Nash v. Connecticut Student Loan Foundation (In Re Nash)

United States Court of Appeals
For the First Circuit

No. 05-2549

IN RE: NOREEN E. NASH,

Debtor.
____________________

NOREEN E. NASH,

Plaintiff, Appellant,

v.

CONNECTICUT STUDENT LOAN FOUNDATION,
NEW HAMPSHIRE HIGHER EDUCATION ASSISTANCE FOUNDATION,
AND UNITED STATES DEPARTMENT OF EDUCATION,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. George A. O'Toole, Jr., U.S. District Judge]

Before
Howard, Circuit Judge,
Coffin and Campbell, Senior Circuit Judges.

Joseph S.U. Bodoff with whom Bodoff & Slavitt LLP was on brief
for appellant.
Susan Maxson Lyons, Attorney, Appellate Staff, with whom
William Kanter and Robert M. Loeb, Attorneys, Appellate Staff, and
Peter D. Keisler, Assistant Attorney General, were on brief for
U.S. Department of Education.
Mark F. Weaver with whom Ford, Weaver & McDonald, PA, was on
brief for New Hampshire Higher Education Assistance Foundation.
R. Richard Croce for Connecticut Student Loan Foundation.

April 26, 2006
 COFFIN, Senior Circuit Judge. Appellant is the debtor in a

Chapter 7 bankruptcy proceeding. The total indebtedness revealed

by her bankruptcy schedules was approximately $285,000; of this

amount, some $140,000 consisted of student loans, made or

guaranteed by state student loan foundations, universities, and the

United States Department of Education. This appeal stems from an

adversary proceeding brought by appellant against these entities in

the bankruptcy court of the District of Massachusetts, seeking

discharge of her education loans, under 11 U.S.C. § 523(a)(8), on

the ground that repaying the debts would impose an "undue hardship"

on her.1

The bankruptcy judge ruled that appellant had not carried her

burden of showing "undue hardship." The judge based her conclusion

on the absence or inadequacy of evidence on three points:

appellant’s long-term prognosis, the effects over time of therapy

and medication, and the effects of her mental condition on her

employment prospects. The judge added a finding that appellant had

not made a good faith attempt to repay her loans. In affirming,

the district judge endorsed both the good faith finding and the

conclusion "that Nash had not shown that her disability was likely

to continue for such a period of time that she could not reasonably

1
In relevant part, 11 U.S.C. § 523(a)(8) provides that a
discharge in bankruptcy does not discharge a debtor from a
specified class of student loan debt "unless excepting such debt
from discharge . . . will impose an undue hardship on the debtor .
. . ."

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be expected to repay the education loans in the future." See Nash

v. Conn. Student Loan Found., 330 B.R. 323, 327 (D. Mass. 2005).

For reasons we shall explain, we affirm without reaching the issue

of good faith.

I. The Legal Setting

In the course of the proceedings to this point, there has been

much attention given to the particular test which should be applied

to determine "undue hardship." Congress did not attempt to give

specific guidance. We as a circuit have not had occasion to

declare our views.

Appellees would have us join the nine circuit courts of appeal

that have followed the Second Circuit's test set forth in Brunner

v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir.

1987) (per curiam). This is a tripartite test, requiring that the

debtor show inability, at her current level of income and expenses,

to maintain a "minimal" standard of living; the likelihood that

this inability will persist for a significant portion of the

repayment period; and the existence of good faith efforts to repay

the loans. Id. at 396.

A facially different test is the Eighth Circuit's totality-of-

circumstances test, which would have courts consider the debtor's

reasonably reliable future financial resources, his reasonably

necessary living expenses, and "any other relevant facts.” See

Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554

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(8th Cir. 2003). Appellant contends that this test does not

include "good faith effort" under the "other relevant facts"

rubric, although bankruptcy courts within the Eighth Circuit are

not unanimous on this issue. She urges a “true totality of the

circumstances test,” focusing solely on the ability of the debtor

to maintain a minimal standard of living now and in "the

foreseeable future" and still afford to make loan repayments.

