Kasey v. Pa Higher Education

Filed: July 19, 1999
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 98-2764
(CA-98-405-R, et al)
Glenda Yvonna Arrington Kasey,
Plaintiff - Appellant,
versus
Pennsylvania Higher Education Assistance
Agency,
Defendant - Appellee.
O R D E R
The court amends its opinion filed July 9, 1999, as follows:
On the cover sheet, section 4 -- the decided date is corrected
to read “July 9, 1999.”
For the Court - By Direction
/s/ Patricia S. Connor
Clerk
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: GLENDA YVONNE ARRINGTON
KASEY,
Debtor.
GLENDA YVONNE ARRINGTON KASEY,
Plaintiff-Appellant,
No. 98-2764
v.
PENNSYLVANIA HIGHER EDUCATION
ASSISTANCE AGENCY,
Defendant-Appellee.
GEORGE A. MCLEAN, Trustee,
Trustee.
Appeal from the United States District Court
for the Western District of Virginia, at Roanoke.
James C. Turk, District Judge.
(CA-98-405-R, BK-97-2400-7-HPR, AP-97-208-7)
Submitted: June 22, 1999
Decided: July 9, 1999
Before MURNAGHAN, HAMILTON, and MOTZ, Circuit Judges.
_________________________________________________________________
Vacated and remanded by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
Glenda Yvonne Arrington Kasey, Appellant Pro Se. Leisa Kube Ciaf-
fone, Howard J. Beck, Jr., GENTRY, LOCKE, RAKES & MOORE,
Roanoke, Virginia, for Appellee; George A. McLean, Roanoke, Vir-
ginia, for Trustee.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Glenda Kasey appeals from the district court's order reversing the
bankruptcy court's order determining that her student loans should be
discharged pursuant to 11 U.S.C. § 523(a)(8)(B) (1994), 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.
Kasey is a single mother with three minor children. In 1993 and
1994, she borrowed approximately $15,000 to pursue a teaching
career. However, Kasey testified that she did not complete her educa-
tion due to her divorce and ensuing treatment for depression. Kasey
filed a Chapter 7 petition in June 1997 and sought a discharge of her
student loan based on undue hardship.
After a dischargeability hearing, the bankruptcy court found that:
(1) Kasey worked at the Home Shopping Network approximately 40
hours per week, earning $6.57 per hour; (2) she received monthly
child support in the amount of $250 for her three children, ages 15,
11, and 4; (3) Kasey's monthly expenses totaled $1414, exclusive of
an automobile payment; and (4) based on a total net monthly income
of $930 (wages of $680 plus $250 child support), "[h]er monthly
expenses far outweigh her monthly income." Further, the bankruptcy
court found that Kasey had made good faith payments on the loan.
After applying the three-prong test set forth in Brunner v. New York
State Higher Educ. Servs., 831 F.2d 395 (2d Cir. 1987), the bank-
ruptcy court concluded that repayment of the loan would impose an
2
undue hardship on Kasey and her dependents and granted her a dis-
charge. PHEAA appealed.
The record designated by PHEAA consisted of the following items:
(1) Kasey's complaint to determine dischargeability of the loan; (2)
PHEAA's answer; (3) the bankruptcy court's opinion and order; (4)
the bankruptcy court's docket sheet; and (5) a transcript of the hearing
conducted on December 15, 1997.1 Based on this record, the district
court concluded that the bankruptcy court's factual findings regarding
Kasey's income and expenses were clearly erroneous. Specifically,
the district court found that Kasey's net monthly income totaled
$1130, as opposed to $930, based on her testimony that her bi-weekly
take-home pay was $440 and that she received $250 per month in
child support (i.e., $880 plus $250). With respect to her expenses, the
district court concluded that the bankruptcy court had erroneously
included Kasey's car payment where she had testified that the car was
paid off two months prior to the hearing. Without the car payment,
the district court found that her total monthly expenses were $1228.2
Applying the same test as did the bankruptcy court, the district court
concluded that Kasey failed to meet her burden of proving undue
hardship, see Brunner, 831 F.2d at 395, and vacated the bankruptcy
court's decision. Kasey appeals.
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
_________________________________________________________________
1 Within ten days after filing a notice of appeal from a bankruptcy court
to a district court, the appellant must file with the clerk of the bankruptcy
court, and serve on the appellee, a designation of items to be included in
the record on appeal and a statement of the issues to be presented. An
appellee, within 10 days after the service of the appellant's statement,
may file and serve on the appellant a designation of additional items to
be included in the record. See Bankr. R. 8006.
2 It is unclear how the district court arrived at this figure. Kasey testi-
fied that her car payment had been $338 per month. However, subtract-
ing this amount from the $1414 yields $1076, not $1228. As discussed,
infra, there is no other evidence in the record with which to compare the
two sets of figures.
