In re: Sandra Jane Frushour

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 In Re: SANDRA JANE FRUSHOUR,
Debtor.
EDUCATIONAL CREDIT MANAGEMENT
CORPORATION, No. 04-2553 
Plaintiff-Appellant,
v.
SANDRA JANE FRUSHOUR,
Defendant-Appellee. 
Appeal from the United States District Court
for the District of South Carolina, at Greenville.
Henry M. Herlong, Jr., District Judge.
(CA-04-21967-6-20)
Argued: September 20, 2005
Decided: December 30, 2005
Before WILKINSON and WILLIAMS, Circuit Judges, and
HAMILTON, Senior Circuit Judge.
Reversed by published opinion. Judge Wilkinson wrote the opinion,
in which Judge Williams joined. Senior Judge Hamilton wrote an
opinion concurring in part and dissenting in part.
COUNSEL
Julie K. Swedback, EDUCATIONAL CREDIT MANAGEMENT
CORPORATION, St. Paul, Minnesota, for Appellant. Bernard Joseph
Podurgiel, Cambridge, Massachusetts, for Appellee.

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OPINION
WILKINSON, Circuit Judge:
A debtor in bankruptcy cannot discharge government-guaranteed
educational loans through the normal channels. Congress instead pro-
tected the financial integrity of the student-loan program by preclud-
ing a debtor from discharging these loans unless the debtor would
endure an "undue hardship" in remaining obligated to repay them. See
11 U.S.C. § 523(a)(8) (2000). The bankruptcy court held that the
debtor in this case satisfied the undue hardship requirement, and the
district court affirmed.
We hold that the debtor failed to prove undue hardship both
because she provided no exceptional circumstances over and above
her present inability to pay her debt, and because she failed to seri-
ously consider loan consolidation measures that would greatly reduce
her current payments. Congress sought to ensure repayment of educa-
tional loans through its use of the term "undue" and the courts are
obligated to follow its imperative. We accordingly reverse the judg-
ment of the district court.
I.
The debtor, Sandra Jane Frushour, filed for bankruptcy on Decem-
ber 24, 2003, to discharge her debts under Chapter 7 of the Bank-
ruptcy Code. See 11 U.S.C. § 701 et seq. Frushour owed $12,148.70
in student-loan debt as of March 14, 2004. The original principal on
this debt was $11,688. The debtholder, Educational Credit Manage-
ment Corporation (ECMC), is a non-profit corporation that adminis-
ters government-guaranteed student loans. On March 2, 2004,
Frushour filed an adversary complaint against ECMC to discharge her
student-loan debt as an undue hardship under 11 U.S.C. § 523(a)(8).
Both parties agree that § 523(a)(8) is the relevant provision for
Frushour’s student loans.
At the time of the adversary proceeding, Frushour was in her for-
ties and had a seven-year-old son for whom she received no child sup-
port. She had gone to college for several years with the help of her
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student loans. Between 1986 and 1993, she attended the University of
South Carolina Coastal Carolina College, California State University,
and Long Beach City College. She was an arts major at Coastal Caro-
lina and obtained an associate’s degree with an emphasis in tourism
from Long Beach City College in 1993.
Frushour has been employed in a variety of different jobs since she
obtained her degree in 1993. She worked in restaurant management
in California from 1994 to 2000. Specifically, she managed a high-
end tourist restaurant, the Queen Mary, in Long Beach, and continued
in a similar line of work in Huntington Beach. During Frushour’s first
few years in restaurant management, she made between $18,000 and
$20,000 per year. After her son was born, however, she made signifi-
cantly less money per year, between $7,000 and $10,000. In 2000,
Frushour decided to move to Florida. She obtained a Florida real
estate license, and worked in the resort sales industry. Frushour made
approximately $20,000 in 2000 and $15,000 in 2001. Sadly, however,
tourism sales declined after the events of September 11, 2001.
Frushour thus moved again.
