Educational Credit Management Corp. v. Polleys

                                                                       F I L E D
                                                                United States Court of Appeals
                                                                        Tenth Circuit
                                     PUBLISH
                                                                        FEB 4 2004
                      UNITED STATES COURT OF APPEALS
                                                                     PATRICK FISHER
                                                                            Clerk
                                   TENTH CIRCUIT



 EDUCATIONAL CREDIT
 MANAGEMENT CORPORATION,
 assignee of USA Group Loan Services,
 Inc.,                                                 No. 02-8059

          Defendant - Appellant,

 v.

 NANCY JANE POLLEYS,

          Plaintiff - Appellee.


           APPEAL FROM THE UNITED STATES DISTRICT COURT
                   FOR THE DISTRICT OF WYOMING
                        (D.C. No. 00-CV-215-D)


Submitted on the briefs: *

Scott M. Browning and Craig R. Welling, Rothgerber, Johnson & Lyons, L.L.P.,
Denver, Colorado, for Appellant.

Stephen R. Winship, Winship & Winship, P.C., Casper, Wyoming, for Appellee.


Before KELLY, HENRY, and LUCERO, Circuit Judges.


      *
        After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of
this appeal. See Fed. R. App. P. 34(a); 10th Cir. R. 34.1 (G). The cause therefore
is ordered submitted without oral argument.
KELLY, Circuit Judge.


       Plaintiff-Appellee Nancy Jane Polleys sought a bankruptcy court discharge

of federally guaranteed student loans. Defendant-Appellant Education Credit

Management Corporation (“ECMC”) is a non-profit company and fiduciary of the

Department of Education that is charged with collecting such loans. It now holds

these loans. Ms. Polleys initiated an adversary proceeding in bankruptcy,

contending that the loans were dischargeable because payment of them would

impose an undue hardship within the meaning of 11 U.S.C. § 523(a)(8). The

bankruptcy court agreed and discharged the loans. The district court affirmed.

ECMC now appeals. We have jurisdiction pursuant to 28 U.S.C. § 1291 and we

affirm.



                                    Background

       At the time of trial, Ms. Polleys was a 45-year old single mother of a

teenaged girl. In 1993, she obtained a degree in accounting financed with student

loan funds. She has not repaid any amount on these loans. Her loans were later

consolidated, and at the time of trial had a balance of approximately $51,000;

repayment would require $420 per month over a period of 20 years. Aplt. App.

187.

                                        -2-
      Ms. Polleys was previously employed as an accountant. In 1994, she

worked for one year in that capacity and earned $33,000. She had a job in public

accounting in 1997, earning $13,771. According to Ms. Polleys, she was laid off

from that job when the employer realized she was taking antidepressant

medication and she asked for too much help. Ms. Polleys also tried self-

employment, but could only get small bookkeeping jobs that paid less than $400

per month.

      Since 1997, Ms. Polleys’s annual income has been as high as $16,000 and

as low as $3,000. Through August 2000, she earned minimum wage while

employed at a greenhouse until she was laid off. Recently, Ms. Polleys and her

daughter have lived on about $9,800, obtained from child support and two or

three part-time jobs. Ms. Polleys receives $400 per month in child support

payments.

      Ms. Polleys and her daughter live in a rental property owned by her parents

and pay no rent or utilities. She has a 1993 Subaru, which has significant body

damage, but owns very little other property and no real property. Her budget

contains no funds for emergencies. She qualifies for food stamps, and her income

is below the federal poverty guidelines, as it was in the year before trial. Aplt.

App. at 48, 128-29. Although her daughter is eligible for Medicaid, Ms. Polleys

herself has no health insurance. She expects to receive unemployment


                                         -3-
compensation at some point in the future.

      Ms. Polleys is apparently in good physical health, but she has been

diagnosed with and continues to suffer from a psychological condition known as

“cyclothymic disorder.” She was once involuntarily committed. Aplt. App. at 32,

168. Ms. Polleys is currently prescribed Serzone, an antidepressant, twice a day.

Aplt. App. at 132. Her mental health condition also apparently resulted in a

suicide attempt. Aplt. App. at 24-27, 30-31, 159. She has ongoing expenses for

her various medical and psychological conditions. Aplt. App. at 132-32.