3
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 Properties, XVIII, 961 F.2d 496,
499 (4th Cir. 1992).
Government guaranteed student loans cannot be discharged in
bankruptcy unless: (A) more than seven years has elapsed between
the time the loan first became due and the filing of the bankruptcy
petition; or "(B) 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). Although "undue hardship" is not defined in the
bankruptcy code, several courts have adopted the Second Circuit's
analysis in Brunner, 831 F.2d at 395. See In re Pena, 155 F.3d 1108(9th Cir. 1998); In re Faish, 72 F.3d 298, 306 (3d Cir. 1995); Matter
of Roberson, 999 F.2d 1132 (7th Cir. 1993). Brunner established a
three-part test to determine whether a debtor has shown "undue hard-
ship" within the meaning of § 523(a)(8). First, the debtor must estab-
lish "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. Kasey's testimony
established that her monthly income is $1130. The district court con-
cluded that Kasey's expenses of $1414 included a paid-off car loan.
However, this finding is contrary to the bankruptcy court's finding on
this issue. Also, the transcript is far from clear on this issue and there
is no supporting documentary evidence included in the record as des-
ignated by PHEAA. Kasey testified that her total monthly expenses
were $1414. PHEAA's attorney asked Kasey: "Do you have a car
payment?" Kasey responded: "I had one, but it's paid for now. Two
months ago. It was 338 dollars a month." The transcript is unclear as
to whether this amount is included in the $1414. Again, without bene-
fit of other documentary evidence, it is impossible to say that the
bankruptcy court clearly erred in construing Kasey's testimony to
mean that her monthly expenses totaled $1414 exclusive of an auto-
mobile payment. Therefore, even accepting the district court's finding
4
that Kasey's net income totals $1130, we find that Kasey meets the
first prong of Brunner because her monthly budget deficit is $284.
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. Kasey was asked: "[D]o
you perceive anything changing in your job status or the amount of
money that you have coming?" to which she responded, "no." She
also stated that she had no savings or other investments. The district
court nevertheless concluded that Kasey's financial circumstances
were likely to improve: "Kasey has been considered for raises on an
annual basis in the past, will soon pay off the furniture debts, and
according to her own statements would then be able to pay $100 per
month on the student loan." However, Kasey's last raise was a mere
seven cents per hour. And, as the bankruptcy court noted, even after
Kasey's furniture loans are paid off (which total $193 per month), her
expenses would still exceed her monthly income. Although Kasey did
testify that she thought she could pay $100 per month toward her stu-
dent loan once the furniture loans were paid off, her ability to do so
is unlikely given her financial situation. Finally, the district court
failed to take into account the fact that Kasey has three minor children
--two of whom are very young--and will likely incur child care
expenses for several years.3 Therefore, we find that, based on the
record before the district court, the bankruptcy court did not clearly
err in finding that Kasey's financial condition would not likely
improve any time in the near future.
Finally, the third prong under Brunner requires "that the debtor has
made good faith efforts to repay the loans." Id. Kasey testified that
she had received several forbearances on the loan and that she had
repaid a total of "two hundred and some." The bankruptcy court found
that, based on this evidence, Kasey had made good faith payments on
the loan. Again, the district court disagreed, finding that "[s]uch a
small percentage of the debt probably does not constitute a good faith
_________________________________________________________________
3 The record is unclear as to whether the $1414 includes child care. The
bankruptcy judge asked Kasey at the conclusion of the hearing: "Do you
still have a daycare expense for the youngest one?" Kasey responded,
"yes," but the amount was not disclosed.
5
effort at repayment." The district court cited In re Healey, 161 B.R.
389 (E.D. Mich. 1993), in which the district court found that the debt-
or's payment of $174 on a $43,000 debt, combined with a lack of
effort to find ways to repay the debt, did not show good faith. Here,
however, Kasey repaid almost $300 of a debt which was approxi-
mately one-third that involved in Healey, and unlike the debtor in that
case, Kasey sought several forbearances. Cf. In re Brunner, 46 B.R.
752, 758 (S.D.N.Y. 1985) (district court opinion) (finding that debtor
failed to establish good faith because she "filed for discharge within
a month of the date the first payment of her loans came due . . . made
virtually no attempt to repay, [and never] requested a deferment of
payment, a remedy open to those unable to pay because of prolonged
unemployment"). We find that the bankruptcy court did not clearly err
in finding that Kasey had made a good faith effort to repay the loan.
Because the record before the district court fails to show that the
bankruptcy court clearly erred in finding that Kasey 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 discharging the debt at issue. We dispense
with oral argument because the facts and legal contentions are ade-
quately presented in the materials before the court and argument
would not aid in the decisional process.
VACATED AND REMANDED
6