This time, she decided to return to South Carolina to be with her
ailing sister and aging mother. She started her own company, and has
been self-employed ever since. Frushour specializes in interior design
and decorative painting, returning to her goal of working in the arts
and using the art education that she received at Coastal Carolina. In
her current capacity, Frushour provides architects and interior design-
ers with artistic backdrops for walls. She is her own marketer, through
cold calls and referrals, and does the artistic work herself. In 2002,
she made approximately $7,395, and in 2003 her income increased to
$10,771.
Frushour’s living situation at the time of the adversary proceeding
was anything but desirable. Her expenses exceeded her income, even
excluding the loan repayments. She earned a gross income of $998
and a net income of $918 per month. Her expenses were $1,022 per
month. These monthly expenses included $300 for food, $200 for
rent, $100 for clothing, $95 for cable and Internet, $75 for electricity,
$75 for transportation, $66 for telephone, $61 for car insurance and
taxes, and $50 for water and sewer. Frushour had no childcare costs
because she regularly worked from home. She also had no expenses
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for medical insurance and she drove a used Volvo with over 250,000
miles on it.
Frushour has repaid her student loans on an inconsistent basis. She
was obligated to start making payments in 1994, but she was able to
obtain forbearance until July 1998. As a result, she started making
loan repayments in August 1998. She made about twenty-three con-
sistent payments from that time until approximately June 2000. The
record is ambiguous as to the exact amount of these payments, but it
was either $113.41 or $189 per month. She has not made payments
on her own initiative since 2000. Nonetheless, the IRS seized her
2002 tax refund of $1,905 and applied it to her student loans.
Frushour believes that it may have done the same in 2003, since she
has yet to receive her tax refund of $910 for that year either.
After Frushour filed this complaint to discharge her student-loan
debt, ECMC brought to her attention that she qualified for several
consolidation plans through the William D. Ford Direct Loan Pro-
gram, the federal program that makes available educational loans.
One of these plans is income contingent. Under this plan, a debtor’s
payment is twenty percent of the difference between her gross income
and the federal poverty guidelines for her family size. See 34 C.F.R.
§ 685.209(a)(2)-(3) (2004). If Frushour consolidates under this plan,
she would have a payment of between zero and five dollars per month
unless her income increased. She would be obligated to make pay-
ments for twenty-five years, but at the end of that period her remain-
ing debt would be discharged. Id. § 685.209(c)(4)(iv). If her income
level rises such that she would have to make larger payments, she
could switch to a fixed-payment plan. Id. § 685.210. She refused to
participate in any of these consolidation plans because she stated they
were not right for her and she wanted a fresh start.
The bankruptcy court discharged Frushour’s student-loan debt
because it held that she proved an "undue hardship" under 11 U.S.C.
§ 523(a)(8). It applied a three-part test first adopted by the Second
Circuit to determine whether she did so. See Brunner v. N.Y. State
Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987) (per
curiam). The Brunner test requires a debtor to show that (1) she can-
not maintain a minimal standard of living and repay the loans, (2)
additional circumstances exist that illustrate she will not be able to
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repay the loans for a substantial part of the repayment period, and (3)
she attempted to repay the loans in good faith. Id. The bankruptcy
court held that she proved all three factors.
The district court affirmed. As to the first prong, it noted that
Frushour maximized her income and minimized her expenses, but her
expenses still exceeded her income. With regard to the second, it held
that given her employment history, she was not likely to make more
money in the future. Further, she had testified that she anticipated
more expenses for her son, as he grew older, and for her worn auto-
mobile, as it required additional repair. It also noted that she has no
health care or money for home maintenance, and she would likely
have to direct any increased income to these needs. Finally, the dis-
trict court held that Frushour satisfied the final prong because,
although she did not accept a loan consolidation plan, she paid the
loans during years when her income was greater than it currently is.
II.
Before reaching the merits of this case, we must resolve a dispute
over the appropriate standard of review. We review directly the bank-
ruptcy court’s decision. Banks v. Sallie Mae Servicing Corp. (In re
Banks), 299 F.3d 296, 300 (4th Cir. 2002). All agree that we review
the bankruptcy court’s legal conclusions de novo and its factual find-
ings for clear error. Id. Dispute arises, however, over whether we
review the ultimate determination of undue hardship under a de novo
or clearly erroneous standard.