The bankruptcy judge, citing her opinion in Burkhead v. United

States (In re Burkhead), 304 B.R. 560, 565 (Bankr. D. Mass. 2004),

applied the totality approach but was of the view that courts

essentially looked at the same factors under either test. She

listed four relevant factors, including good faith efforts. The

district judge noted the unadorned breadth of the statutory

language, which he felt pointed to the totality test as "the

default standard for all judging," and found that the care and

methodical approach of the bankruptcy judge was "proper employment

of a 'totality-of-the-circumstances' test, which is another way of

saying it was proper judging." See 330 B.R. at 326-27.

We see no need in this case to pronounce our views of a

preferred method of identifying a case of "undue hardship." The

standards urged on us by the parties both require the debtor to

demonstrate that her disability will prevent her from working for

the foreseeable future. Appellant has a formidable task, for

Congress has made the judgment that the general purpose of the

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Bankruptcy Code to give honest debtors a fresh start does not

automatically apply to student loan debtors. Rather, the interest

in ensuring the continued viability of the student loan program

takes precedence. TI Fed. Credit Union v. DelBonis, 72 F.3d 921,

937 (1st Cir. 1995). Moreover, the judgment of the bankruptcy

court, which is the focus of our review, see Groman v. Watman (In

re Watman), 301 F.3d 3, 7 (1st Cir. 2002), was not a summary

judgment adverse to appellant; it was a decision reached after

trial and, as the district judge properly noted, that court's

findings of fact must stand if reasonably supported. See McMullen

v. Sevigny (In re McMullen), 386 F.3d 320, 329 (1st Cir. 2004).

The ultimate question of law – whether appellant proved “undue

hardship” – is subject to de novo review. Tirch v. Penn. Higher

Educ. Assistance Agency (In re Tirch), 409 F.3d 677, 680 (6th Cir.

2005); Martin v. Bajgar (In re Bajgar), 104 F.3d 495, 497 (1st Cir.

1997).

Taking this view of the case, we need not consider the issue

of good faith effort to repay; nor need we review the evidence

concerning appellant’s use and retention of her income and assets,

or her failure to utilize available avenues of assistance to

minimize the impact of repayment. We also emphasize that our

conclusion that this record is insufficient to carry the day does

not foreclose appellant from a future effort, buttressed with more

persuasive support.

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 II. Factual Background

Appellant's higher education and employment history, from her

graduation with honors from Dartmouth in 1984 to her attendance at

the University of Michigan Law School a decade later, was one of

high achievement. From 1984 to 1990, she worked for a leading

publishing house, an international non-profit educational

organization, and the United Hospital Fund of New York, moving

upward steadily from editorial assistant to assistant and then to

associate editor, and finally to the position of public information

officer of the Hospital Fund. During this period she remained

current in her student loan repayments.

In 1990 she entered Yale Management School, receiving in 1992

what is now considered an MBA degree. On graduating, she was

employed by Prudential Securities as an investment banker in

healthcare and higher education finance, eventually being promoted

to a position as vice president in the municipal bond department,

with a salary of $120,000.

Appellant then carried out a decision reached two years

earlier and entered the University of Michigan Law School in 1994,

where she took a full course load and also worked as a research

assistant for four professors. During her first year, she found

she was having difficulty focusing. A psychiatrist treated her

with medication for manic/depressive symptoms. During the summer

of 1996, after her second year, she worked for a large law firm in

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Washington, D.C., but was unable to concentrate and to finish

assignments. During her third year, she felt obliged to withdraw

from law school and did some work as a telemarketer. She ceased

this work in December 1997. Subsequently, the Social Security

Administration determined that she had been disabled since December

1, 1997. She has not worked regularly since then, and has been

diagnosed with bipolar disorder. She is under the care of a pair

of doctors, Dr. Ronningstam and Dr. Mallya.