      On appeal, ECMC argues that the district court and the bankruptcy court

not only selected the wrong standard for an undue hardship discharge, but also

applied it incorrectly. Rather than relying upon a “totality of the circumstances”

test, ECMC argues that the courts should have looked to the three-part test in

Brunner v. New York State Higher Education Services Corp., 831 F.2d 395, 396

(2d Cir. 1987), and concluded that Ms. Polleys was not entitled to a discharge.



                                    Discussion

      Section 523(a)(8) provides that an educational loan is not dischargeable in

bankruptcy unless “excepting such debt from discharge . . . will impose an undue

hardship on the debtor and the debtor’s dependents.” While this court is obliged

to accept the bankruptcy court’s undisturbed findings of fact unless they are


                                        -4-
clearly erroneous, we review de novo conclusions as to the legal effect of those

findings. United States v. Richman (In re Talbot), 124 F.3d 1201, 1206 (10th Cir.

1997). Whether a debtor’s student loans would impose an “undue hardship”

under 11 U.S.C. § 523(a)(8) is a question of law. Woodcock v. Chemical Bank,

NYSHESC (In re Woodcock), 45 F.3d 363, 367 (10th Cir. 1995). It requires a

conclusion regarding the legal effect of the bankruptcy court’s findings as to the

debtor’s circumstances, and is therefore reviewed de novo. Id.; see also Long v.

Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 553 (8th Cir. 2003)

(collecting cases).

A.    Undue Hardship Standard

      The bankruptcy code does not define “undue hardship,” nor has the Tenth

Circuit designated a test for the determination of the term. In an unpublished

decision, Cuenca v. Department of Education, No. 94-2277, 1995 WL 499511, at

*2 (10th Cir. Aug. 23, 1995), we noted that undue hardship is something more

than inconvenience or doing without luxuries, stating that “the discharge of a

student loan should be based upon an inability to earn and not simply a reduced

standard of living.”

      The court in Cuenca found that the debtor earned $36,000 per year, his wife

did not work, he was not burdened with a number of old debts, and that he had

derived a benefit from his education. In refusing to discharge the debtor’s student


                                        -5-
loan, the court stated, “Mr. Cuenca’s income is not at or below poverty level.

Many families would be envious of his annual income.” Id.

      In enacting § 523(a)(8), Congress was primarily concerned about abusive

student debtors and protecting the solvency of student loan programs. See In re

Andresen, 232 B.R. 127, 137 (B.A.P. 8th Cir. 1999). Congress itself had little to

say on the dischargeability of student loans. The phrase “undue hardship” was

lifted verbatim from the draft bill proposed by the Commission on the Bankruptcy

Laws of the United States. The Commission noted that the reason for the Code

provision was a “rising incidence of consumer bankruptcies of former students

motivated primarily to avoid payment of educational loan debts.” Report of the

Comm’n on the Bankr. Laws of the United States, H.R. Doc. No. 93- 137, Pt. II §

4-506 (1973), reprinted in Collier on Bankruptcy, App. Pt. 4(c) at 4-710 (15th ed.

rev. 2003) [hereinafter Commission Report]. Upon graduation, the typical student

has little or no non-exempt property that can be distributed to creditors, but may

have substantial future earning potential. Section 523(a)(8) was designed to

remove the temptation of recent graduates to use the bankruptcy system as a low-

cost method of unencumbering future earnings.

      These bankruptcies contravened the general policy that “a loan . . . that

enables a person to earn substantially greater income over his working life should

not as a matter of policy be dischargeable before he has demonstrated that for any


                                        -6-
reason he is unable to earn sufficient income to maintain himself and his

dependents and to repay the educational debt.” Id. The Commission implemented

this policy by recommending the delay of dischargeability for five years, 1 a time

period that “gives the debtor an opportunity to try to meet his payment

obligation.” Id. at 4-711. After five years, the exception would be lifted in

recognition of the fact that “in some circumstances the debtor, because of factors

beyond his reasonable control, may be unable to earn an income adequate both to

meet the living costs of himself and his dependents and to make the educational

debt payments.” Id. During the first five years, however, a student loan could

only be discharged if its payment would impose an “undue hardship” on the

debtor.