Whether a debtor has met the undue hardship standard is a legal
conclusion that is based on the debtor’s individual factual circum-
stances. It is thus a mixed question of law and fact. As we have
explained in a related context, these types of questions are reviewed
"under a hybrid standard, applying to the factual portion of each
inquiry the same standard applied to questions of pure fact and exam-
ining de novo the legal conclusions derived from those facts." U.S.
Dep’t of Health & Human Servs. v. Smitley, 347 F.3d 109, 116 (4th
Cir. 2003) (internal quotation marks omitted) (reviewing de novo the
bankruptcy court’s legal conclusion that a debtor met the "unconscio-
nable" standard required to discharge a Health Education Assistance
Loan). Several of our sister circuits have reached the same conclusion
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in the undue hardship context. See, e.g., Tirch v. Pa. Higher Educ.
Assistance Agency (In re Tirch), 409 F.3d 677, 680 (6th Cir. 2005);
U.S. Dep’t of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89, 91
(5th Cir. 2003). We therefore review de novo the determination of
whether a debtor has met the undue hardship standard, and we review
the factual underpinnings of that legal conclusion for clear error.
III.
A discharge under Chapter 7 does not ordinarily discharge
government-backed student-loan debt, because Congress expressly
excluded this debt from the regular bankruptcy procedures. It pro-
vided that
[a] discharge under [certain sections of the Bankruptcy
Code] does not discharge an individual debtor from any debt
. . . (8) for an educational benefit overpayment or 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 nonprofit institution, or for an obliga-
tion to repay funds received as an educational benefit, schol-
arship or stipend, unless excepting such debt from discharge
under this paragraph will impose an undue hardship on the
debtor and the debtor’s dependents.
11 U.S.C. § 523(a)(8) (emphasis added).
A debtor seeking to discharge government-guaranteed educational
loans thus faces a difficult burden, because she must show that not
discharging the debt would impose an undue hardship. Congress,
however, neither defined "undue hardship" nor provided standards for
what it entails. See O’Hearn v. Educ. Credit Mgmt. Corp. (In re
O’Hearn), 339 F.3d 559, 564 (7th Cir. 2003).
Nonetheless, the ordinary meaning of "undue" gives us clear guid-
ance. "Undue" generally means "unwarranted" or "excessive." See
The Random House Dictionary of the English Language 2066 (2d ed.
1987). Because Congress selected the word "undue," the required
hardship under § 523(a)(8) must be more than the usual hardship that
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accompanies bankruptcy. Inability to pay one’s debts by itself cannot
be sufficient; otherwise all bankruptcy litigants would have undue
hardship. The exception would swallow the rule, and Congress’s
restriction would be meaningless. As a result, "[t]he existence of the
adjective ‘undue’ indicates that Congress viewed garden-variety hard-
ship as insufficient excuse for a discharge of student loans." Rifino v.
United States (In re Rifino), 245 F.3d 1083, 1087 (9th Cir. 2001)
(internal quotation marks omitted).
In enacting the undue hardship standard, Congress had to take into
account the viability of the student-loan program. That program
serves valuable purposes. It affords individuals in all walks of life the
opportunity to obtain an education, and with it the mobility and finan-
cial stability that an education can provide. Indeed, without the pro-
gram, many people would never receive any higher education,
because their credit risks would preclude them from obtaining private
commercial loans. Brunner v. N.Y. State Higher Educ. Servs. Corp.,
46 B.R. 752, 756 (S.D.N.Y. 1985), aff’d, 831 F.2d 395 (2d Cir. 1987).
The program does not just give loan recipients such as Frushour the
major benefits of a taxpayer-funded education. As history has shown,
a well-educated society is critical to our general welfare and prosper-
ity.
It is thus understandable why Congress would "exact[ ] a quid pro
quo" for government-guaranteed loans by using the undue hardship
standard. Id. Debtors receive valuable benefits from congressionally
authorized loans, but Congress in turn requires loan recipients to
repay them in all but the most dire circumstances. Pa. Higher Educ.
