FILED
NOT FOR PUBLICATION MAR 02 2010
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U .S. C O U R T OF APPE ALS
FOR THE NINTH CIRCUIT
In re: MICHAEL ERIC HEDLUND; No. 04-35806
STEPHANIE RAE HEDLUND,
BAP No. OR 04-1103 KMaMo
Debtors,
MEMORANDUM *
MICHAEL ERIC HEDLUND,
Appellant,
v.
PENNSYLVANIA HIGHER
EDUCATION ASSISTANCE AGENCY,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Klein, Marlar, and Montali, Bankruptcy Judges, Presiding
Argued and Submitted July 7, 2009
Portland, Oregon
Submission Vacated and Deferred July 8, 2009
Resubmitted February 5, 2010
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
Before: PREGERSON, RYMER, and TASHIMA, Circuit Judges.
The essential question tendered for decision on this appeal is whether the
bankruptcy court erred in holding that debtor Michael Hedlund’s student loans
were partially dischargeable under 11 U.S.C. § 523(a)(8), or the bankruptcy
appellate panel (“BAP”) erred in reversing the bankruptcy court and holding that
Hedlund did not meet the dischargeability requirements of § 523(a)(8). We have
jurisdiction pursuant to 28 U.S.C. § 158(d), and vacate and remand.
In his bankruptcy case, Hedlund attempted to discharge approximately
$85,000 in student loans to finance his education at Willamette University law
school.1 Hedlund never passed the bar exam and was employed as a juvenile
counselor for the Kalmath County Juvenile Department. The bankruptcy court
found that requiring Hedlund to repay more than $30,000 of his student loans
would impose an undue hardship on him and his dependents; it therefore
discharged his student loan debts in excess of $30,000.
The creditor, Pensylvania Higher Education Assistance Agency appealed to
the BAP, which reversed. The BAP held that it would not be unconscionable for
1
Because the parties are familiar with the facts and prior proceedings in
the case, we recite the facts only as necessary to aid in understanding our
disposition.
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Hedlund to eliminate a number of claimed expenses, including a new car payment,
which would result in a monthly saving of $559. Hedlund timely appealed.
In assessing undue hardship in student loan cases, we have adopted the
three-factor test from Brunner v. N.Y. State Higher Educ. Serv. Corp. (In re
Brunner), 46 B.R. 752, 753 (S.D.N. Y. 1985), aff’d, 831 F.2d 395 (2d Cir. 1987).
Under the Brunner test, the debtor must prove that: (1) he cannot maintain,
based on current income and expenses, a “minimal” standard of living for
himself and his dependents if required to repay the loans; (2) additional
circumstances exist indicating that this state of affairs is likely to persist for
a significant portion of the repayment period; and (3) the debtor has made
good faith efforts to repay the loans.
Educ. Credit Mgmt. Corp. v. Mason (In re Mason), 464 F.3d 878, 882 (9th Cir.
2006).
Under the first Brunner factor, the bankruptcy court did not sufficiently
consider whether Hedlund could reduce his expenses to meet a greater portion of
loan expenses; instead, it found only that Hedlund’s expenses could not be reduced
enough to support an $800/month loan repayment, the amount required for a total
payoff. It further did not consider whether Hedlund could increase his income
either by his taking on a part-time job or his wife working part time. Similarly, the
bankruptcy court’s consideration of the second and third factors under the Brunner
test was incomplete. For example, the BAP found, not without justification, that
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“the bankruptcy court was too charitable” in making its finding under the good
faith prong. The BAP pointed out, inter alia, that the debtor and his wife have
taken no steps to maximize their income, nor have they attempted to minimize their
expenses, such as by eliminating “luxury items.”
In these circumstances, we believe that the proper and equitable course is to
remand this proceeding for the bankruptcy court to reconsider all of the evidence in
light of the Brunner test,2 and to make more complete findings on each of the three
factors under the Brunner test so as to facilitate appellate review of whether
Hedlund has met the “undue hardship” requirement of § 523(a)(8). Each party
shall bear its own costs on appeal.
VACATED and REMANDED with instructions to remand to the
bankruptcy court for further proceedings in accordance with this disposition.
2
We leave to the bankruptcy court’s discretion whether or not to
reopen the record for the reception of further evidence on these issues.
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