      The Commission noted that in order to determine whether

nondischargeability of the debt will impose an “undue hardship,”

      the rate and amount of his future resources should be estimated
      reasonably in terms of ability to obtain, retain, and continue
      employment and the rate of pay that can be expected. Any unearned
      income or other wealth which the debtor can be expected to receive
      should also be taken into account. The total amount of income, its
      reliability, and the periodicity of its receipt should be adequate to
      maintain the debtor and his dependents, at a minimal standard of
      living within their management capability, as well as to pay the


      1
       After the enactment of the Higher Education Amendments of 1998, Pub. L.
No. 105-244, 112 Stat. 1837 (1998), student loan debts are no longer
automatically dischargeable after five years. Thus, only the “undue hardship”
exception to nondischargeability currently exists. See infra note 2.

                                        -7-
      education debt.

Id.

      The various courts of appeals that have applied the undue hardship

provision of § 523(a)(8) have adopted two tests. Most circuits have adopted a

version of the Second Circuit’s three-factored test in Brunner v. New York State

Higher Education Services Corp., 831 F.2d 395, 396 (2d Cir. 1987). See United

States Dep’t of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89, 91 (5th Cir.

2003); Hemar Ins. Corp. of Am. v. Cox (In re Cox), 338 F.3d 1238, 1241 (11th

Cir. 2003); United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108,

1114 (9th Cir. 1998); Penn. Higher Educ. Assistance Agency v. Faish (In re

Faish), 72 F.3d 298, 306 (3d Cir. 1995); Cheesman v. Tenn. Student Assistance

Corp. (In re Cheesman), 25 F.3d 356, 359-60 (6th Cir. 1994); In re Roberson, 999

F.2d 1132, 1135-36 (7th Cir. 1993). The Eighth Circuit has instead adopted a

totality of the circumstances test in determining undue hardship. See Andrews v.

S.D. Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir.

1981); see also In re Long, 322 F.3d at 554.

      The three-part Brunner test requires the debtor to prove:

      (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 of the
      student loans; and (3) that the debtor has made good faith efforts to

                                        -8-
       repay the loans.

831 F.2d at 396. Under the Brunner analysis, if the court finds against the debtor

on any of the three parts, the inquiry ends and the student loan is not

dischargeable. Id.

       The facts in Brunner weighed heavily against the debtor, and thus the court

refused to discharge the student loan. The debtor was not disabled or elderly and

had no dependents. She was also skilled and well educated. She did not recount

to the court any specific jobs that she had sought and been refused, and did not

attempt to find a job outside of her chosen field of work. She only had $9,000 of

student loan debt, but two months prior to the bankruptcy hearing, she withdrew

$2,400 from her savings to buy a car. Moreover, she filed for discharge within a

month of the date the first payment of the loans came due, made virtually no

attempt to repay, and did not request a deferment of payment. Brunner v. N.Y.

State Higher Educ. Svcs. Corp. (In re Brunner), 46 B.R. 752, 758 (S.D.N.Y.

1985). 2


       2
        It should also be noted that the Bankruptcy court decision to which the
Brunner undue hardship test applied was based on the Bankruptcy Code as it
existed in 1985, which still provided for an automatic discharge for five-year-old
student loans that could not be repaid. See Brunner, 46 B.R. at 753. Thus, even
if debtors could not establish undue hardship in repaying the student loan, they
would still be able to obtain discharge of student loans if they merely filed for
bankruptcy after five years from when the repayments of their loans began.
       In 1998, however, the Higher Education Amendments of 1998 eliminated
the automatic dischargeability of student loans, leaving only the undue hardship

                                         -9-
      Many subsequent courts employing the Brunner analysis, however, appear

to have constrained the three Brunner requirements to deny discharge under even

the most dire circumstances. See, e.g., Healey v. Mass. Higher Educ. (In re

Healey), 161 B.R. 389, 395 (E.D. Mich. 1993) (debtor failed first Brunner prong,

because, although she was unable to maintain a “minimal” standard of living on

her current income, she did not demonstrate that she was “making a strenuous

effort to maximize her personal income within the practical limitations of her

vocational profile”); In re Walcott, 185 B.R. 721, 723-24 (Bankr. E.D.N.C. 1995)