Assistance Agency v. Faish (In re Faish), 72 F.3d 298, 306 (3d Cir.
1995) (debtor should not be able to discharge student loans "merely
because repayment of the borrowed funds would require some major
personal and financial sacrifices"). This heightened standard protects
the integrity of the student-loan program and saves it "from fiscal
doom." Id. at 302 (internal quotation marks omitted). It also ensures
public support for the program by preventing debtors from easily dis-
charging their debts at the expense of the taxpayers who made possi-
ble their educations. See Hemar Ins. Corp. of Am. v. Cox (In re Cox),
338 F.3d 1238, 1242 (11th Cir. 2003).
Over the years, the circuit courts have considered the standards that
should guide the undue hardship analysis. An overwhelming majority
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of circuits has now adopted the Second Circuit’s three-part Brunner
test. See, e.g., Tirch, 409 F.3d at 680; Educ. Credit Mgmt. Corp. v.
Polleys, 356 F.3d 1302, 1309 (10th Cir. 2004); Gerhardt, 348 F.3d
at 91-92; O’Hearn, 339 F.3d at 564; Cox, 338 F.3d at 1241; Brightful
v. Pa. Higher Educ. Assistance Agency (In re Brightful), 267 F.3d
324, 327 (3d Cir. 2001); Rifino, 245 F.3d at 1087; Brunner, 831 F.2d
at 396. But see Long v. Educ. Credit Mgmt. Corp. (In re Long), 322
F.3d 549, 554 (8th Cir. 2003) (adopting totality-of-the-circumstances
test).
This circuit has never explicitly adopted any one test in the Chapter
7 context, although we have applied the Brunner factors in the Chap-
ter 13 context. Ekenasi v. Educ. Res. Inst. (In re Ekenasi), 325 F.3d
541, 546-49 (4th Cir. 2003). We now adopt the Brunner test for
Chapter 7. Since Congress did not provide express standards to guide
the undue hardship analysis, the Brunner test best incorporates the
congressional mandate to allow discharge of student loans only in
limited circumstances. Uniformity among the circuits is also impor-
tant in the bankruptcy context. In order to prove an undue hardship,
therefore, a debtor must show:
(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 addi-
tional 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.
Brunner, 831 F.2d at 396. The debtor has the burden of proving all
three factors by a preponderance of the evidence. O’Hearn, 339 F.3d
at 565; Brightful, 267 F.3d at 327.
IV.
A.
We do not decide whether Frushour has satisfied the first part of
the Brunner test, because we hold that she has failed to prove the sec-
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ond and third factors. We do note, however, that ECMC is mistaken
to suggest that having Internet and cable connections requires the con-
clusion that Frushour maintains more than "a ‘minimal’ standard of
living." Brunner, 831 F.2d at 396. Such a per se rule would simply
be too harsh. It cannot be said that the transmission of information,
whether via Internet or cable, is always unnecessary to maintain a
minimal standard of living, especially for those who work from home.
The undue hardship test necessarily requires a case-by-case approach
to determine whether certain expenses are or are not essential for
maintaining a minimal standard of living. See, e.g., Rifino, 245 F.3d
at 1088 (holding debtor satisfied first prong even though she had
cable television). In short, the mere fact of Frushour’s Internet and
cable expenses would not disqualify her from an undue hardship dis-
charge.
B.
Frushour has not, however, satisfied the second Brunner factor,
"that additional circumstances exist indicating that [her] 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. This factor is
the heart of the Brunner test. It most clearly reflects the congressional
imperative that the debtor’s hardship must be more than the normal
hardship that accompanies any bankruptcy. See Rifino, 245 F.3d at
1087.
The second factor is, therefore, "a demanding requirement," Bright-
ful, 267 F.3d at 328, and necessitates that a "certainty of hopeless-
ness" exists that the debtor will not be able to repay the student loans,
id. (internal quotation marks omitted); see also Tirch, 409 F.3d at 681
(same); O’Hearn, 339 F.3d at 564 (same). Only a debtor with rare cir-
cumstances will satisfy this factor. For example, although not exhaus-
tive, a debtor might meet this test if she can show "illness, disability,
a lack of useable job skills, or the existence of a large number of
dependents." Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397
F.3d 382, 386 (6th Cir. 2005).
