Menu    1 ABR 503 

IN THE UNITED STATES DISTINCT COURT
FOR THE DISTRICT OF ALASKA

ALASKA COMMISSION ON )
POST SECONDARY EDUCATION, )
)
Appellant,          )
)
vs.
)USDC NO. A90-235 Civil
)(Bankruptcy No. 3-87-00468)
VINSON MANNERING JESTER,)
)
Appellee.          )
_____________________________________)

MEMORANDUM AND ORDER

I.    INTRODUCTION

        This is an appeal by the Alaska Commission on Postsecondary Education ("the Commission") from a decision of the United States Bankruptcy Court for the District of Alaska. The Commission appeals the bankruptcy court's decision that Vinson Mannering Jester's ("Jester") educational loans are discharged under the undue hardship exceptions provided in 11 U.S.C. § 523(a)(8)(B). The parties submitted briefing on the issues and oral argument was held on January 4, 1991. I reverse the bankruptcy court's decision.

II.    BACKGROUND

        Jester has an undergraduate degree from Indiana University, and two master's degrees from other universities. He has been employed as a teacher and counselor. In 1981, Jester continued his education by enrolling in a Ph.D program in adult education at Flordia State University and, in order to pay his educational and   TOP      1 ABR 504  subsistence expenses, he obtained loans over several years from the Commission totalling $20,000. He completed the course material, but did not finish the dissertation necessary to obtain his Ph.D. Jester returned to Alaska, working as an educator and counselor during 1985 and 1986. He experienced financial difficulty in 1987 due to a loss of , employment and a loss in his real estate investments.

        Jester filed a petition under Chapter 7 of the Bankruptcy Code and a discharge was entered on August 31, 1987. The Commission filed a timely proof of claim asserting that the educational loans were not dischargeable under the provisions of 11 U.S.C. § 523(a)(8)(B).(1.) Jester subsequently filed a complaint to determine the dischargeability of the loan, contending repayment would impose an undue hardship.

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        At the time of the bankruptcy hearing on April 17, 1990, Jester had moved from Alaska and was employed full time at Mental Health Services Northwest, Inc. in Ohio as a counselor/educator. The bankruptcy hearing focused on Jester's monthly budget. The Commission vigorously disputed Jester's representation of his monthly expenses, in particular his credit card debts, his sporadic financial assistance to a college-age daughter, and his financial obligation to his housemate. The Commission argued that Jester had no significant long-term debts besides his student loan. In addition, the Commission argued that Jester presented no evidence of medical problems. The bankruptcy court ruled that Jester's educational loan was dischargeable under the undue hardship exception provided under 11 U.S.C. § 523(A)(8)(b). This appeal by the Commission followed.

III.    DISCUSSION

        The student loan recipient has the burden of proof to show undue hardship. In Re Child, 89 B.R. 819 (Bkrptcy. D. Neb. 1988). The bankruptcy court relieved Jester of his obligation in order to provide him a "fresh start." The bankruptcy judge concluded: "the court must look at the time of the hearing of the complaint and not . . . or not speculate as to what may happen in the future. In order to give any debtor a fresh start, it is necessary to have one moment in time." The bankruptcy court   TOP      1 ABR 506  declined to apply the tri-level test suggested in Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395 (2nd Cir. 1987).

        I conclude that the bankruptcy court committed clear error in its finding that Jester would suffer hardship if required to repay his student loan in reasonable installments. I am also convinced that the bankruptcy judge misunderstood and therefore misapplied the law which I believe is correctly set out in Brunner, Id. at 396. Brunner requires a debtor seeking discharge to make a three-part showing:

        (1) that the debtor cannot maintain, based on a 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 of the student loans; and (3) that the debtor has made good-faith efforts to repay the loans.
        In the absence of conflicting decisions from the Ninth Circuit, and none have been cited by the parties, I elect to follow Brunner.

        The record does not reflect that the bankruptcy court determined what a minimal standard of living for Jester would be. The bankruptcy court should have considered Jester's future earning capacity, at least during the time necessary to repay the loan.   TOP      1 ABR 507  See In Re Courtney, 79 B.R. 1004, 1008 (Bkrptcy. N.D. Ind. 1987) in which the court considered the debtor's estimated future income and expense. The bankruptcy court also erred as a matter of law in its failure to consider whether Jester made a good-faith effort to repay his student loans. It appears undisputable that Jester made only minimal repayments, apparently in order to continue to obtain loans from the state, and failed to notify the Commission of his changes of address. See In Re Conners, 83 B.R. 440, 446 (Bkrptcy. E.D. Mich. 1988), in which the court found a lack of good faith when the debtor never attempted to pay back any portion of a loan while gainfully employed.

        Congress enacted section 11 U.S.C. § 523 (a)(8), in 1978 in part, to prevent a specific abuse: the filing of bankruptcy shortly after graduation for the primary purpose of discharging student loans where the student had a substantial future earning capacity, but no current assets. Section 523(a)(8) was to ensure "a societal goal greater than the bankruptcy objective of a fresh start for the individual debtor, namely, the maintenance of an educational program for future generations of students." See Kosel, Running the Guantlet of "Undue Hardship" - The Discharge of Student Loans in Bankruptcy. Golden Gate U.L. Rev. 457, 459-460, (1981). To establish "undue hardship" Congress required a debtor to show more than inconvience always present when a   TOP      1 ABR 508  beneficiary of an expensive education first becomes employed and faces repayment of substantial educational loans. As observed in, In Re Frech, 62 B.R. 235, 243 (Bkrptcy. Dist. Minn. 1986):

        A debtor does not establish undue hardship by proof that continuing responsibility for student loans would bring about "an unpleasantness," or a "garden-variety hardship." . . . The hardship which would result from nondischargeability of student loans must be long-term . . . . The Court must find "the certainty of hopelessness [of repayment], not simply a present inability to fulfill financial commitment.' . While this standard may seem draconian, Congress imposed the "undue hardship" requirement for discharge at least in part because government- granted or -insured educational loans are not strictly analogous to debts incurred in the consumer economy. The legislation creating the various student loan programs bars loaning-granting institutions from applying more traditional standards for evaluation of creditworthiness; it also locks lenders into fixed and relatively low interest rates. "In return for giving aid to individuals who present poor credit risks, it strips these individuals of the refuge of bankruptcy in all but extreme circumstances." . . . Thus, the Courts have denied discharge of student loans even in cases where a debtor's alleged household expenditures exceeded current income, so long as that income was something in excess of the poverty level, and the debtor had the real prospect of future income increases.. . .
(Citations omitted.)

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IV.    CONCLUSION

        I am satisfied that Vinson Jester was not entitled to discharge as a matter of law because he would not suffer "undue hardship" provided under 11 U.S.C. § 523(a)(8)(B), if required to repay his student loans. In so deciding, I apply the "undue hardship" tri-level analysis of the Second Circuit in the Brunner case. Accordingly, it is ordered that the decision of the bankruptcy court is reversed, and that Vinson Jester resume repayment of his educational loan to the Commission.

        DATED   at Anchorage, Alaska this 12th day of April 1991.


                  JAMES K. SINGLETON
                  UNITED STATES DISTRICT COURT JUDGE


N O T E S:


  TOP      1 ABR 504  1. A discharge under sections 727, 1141, 1228(a), 1228(b), or 1328(b) does not discharge an individual debtor from any debt --

            (8) for an educational 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 a nonprofit institution, unless --

              (A) such loan first became due before five years (exclusive of any applicable suspension of the repayment period) before the date of the filing of the petition; or

              (B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents;

(Emphasis added) (Footnote omitted).