(debtor failed second Brunner prong because, since a $9.00 per hour position

teaching literacy classes was “the highest hourly wage she has ever earned,” “her

current prospects appear brighter than at nearly any other time since her

graduation”); In re Roberson, 999 F.2d at 1137 (debtor, who was divorced,

unemployed, and living in a one-room apartment that did not have even a kitchen

or toilet, failed second Brunner prong because he did not present a “certainty of

hopelessness”); In re Stebbins-Hopf, 176 B.R. 784, 788 (Bankr. W.D. Tex. 1994)

(debtor, who had nerve damage, bronchitis, and arthritis, and whose daughter had

epilepsy, mother had cancer, and grandchildren had asthma, failed good faith

prong because “[s]he intentionally chose to help her family financially”).



exception to nondischargeability. The repeal of the five-year discharge (which at
that time had been lengthened to seven years) means that a debtor’s only chance
of discharging her student loans is by proving “undue hardship.”

                                        - 10 -
      These applications show that an overly restrictive interpretation of the

Brunner test fails to further the Bankruptcy Code’s goal of providing a “fresh

start” for the honest but unfortunate debtor, Stellwagen v. Clum, 245 U.S. 605,

617 (1918), and can cause harsh results for individuals seeking to discharge their

student loans.

      Under the Eighth Circuit’s “totality of the circumstances” test for undue

hardship, bankruptcy courts should consider:

      (1) the debtor’s past, present, and reasonably reliable future financial
      resources; (2) a calculation of the debtor’s and her dependent’s
      reasonable necessary living expenses; and (3) any other relevant facts
      and circumstances surrounding each particular bankruptcy case.
      Simply put, if the debtor’s reasonable future financial resources will
      sufficiently cover payment of the student loan debt-while still
      allowing for a minimal standard of living-then the debt should not be
      discharged.

Id. at 554-55 (citations omitted).

      Relevant factors that different courts consider when examining the totality

of circumstances of a debtor’s situation include, but are not limited to, whether

the debtor has made a good faith effort to negotiate a deferment of payment;

whether the hardship will be long-term; whether the debtor has made any

payments of the student loans; whether a debtor is permanently or temporarily

disabled; whether the debtor has tried to maximize income and minimize

expenses; whether the debtor has an ability to obtain gainful employment in her

area of study; and the ratio of the student loan to the total indebtedness. See

                                        - 11 -
Lawson v. Hemar Serv. Corp. of Am. (In re Lawson), 190 B.R. 955, 957 (Bankr.

M.D. Fla. 1995).

      According to the Eighth Circuit, the totality of the circumstances test is a

“less restrictive approach” than the Brunner test. Long, 322 F.3d at 554. It

recognizes the “inherent discretion” contained in § 523(a)(8), and allows “each

undue hardship case to be examined on the unique facts and circumstances that

surround the particular bankruptcy.” Id.; see also In re Johnson, 121 B.R. 91, 93

(Bankr. N.D. Okla. 1990) (“Rigid adherence . . . to a particular test robs the court

of the discretion envisioned by Congress in drafting [§ 523(a)(8)].”). It has also

been suggested that the totality of circumstances test better considers the debtor’s

situation in light of the “fresh start” policies of § 523(a)(8), because it does not

let a single factor become dispositive against a finding of undue hardship. See,

e.g., In re Afflitto, 273 B.R. 162, 170 (Bankr. W.D. Tenn. 2001); In re Law, 159

B.R. 287, 292-93 (Bankr. D.S.D. 1993).

      On the other hand, it is not necessarily true that a totality of circumstances

analysis of each debtor’s situation avoids the harshness of the Brunner analysis.

Under this standard, courts may choose from a multitude of factors and apply any

combination of them to a given case, suggesting that just about anything the

parties may want to offer may be worthy of consideration. As a result, it has an

unfortunate tendency to generate lists of factors that should be considered–lists


                                         - 12 -
that grow ever longer as the case law develops. See, e.g., In re Smither, 194 B.R.

102, 111 (Bankr. W.D. Ky. 1996) (noting 11 non-exclusive factors a court must

consider). “Legal rules have value only to the extent they guide primary conduct

or the exercise of judicial discretion. Laundry lists, which may show ingenuity in

imagining what could be relevant but do not assign weights or consequences to

the factors, flunk the test of utility.” In re Plunkett, 82 F.3d 738, 741 (7th Cir.

1996).

         An ad hoc, totality-of-the-circumstances approach has been justified as

more in accordance with legislative intent. See, e.g., Wilson v. Mo. Higher Educ.