Frushour fails to meet this test because she has provided no addi-
tional circumstances beyond the debt itself that show her hardship is
undue. She was in her forties at the time of the adversary proceeding,
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and has one child. There is no indication she or her son has any physi-
cal or mental disabilities, and both appear to be healthy. She is college
educated, has a Florida real estate license, and has worked in several
different areas of employment. Every indication is that Frushour is an
intelligent individual with a range of job skills.
While Frushour’s present financial condition is certainly not desir-
able, the second Brunner factor is prospective in nature and looks for
exceptional circumstances beyond the debtor’s current situation. See
Gerhardt, 348 F.3d at 92 ("proving that the debtor is currently in
financial straits is not enough.") (internal quotation marks omitted).
Frushour’s employment history illustrates that she has held good jobs
in the past in which she made almost double her current income. She
has provided no indication as to why she could not return to a similar
type of work. Nor has she indicated any specific steps she has taken
to seek higher-paying employment in other fields. Instead, she
appears to be content with her present employment as a decorative
painter because it was her original goal to work in the arts, the area
in which she initially studied at Coastal Carolina. Having a low-
paying job, however, does not in itself provide undue hardship, espe-
cially where the debtor is satisfied with the job, has not actively
sought higher-paying employment, and has earned a larger income in
previous jobs.
Indeed, Frushour points to no circuit court that has held a debtor
can voluntarily take a low-paying job in her preferred field, and then
refuse to repay her student loans by claiming undue hardship. Quite
the opposite is true. As the Fifth Circuit has explained, "nothing in the
Bankruptcy Code suggests that a debtor may choose to work only in
the field in which he was trained, obtain a low-paying job, and then
claim that it would be an undue hardship to repay his student loans."
Id. at 93. This is the case because "it is not uncommon for individuals
to take jobs not to their liking in order to pay off their student loans."
O’Hearn, 339 F.3d at 566. For example, the Sixth Circuit refused to
discharge the debt of a married couple where one of the debtors chose
to work in a low-paying job, as a pastor of a church. Oyler, 397 F.3d
at 386. It found undue hardship was not present even though the debt-
ors had three children and an annual income of $10,000 in the previ-
ous two years. Id. at 384.
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Frushour nevertheless suggests that potential childcare costs would
outweigh any additional income from working outside the home. But
we have no way of knowing whether this would be the case. Her con-
tention is founded on little more than speculation, and cannot satisfy
her burden to prove the second Brunner factor by a preponderance of
the evidence. O’Hearn, 339 F.3d at 565. And since this factor looks
to the future, it is not implausible to think that childcare costs will
drop as her child progresses in school. See, e.g., Educ. Credit Mgmt.
Corp. v. Carter, 279 B.R. 872, 874, 878 (M.D. Ga. 2002) (no undue
hardship where, inter alia, plaintiff failed to show that her childcare
costs were likely to remain the same in the future); Wessels v. Educ.
Credit Mgmt. Corp., 271 B.R. 313, 315 (W.D. Wis. 2002) (same);
Kirchhofer v. Direct Loans (In re Kirchhofer), 278 B.R. 162, 168
(Bankr. N.D. Ohio 2002) (same).
We recognize that Frushour’s circumstances are far from ideal. But
given her college education, real estate license, and restaurant man-
agement experience, we are not left with the likelihood that her pres-
ent circumstances will extend for the rest of her repayment period or
that she will not be able to pay off her loans at some future date. See
Brightful, 267 F.3d at 328.
C.
Frushour has also failed to meet the third Brunner factor, which
requires her to show that she "has made good faith efforts to repay
[her] loans." Brunner, 831 F.2d at 396. This factor looks to the debt-
or’s "efforts to obtain employment, maximize income, and minimize
expenses." O’Hearn, 339 F.3d at 564 (internal quotation marks omit-
ted). Further, the debtor’s hardship must be a result of factors over
which she had no control. Id.
