loans to obtain his teaching certificate, he is currently employed as a
service coordinator with Charles Lea Center and his current annual
income is $27,950. The bankruptcy court considered Floyd’s monthly
income and his monthly expenses and determined that Floyd "cannot
meet a ‘minimal’ standard of living if he has to repay the full amount
of his student loans." The court found that the purchase of a newer
vehicle was reasonable given the mechanical problems Floyd experi-
enced with his old vehicle. The court also found that Floyd’s move
to another, safer, apartment with a $125 per month increase in rent
was not extravagant. We conclude based on these findings, that Floyd
met the first prong of Brunner. See In re Correll, 105 B.R. 302, 306
(Bankr. W.D. Pa. 1989) ("Where a family earns a modest income and
the family budget, which shows no unnecessary or frivolous expendi-
4 FLOYD v. EDUCATIONAL CREDIT MANAGEMENT CORP.
tures, is still unbalanced, a hardship exists from which a debtor may
be discharged of his student loan obligations.").
The district court disagreed with the bankruptcy court’s finding
that Floyd could not maintain a minimal standard of living and repay
the full amount of the student loans. Notably, the district court sug-
gested that Floyd could search for a roommate to share his one-
bedroom apartment, resulting in a reduction in his rent and his house-
hold expenses. The district court questioned the necessity of Floyd’s
stated expenses for a cellular phone bill, internet service, and his pets.
The district court questioned whether Floyd could have found a dif-
ferent vehicle for less than the $13,000 he financed to purchase a
1998 Kia. However, the bankruptcy court found that these expendi-
tures were not extravagant or frivolous. Rather, in finding that Floyd
had only $100 in disposable income which could be applied to the
student loans, the bankruptcy court implicitly found Floyd’s current
expenses to be reasonable. We find that, although the district court
disagreed with the bankruptcy court’s factual findings, they were not
clearly erroneous. See Correll, 105 B.R. at 306 (stating that a debtor
is not required to live in poverty in order to satisfy the first prong of
Brunner).
Under the second prong of Brunner, the debtor must show "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." Brunner, 831 F.2d at 396. The bankruptcy court
found that Floyd has "little potential for advancement at Charles Lea
Center," and his future pay raises will be limited to an annual cost of
living increase. The court also found that, without additional educa-
tion, "changing employers would not significantly increase [Floyd’s]
ability to make more money in his field." The bankruptcy court found
that Floyd met his burden of proof on this prong, as well.
The district court concluded that the bankruptcy court’s findings on
this issue were clearly erroneous. The district court based this conclu-
sion on the fact that no evidence was presented at trial other than
Floyd’s testimony. Also, the court observed that there was no evi-
dence in the record that Floyd attempted to obtain either a higher-
paying job or a job with greater potential for advancement. However,
Floyd testified that, without additional education, he had reached a
FLOYD v. EDUCATIONAL CREDIT MANAGEMENT CORP. 5
plateau in relation to his income level. He also testified that there is
little potential for advancement at his current employment. Contrary
to the district court’s conclusion, we find that the bankruptcy court
did not clearly err in crediting Floyd’s testimony and finding that
Floyd’s financial condition would not likely improve any time in the
near future. See Bryson Props., 961 F.2d at 499; Green, 934 F.2d at
570.
The third prong under Brunner requires "that the debtor has made
good faith efforts to repay the loans." Brunner, 831 F.2d at 396. The
bankruptcy court found that Floyd kept in frequent contact with the
lenders, he arranged for a deferral of the loans until he completed
school, and then negotiated a forbearance. Based on his income, Sal-
lie Mae allowed Floyd to make partial payments on the loans for
about a year. Floyd was then unemployed and could not make further
payments. The loans were placed in forbearance. Floyd investigated
the possibility of consolidating the loans and other workout options,
but the payments would have been too high for him to be able to pay.
The district court found no clear error in the bankruptcy court’s con-
clusion that Floyd made a good faith effort to repay his loans. We
agree that this prong of the Brunner test is also met.
Because the record before the district court fails to show that the
bankruptcy court clearly erred in finding that Floyd established undue
hardship under Brunner, we vacate the district court’s order and
remand this case to the district court with instructions to reinstate the
bankruptcy court’s order partially discharging the debts at issue. We
dispense with oral argument because the facts and legal contentions
are adequately presented in the materials before the court and argu-
ment would not aid in the decisional process.
VACATED AND REMANDED