Loan Auth., 177 B.R. 246, 248 (Bankr. E.D. Va. 1994) (“Each undue hardship

discharge must rest on its own facts.”). It is correct to state that Congress wanted

undue hardship to be a fact-specific standard. As a practical matter, however, the

two tests will often consider similar information–the debtor’s current and

prospective financial situation in relation to the educational debt and the debtor’s

efforts at repayment.

         We do not read Brunner to rule out consideration of all the facts and

circumstances. Under the first aspect of Brunner, the bankruptcy court is to

inquire about whether the debtor can maintain a minimal standard of living while

repaying the debt. This evaluation necessarily entails an analysis of all relevant

factors, including the health of the debtor and any of his dependents and the


                                          - 13 -
debtor’s education and skill level. The second Brunner factor similarly requires

an analysis of all the facts and circumstances that affect the debtor’s future

financial position. Finally, the good faith part includes an analysis of the debtor’s

situation in order to determine whether he has made a good faith attempt to repay

the loan by maximizing income and minimizing expenses.

      We therefore join the majority of the other circuits in adopting the Brunner

framework. However, to better advance the Bankruptcy Code’s “fresh start”

policy, and to provide judges with the discretion to weigh all the relevant

considerations, the terms of the test must be applied such that debtors who truly

cannot afford to repay their loans may have their loans discharged. Additionally,

we think that the good faith portion of the Brunner test should consider whether

the debtor is acting in good faith in seeking the discharge, or whether he is

intentionally creating his hardship.

      The first part of Brunner–that the debtor cannot maintain a minimal

standard of living while repaying the student loan debt–comports with the

legislative policy behind § 523(a)(8), that student loans “should not as a matter of

policy be dischargeable before [the debtor] has demonstrated that for any reason

he is unable to earn sufficient income to maintain himself and his dependents and

to repay the educational debt.” Commission Report, supra, at 4-710. This first

part should serve as the starting point for the undue hardship inquiry because


                                         - 14 -
information regarding a debtor’s current financial situation generally will be

concrete and readily obtainable.

       The second Brunner element, which requires 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, properly recognizes that a student

loan is “viewed as a mortgage on the debtor’s future.” Id. However, in applying

this prong, courts need not require a “certainty of hopelessness.” Instead, a

realistic look must be made into debtor’s circumstances and the debtor’s ability to

provide for adequate shelter, nutrition, health care, and the like. Importantly,

“courts should base their estimation of a debtor’s prospects on specific articulable

facts, not unfounded optimism,” and the inquiry into future circumstances should

be limited to the foreseeable future, at most over the term of the loan. Robert F.

Salvin, Student Loans, Bankruptcy, and the Fresh Start Policy: Must Debtors Be

Impoverished to Discharge Educational Loans?, 71 Tul. L. Rev. 139, 197 (1996).

       Finally, an inquiry into a debtor’s good faith should focus on questions

surrounding the legitimacy of the basis for seeking a discharge. For instance, a

debtor who willfully contrives a hardship in order to discharge student loans

should be deemed to be acting in bad faith. Good faith, however, should not be

used as a means for courts to impose their own values on a debtor’s life choices.




                                           - 15 -
B.    Did Ms. Polleys Establish Undue Hardship?

      Normally, we would remand for the bankruptcy court to apply the test we

announce today. Such a remand is unnecessary because the bankruptcy court’s

factual findings are sufficiently complete to decide the undue hardship issue.

      ECMC apparently does not dispute the bankruptcy court’s implicit finding

that Ms. Polleys satisfied the first part of the Brunner test, that she cannot

maintain a minimal standard of living while repaying the student loan debt. As

the bankruptcy court found, Ms. Polleys “has no discretionary income, lives at the

largesse of her parents, and is unemployed.” Bankr. Ct. Opin. at 4.

      ECMC argues that Ms. Polleys cannot satisfy the second Brunner part–that

circumstances indicate that her state of affairs is likely to persist for a significant

portion of the repayment period of the student loans–because she cannot prove

that she has a medical disability. ECMC, however, ignores the bankruptcy court’s

extensive findings of Ms. Polleys’s emotional health. The court found that Ms.