The debtor’s effort to seek out loan consolidation options that make
the debt less onerous is an important component of the good-faith
inquiry. See Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete),
412 F.3d 1200, 1206 (10th Cir. 2005). Although not always disposi-
tive, it illustrates that the debtor takes her loan obligations seriously,
and is doing her utmost to repay them despite her unfortunate circum-
stances. See Tirch, 409 F.3d at 682-83; see also Smitley, 347 F.3d at
121-22, 124 (relying in part on fact that debtor was eligible for
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income contingent repayment plan to deny discharge under "uncon-
scionable" standard for Health Education Assistance Loans).
Frushour has not shown the requisite effort to repay her loans. To
be sure, she should be commended for making several payments in
the past. But she did not seriously consider the income contingent
plan under the William D. Ford Direct Loan Program. See Tirch, 409
F.3d at 682-83 (debtor did not illustrate good faith when she did not
take advantage of the William D. Ford Income Contingent Repayment
plan); see also Alderete, 412 F.3d at 1206 & n.1 (debtors did not
prove good faith when they did not consider applying for the income
contingent plan, even though the court was not certain they were even
eligible for the plan). Both parties agree that Frushour could have
taken advantage of this plan, and ECMC has provided assurances that
she continues to remain eligible. The plan would have allowed her to
pay between zero and five dollars per month unless her income
increased. After twenty-five years, any remaining debt would be dis-
charged. See 34 C.F.R. § 685.209.
Frushour’s only reasons for refusing that option, however, were
that it was not suited for her and she wanted a fresh start. It is hard
to see why these reasons are not simply shorthand for her lack of
interest in repaying her debt. The consolidation plan would allow her
both to remain at her preferred job and to maintain her current level
of expenditures. Accounting for these considerations, Frushour has
provided insufficient justifications for refusing to take a simple step
that would have allowed her to fulfill her commitments in a manage-
able way. See, e.g., Tirch, 409 F.3d at 683. She has thus failed to sat-
isfy the third Brunner factor of manifest good-faith effort to repay her
loans.*
*With respect to the dissenting opinion of our fine colleague, we take
exception to several points. The dissent’s reliance on Ekenasi is ironic
because Ekenasi supports the majority’s view. The Ekenasi Court in fact
reversed the bankruptcy court’s determination that the debtor was due an
undue hardship discharge. 325 F.3d at 549. It found that the bankruptcy
court erred in holding that the debtor met the second Brunner factor
because of the speculative nature of its determination. Id. at 548. Here
also the bankruptcy court erred in speculating under the second Brunner
factor that an individual with varied and demonstrated job skills would
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V.
Frushour’s case, like that of most debtors, is not without appealing
and sympathetic elements. But Congress, in enacting § 523(a)(8), set
a high bar for a debtor seeking to discharge government-guaranteed
educational loans. Permitting loan beneficiaries a routine discharge of
these obligations through bankruptcy would create the very inequities
among loan recipients that Congress sought to avoid with its use of
the word "undue."
To allow Frushour’s claim would force courts to draw almost
impossible lines. Applying a looser standard, courts would inevitably
reach inconsistent results across bankruptcy cases. Some loan recipi-
ents would obtain discharge while others in similar circumstances
would unfairly remain obligated. A looser standard would also be
never achieve a higher income stream during the entirety of the loan
repayment period. Ekenasi also concluded that the bankruptcy court mis-
takenly found that good faith was present. Id. at 549. The bankruptcy
court in this case was similarly incorrect to find good faith because
Frushour sought to discharge her student loans in their entirety without
seriously considering an option that would have allowed her to pay
between zero and five dollars a month. Thus, we fully agree with the
Ekenasi Court that the conclusions the bankruptcy court sought to draw
from the undisputed facts would be error under any standard.