Appellant filed a voluntary petition under Chapter 7 of the

Bankruptcy Code in September 2002. All debts other than her

student loans were automatically discharged, and she then filed the

complaint underlying this appeal seeking discharge of the student

loans on the ground of undue hardship, under section 523(a)(8) of

the Bankruptcy Code.

III. Discussion

Under any test assessing eligibility for discharge of student

loan debt, appellant must show that her current inability to

maintain a minimal standard of living if forced to repay the debt

will continue into the future. We thus come to the issue we have

isolated as the key to decision in this appeal: does the record

support the bankruptcy judge's holding that appellant did not

establish that her disability would continue to prevent her from

remunerative work?

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 The judge used various phrases to characterize the duration of

the incapacity that appellant needed to demonstrate. Nash seizes

on the judge's choice of language such as this passage reveals:

"The Debtor did not establish that it [is] more likely than not

that her mental condition will disable her indefinitely. There was

no admissible evidence to support a finding that Ms. Nash's

disorder permanently disables her from employment." (Emphasis in

original.) Appellant argues that this statement sets the bar

higher than is required even by Brunner, which requires only that

the evidence of disability endure for a significant portion of the

repayment period or for the reasonably foreseeable future. See 831

F.2d at 396.

What is revealed by the context of the judge's remarks,

however, is that her decision did not turn on the projected length

of appellant’s disability, but on the total absence of any reliable

evidence of future inability to work. The sentences we have quoted

were immediately preceded by the following:

There was a dearth of evidence on the Debtor's prognosis,
the effect of medication on her condition, and her
employment prospects. Ms. Nash submitted no evidence of
her long-term prognosis. It is unclear whether therapy
and medication will improve Ms. Nash's mental condition
over time.

Moreover, prior to the passage quoted, the judge had referred

in her opinion to another case involving bipolar disorder, where

expert testimony concluded with the prognosis that "it is more

likely than not that the debtor's debilitating condition will

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persist for a significant portion of the repayment period." See

Kelsey v. Great Lakes Higher Educ. Corp. (In re Kelsey), 287 B.R.

132, 144 (Bankr. D. Vt. 2001). This analysis, of course, is the

same formula endorsed by appellant. We think that the district

judge was justified in characterizing the bankruptcy court decision

as consistent with this formulation. In any event, we analyze the

record, applying the lowest threshold and searching it for any

compelling evidence of the disabling condition persisting for the

foreseeable future.

A major weakness in appellant's case, in contrast to Kelsey,

was her failure to call any of her doctors to testify. Nor did she

appeal the court’s exclusion of the expert prognosis in her medical

records, an action apparently taken for procedural reasons. The

state of the evidence at the conclusion of trial on January 23,

2004 was as follows.

Dr. Ronningstam's last report, dated April 17, 2003, states

that appellant suffers from bipolar II disorder, which includes

"episodes of major depression and episodes of elevated mood and

energy, but without mania." The condition disables her cognitive

functioning, endurance, and ability to concentrate. Tasks may

leave her feeling exhausted, lacking energy, having trouble

sleeping. Sometimes her thought processes go too fast, leaving her

head "spinning." She is sensitive to stress and easily tearful.

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 Appellant added her agreement to these findings, adding that

there are days when she cannot get out of bed. She also referred

to two Temporary Total Disability Deferment Request forms, signed

by Dr. Mallya and stating that she is disabled with bipolar

disorder. These, however, do not indicate extensive duration of

total disability. The forms specifically carry the notation that

"[t]his disability is temporary" and that the debtor understands

that limitation. On the request dated July 23, 2002, the

certificate of the signing doctor stated that the length of the

disabling condition was "undetermined"; on the other, dated June 6,

2002, the entry as to duration is “unknown.” Appellant felt that

she could not apply for an administrative discharge of her loans

based on a permanent total disability because she retained the

capacity, at least sporadically, to earn small amounts of income.