Polleys “suffers from debilitating emotional problems which, though

counterproductive, are obviously out of her control.” Id. Moreover, “medication

was necessary for her to function, but that medication affected her memory and

communication skills negatively.” Id. Ms. Polleys’s “inability to hold a job due

to emotional outburst and a low tolerance for stress is not a problem of her own

making, but affects her ability to earn more than a nominal living.” Id. This


                                          - 16 -
condition is “likely to persist into the foreseeable future, and even with a modest

improvement in income [there is] no way that Ms. Polleys can repay $51,000 plus

accruing interest.” Id.

      Ms. Polleys’s mental health problems are at least as substantial and long

lasting as the disability the Ninth Circuit found to be sufficient to preclude the

debtor from paying her student loan in In re Pena, 155 F.3d 1108 (9th Cir. 1998).

In Pena, the court held that the debtor’s depression “prevent[ed] long-term

stability” and was “likely [to] continue to interfere with her ability to work.” Id.

at 1113.

      The fact that Ms. Polleys stipulated that she “has no medical or physical

condition that prevents her from retaining work” does not carry the day for

ECMC. D. Ct. Opin. at 5. Ms. Polleys did not stipulate that she has no medical

condition that affects her ability to work or earn a substantial income. The

bankruptcy court found just the opposite and its findings are not clearly

erroneous.

      More fundamentally, although ECMC argues that “typically, prospective

undue hardship is proven by medical disability,” Aplt. Br. at 25 (emphasis added),

the cases do not suggest that a permanent medical disability is any kind of

prerequisite to discharging a student loan debt. In In re Cheesman, 25 F.3d 356

(6th Cir. 1994), there was no evidence of any medical problems. The wife had


                                         - 17 -
lost her job after she took a maternity leave; the husband earned a gross salary of

$1,123 per month. Although the husband was hoping for a promotion at his

current job, and the wife was actively seeking employment, the court noted that

there was “no assurance . . . that either will obtain their objectives,” id. at 360,

and that the Cheesmans were headed “in a downward spiral and will continue to

go deeper in debt,” id. at 359. Thus, although a permanent medical condition will

certainly contribute to the unlikelihood of a debtor earning enough money to

repay her student loan debt, it is by no means necessary if the debtor’s situation is

already bleak.

      Additionally, ECMC’s reliance on In re Brightful, 267 F.3d 324 (3d Cir.

2001), for the proposition that a debtor must show “additional circumstances” to

support a discharge is misplaced. In Brightful, the bankruptcy court made no

finding of the “nature of Brightful’s emotional and psychiatric problems, or how

these problems prevent her from being gainfully employed.” Id. at 330. In

contrast to Ms. Polleys’s situation, Brightful was “intelligent, physically healthy,

currently employed, possesses useful skills as a legal secretary, and has no

extraordinary, non-discretionary expenses.” Id. Moreover, Brightful’s only

daughter was just two years away from the age of majority, and therefore

Brightful’s obligation to support her was nearly at an end. Id.

      Finally, the facts indicate that Ms. Polleys is seeking to discharge her


                                          - 18 -
student loan debt in good faith. ECMC admits that the good faith inquiry requires

determining whether a debtor’s circumstances are the result of “factors beyond

her reasonable control.” Aplt. Br. at 30. However, ECMC bases its claim of lack

of good faith only on (1) the fact that Ms. Polleys has never made a single

payment on her student loans, and (2) her decision to leave a good paying job and

move to Wyoming to live with her parents.

      First, the failure to make a payment, standing alone, does not establish a

lack of good faith. See In re Coats, 214 B.R. 397, 405 (Bankr. N.D. Okla. 1997)

(“There is no per se requirement that a debtor pay a certain percentage or

minimum amount of the loans at issue in order to meet the good faith

requirement.”). Additionally, unlike in Brunner, where the debtor “filed for

discharge within a month of the date for the first payment of her loans came due .

. . [and never] requested a deferment of payment,” 46 B.R. at 758, Ms. Polleys did

not immediately seek to discharge her student loan obligation after it came due.

Rather, she consolidated the loan, and entered into the deferral programs. When

the student loan creditors demanded payments of $800.00 per month, she tried to

negotiate with them. Ms. Polleys’s efforts to cooperate with her lenders shows

that she was acting in good faith in working out a repayment plan.

      Moreover, the good faith part can be satisfied by a showing that Ms.