It is disappointing that our dissenting colleague has never attempted to
address the significance of the actual language chosen by Congress to
govern the discharge of educational loans. The dissent does not choose
to acknowledge that "[s]tudent loans, as a general rule, fall within the
category of nondischargeable debts and pass through the bankruptcy pro-
cess unaffected." Ekenasi, 325 F.3d at 545. It does not even contend its
result would square with the large corpus of circuit law on this subject.
Finally, the dissent disputes neither the availability of loan consolidation
programs that would all but eliminate Frushour’s current payments nor
the existence of employment skills in restaurant management and real
estate that may raise the earnings of this college educated individual over
time. The danger of overlooking the many factors not addressed by the
dissent is that student-loan discharges would become the rule and not the
exception — the precise result that Congress in the explicit language of
the statute has sought to avoid.
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unfair to the vast majority of loan recipients who do not attempt to
discharge their loans and meet their obligations even with much self-
sacrifice. Nor would we be faithful to Congress if we relaxed the
undue hardship standard in a manner that drew increasingly on the
public fisc to account for growing shortfalls.
The appellate courts have thus declined to allow debtors to dis-
charge their student loans in cases where their circumstances at the
time of the adversary proceeding were similar or even more compel-
ling. See, e.g., Alderete, 412 F.3d at 1203, 1206 (no undue hardship
on debt of $78,000 for debtors with three children and low-paying
jobs); Oyler, 397 F.3d at 384, 386 (no undue hardship on debt of
$40,000 for debtors with three children and $10,000 annual income
over last two years); Brightful, 267 F.3d at 326, 329-31 (no undue
hardship for debtor who had one dependent, even though she was
forced to live with her sister, had no college degree, and was "emo-
tionally unstable" with "glaring psychiatric problems"); Brunner, 46
B.R. at 756-58, aff’d, 831 F.2d 395 (2d Cir. 1987) (no undue hardship
where the debtor was unemployed and on public assistance, had made
at most $9,000 per year over the previous several years, and had sent
out "over a hundred" resumes in her chosen field, without success).
Frushour failed to show that she has exceptional circumstances,
and she refused to consider loan consolidation programs that would
have required from her a monthly payment of near zero based on her
current income. She has thus failed to prove that she is in the limited
class of debtors for which § 523(a)(8) meant to allow discharge.
Accordingly, the judgment of the district court is
REVERSED.
HAMILTON, Senior Circuit Judge, concurring in part and dissenting
in part:
I join Part II of the majority opinion which holds that we review
de novo the determination of whether a debtor has met the undue
hardship standard of 11 U.S.C. § 523(a)(8) (Bankruptcy Code
523(a)(8)) and review the factual underpinnings of that legal conclu-
sion for clear error. However, I am compelled to dissent from the
majority opinion’s reversal of the district court’s affirmance of the
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bankruptcy court’s order discharging Sandra Jane Frushour’s
(Frushour) student loan debt pursuant to Bankruptcy Code
§ 523(a)(8).
After observing first-hand Frushour’s demeanor and hearing her
testimony, the bankruptcy court found that additional circumstances
existed indicating that Frushour’s dire state of financial affairs is
likely to persist for a significant portion of the repayment period of
her student loan debt (Brunner’s second prong) and found that
Frushour had made good faith efforts to repay her student loan debt
(Brunner’s third prong). Brunner v. N.Y. State Higher Educ. Servs.
Corp., 831 F.2d 395, 396 (2d Cir. 1987) (setting forth three-prong test
for proving entitlement to undue hardship discharge of student loan
debt pursuant to Bankruptcy Code § 523(a)(8)). That the majority
opinion rejects these findings as clearly erroneous (an act the majority
unsuccessfully attempts to deny), on the record before us and the rea-
sonable inferences to be drawn therefrom, is beyond all reason. Such
rejection constitutes "an excellent example of the folly of courts in the
role of philosopher kings." American Acad. of Pediatrics v. Lungren,
940 P.2d 797, 890 (Cal. 1997) (Brown, J., dissenting). The Supreme
Court has repeatedly reiterated the extremely deferential nature of the
clearly erroneous standard of review: "‘[a] finding is "clearly errone-
ous" when although there is evidence to support it, the reviewing
court on the entire evidence is left with the definite and firm convic-
tion that a mistake has been committed.’" Anderson v. Bessemer City,
470 U.S. 564, 573 (1985) (quoting United States v. United States
Gypsum Co., 333 U.S. 364, 395 (1948)). Here, a thorough review of
the entire record, stripped from any philosophical preconceived
notions about the role of and strictures on government-aided educa-
tion in our society, far from leaves one with a definite and firm con-
viction that the bankruptcy court’s factual findings with respect to
Brunner’s second and third prongs are mistaken.