Appellant's testimony, beyond affirming her doctors' report,

varied. She stated that she felt fine on some days, but that she

"fluctuate[d] hugely," that she had become in the past couple of

years "more stable," that "my life is much better now." She stated

that she could not commit to working five days a week but would

like to "make money when I can." Asked about her prognosis, she

replied that, at age 41, her chances of "stabilizing continuously

are not very good," but acknowledged that her medications helped

keep her from feeling "completely out of control." She was

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following a regimen of seeing Dr. Ronningstam three times a week

and Dr. Mallya once a week.

The specific question we face is whether, on this record,

where the illness is bipolar disorder, where we have no prognosis

from treating physicians or other experts, where the testimony of

appellant herself as to the future is necessarily speculative, the

bankruptcy court supportably found that appellant had not carried

her burden of proving a sufficient likely future period of

unemployability.

Appellant's perception of her case, as reflected by counsel in

oral argument, is essentially that one would not insist on expert

testimony if the debtor appeared in court in a wheelchair. Putting

to one side the observation that such a physical disability does

not in any way correlate to the ability to maintain demanding and

responsible employment, bipolar disorder is a rubric covering many

conditions, many kinds of treatment, and many levels and durations

of disablement. Appellant's last diagnosis was bipolar II

disorder. A booklet issued by the National Institute of Mental

Health, cited by the government, describes the levels of the

disorder as follows:

The classic form of the illness, which involves recurrent
episodes of mania and depression, is called bipolar I
disorder. Some people, however, never develop severe
mania but instead experience milder episodes of hypomania
that alternate with depression; this form of the illness
is called bipolar II disorder.

(Bold in original.)

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 The booklet holds out the likelihood that people with bipolar

disorder may lead productive lives with proper treatment. The

records indicate that the illness afflicting appellant is not its

most severe form. In addition, we note that on January 27, 2003,

only seven weeks before the most recent evaluation on record, Dr.

Runningstam recorded a diagnosis of “Bipolar Disorder II/III.”

Whether this means that appellant's condition bordered on an even

less disabling form of the illness we do not know. But we are

confident that the bankruptcy judge did not commit any error of law

or clear error of fact in finding a lack of sufficient evidence of

the likely duration of appellant's inability to work.

A case remarkably similar on its facts to this one is Shilling

v. Sallie Mae Servicing Corp. (In re Shilling), 333 B.R. 716

(Bankr. W.D. Pa. 2005). The debtor had obtained a bachelor’s

degree in psychology before being adjudged disabled with a "severe

bipolar disorder" by a Social Security administrative law judge.

Id. at 720. As in the instant case, the debtor submitted no expert

evidence to supplement her own prognosis. The court stated:

While we might give considerable weight to the
opinion of a qualified expert concerning the expected
duration of debtor's psychological disorders, debtor
herself does not qualify as an expert in such matters.
Moreover, because she is caught in the maelstrom of her
psychological problems, debtor is not in a position to
offer an objective and informed opinion concerning her
future psychological condition, one that would withstand
scrutiny.

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Id. at 722. We cannot fault the bankruptcy judge in this case for

taking a similar position. See generally Burton v. Educ. Credit

Mgmt. Corp. (In re Burton), Nos. 04-53297-SCS, 05-5016-SCS, 2006 WL

802885 (Bankr. E.D. Va. Jan. 11, 2006) (discussing cases addressing

the need for corroborating medical evidence on prognosis of

disabling condition).

This does not mean the end of the road for appellant. If her

condition justifies it, she may be successful in securing an

administrative discharge on the basis of total and permanent

disability. See 34 C.F.R. § 682.402(c)(15); 34 C.F.R. §

685.213(a). In any event, our decision today does not bar

appellant from making another, more adequately supported request

for discharge. See 11 U.S.C. § 523(b); see also Storey v. Nat’l

Enter. Sys. (In re Storey), 312 B.R. 867, 875 (Bankr. N.D. Ohio

2004).2

Affirmed.

2
Section 523(b) states, in relevant part: “. . . [A] debt
that was excepted from discharge under subsection . . . (a)(8) . .
. in a prior case . . . is dischargeable in [a new action] unless,
by the terms of subsection (a) of this section, such debt is not
dischargeable . . . .”

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