Polleys is actively minimizing current household living expenses and maximizing


                                        - 19 -
personal and professional resources. In re Woodcock, 149 B.R. 957, 961 (Bankr.

D. Colo. 1993). Ms. Polleys could do little more to minimize her current

household living expenses: she lives in a basement apartment in her parents’

home, and pays no rent or utilities other than her phone bill. Any failure on her

part to maximize her personal and professional resources is due to her mental

health condition, which is beyond her control.

      Finally, there is no indication that Ms. Polleys is “attempting to abuse the

student loan system by having [her] loans forgiven before embarking on lucrative

careers in the private sector.” Cheesman, 25 F.3d at 360. On the contrary, Ms.

Polleys has tried to use her education to maximize her income. She has tried to

work for accounting firms, to no avail. Then she tried to open her own

accounting practice, and that failed too. She has not been able to pass the CPA

Exam despite several attempts. Additionally, Ms. Polleys has even sought

employment outside her accounting field, only to be laid off from her last job in a

local nursery. It is clear that Ms. Polleys has been trying her best in good faith to

become financially independent, but that circumstances beyond her control are

keeping her from reaching that goal. In light of these factors, Ms. Polleys meets

the “undue hardship” requirement of § 523(a)(8).

      AFFIRMED.




                                         - 20 -
No. 02-8059, Educational Credit Management Corporation v. Polleys.

LUCERO, J., concurring.

       Every month millions of young Americans who have availed themselves of

the type of student loan program at issue here faithfully make their payments. It

is beyond dispute that the level of sacrifice required to make these payments is a

great one; many no doubt make such payments even when they consider the

burden an “undue hardship.” It is important that the student loan program operate

free of the cynicism that would infest the system if a disparate standard for

discharge of loans would develop, leaving some students enduring the hardship of

making loan payments while others are freed of their commitment on a floating

standard. Because this case appears to be exceptional, I concur in the result

reached by my esteemed colleagues.

       I write separately because I disagree with the majority’s adoption of

Brunner’s second prong, which requires “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 v. New York State Higher

Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987). I disagree as to two

aspects of the second prong: (1) the nature of the evidence of medical disability

that we should require of debtors who seek to discharge their student loans based

on medical conditions; and (2) the evidence required regarding the likely duration


                                           -1-
of the circumstances giving rise to “undue hardship.”

      As to the first issue, I am concerned that the majority opinion fails to

enunciate a clear standard to measure “undue hardship” when a debtor asserts a

medical disability as evidence. I would replace Brunner’s more subjective second

prong with an objective standard for determination of medical disability, requiring

that the bankruptcy court consider only evidence that rises to a level of

“reasonable medical probability.”

      The “reasonable medical probability” standard is not a novel one; in fact, it

is ubiquitous in other contexts in both federal and state law. See, e.g., St.

Anthony Hosp. v. U.S. Dep’t. of Health and Human Servs., 309 F.3d 680, 694

(10th Cir. 2002) (applying a statutory “reasonable medical probability” standard

in the context of the Emergency Medical Treatment and Labor Act’s

“reverse-dumping” provisions); LeMaire v. United States, 826 F.2d 949, 954

(10th Cir. 1987) (concluding that Colorado law required that medical opinions be

founded on “reasonable medical probability” in order to be admissible); Houser v.

Eckhardt, 450 P.2d 664, 668 (Colo. 1969) (concluding that “[a] medical opinion is

admissible if founded on reasonable medical probability”).

      With respect to the issue of duration of the circumstances, the majority

requires that the disability last for a “significant period of the loan.” It is my

view that “significant period” is not sufficiently defined and is likely to lead to


                                          -2-
inconsistent outcomes. I would therefore reject this subjective inquiry and

instead require an objective standard for determination of the duration

requirement, leaving it to the medical experts to declare whether the disability

will or will not extend for the duration of the loan. What is needed is legislation

which excuses the payment of loans during periods of disability; however, in the

absence of such legislation, bankruptcy courts ought to discharge student loans

only when the medical record is clear that the disability involved is an enduring

one.

       Of course, factors other than medical disability can and should be taken

into consideration in making the ultimate decision as to whether a debtor’s

circumstances constitute “undue hardship” and warrant the discharge of a loan.

To the extent that the decision is based on a medical disability determination,

however, those medical factors should be based on objective rather than

subjective criteria.




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