When the majority opinion is disrobed of its philosophic meander-
ings, that the majority opinion does nothing more than high handedly
second guess the bankruptcy court’s factual findings on two of the
factual issues critical to Frushour’s attempt to discharge her student
loan debt pursuant to 11 U.S.C. § 523(a)(8) is patently obvious. In so
doing, the majority opinion has quite blatantly ignored Bankruptcy
Rule 8013, which provides that "due regard shall be given to the
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opportunity of the bankruptcy court to judge the credibility of the wit-
nesses." Bankruptcy Rule 8013. See also Dunning v. Simmons Air-
lines Inc., 62 F.3d 863, 868 (7th Cir. 1995) ("We refuse to second-
guess the court’s credibility determinations because the judge has had
the opportunity to observe the verbal and nonverbal behavior of the
witnesses focusing on the subject’s reactions and responses to the
interrogatories, their facial expressions, attitudes, tone of voice, eye
contact, posture and body movements, rather than looking at the cold
pages [of a transcript].").
For these reasons and those that follow, I am constrained to dissent
from the majority opinion’s reversal of the district court’s affirmance
of the bankruptcy court’s discharge of Frushour’s student loan debt
pursuant to Bankruptcy Code § 523(a)(8).
I.
Quite remarkably, the majority misapplies the proper standard of
review regarding the bankruptcy court’s findings with respect to the
Brunner prongs. The proper standard of review plainly requires us to
review the bankruptcy court’s findings with respect to the Brunner
prongs for clear error. In applying the Brunner test in the Chapter 13
context in Ekenasi v. Educ. Res. Inst., 325 F.3d 541, 546-49 (4th Cir.
2003), we unequivocally treated the bankruptcy court’s findings with
respect to Brunner’s three prongs as factual findings and held that at
least two of those findings were clearly erroneous. Id. at 547 ("[W]e
conclude that the bankruptcy court clearly erred in finding that
[debtor] met his burden of establishing the Brunner factors and, there-
fore, erred in discharging the student loan obligations based upon the
record before it."); id. at 548 ("Presented with this evidence, we are
satisfied that the bankruptcy court clearly erred in finding that
[debtor] had sufficiently proven that he would be unable, two years
in the future, to maintain a minimal standard of living for himself and
his dependents for a significant portion of the repayment period of the
student loan."); id. at 549 ("We also conclude that [debtor] failed to
prove that he ‘has made good faith efforts to repay the loans,’ Brun-
ner, 831 F.2d at 396, and that the bankruptcy court clearly erred in
finding otherwise.").
Common sense and simple logic support Ekenasi’s treatment of the
bankruptcy court’s findings with respect to Brunner’s three prongs as
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factual findings subject to the clearly erroneous standard of review.
For example, the first Brunner prong, which asks whether the debtor
can maintain, based upon current income and expenses, a minimal
standard of living for herself and her dependents if forced to repay her
student loan debt, necessarily asks the bankruptcy court to answer a
factual question, albeit in the nature of a factual prediction of the
future based upon current and reasonably foreseeable circumstances.
Juries are routinely called upon to make similar factual predictions of
the future based upon the evidence presented. For example, in a per-
sonal injury action involving a plaintiff who has suffered permanent
injury and established liability, the jury is asked to predict the plain-
tiff’s future medical expenses as an element of recoverable damages.
In sum, our role on appeal is to determine with respect to each
Brunner prong, whether, although there is evidence to support the
bankruptcy court’s factual finding on that prong, we are left with a
definite and firm conviction that the finding is wrong. Anderson, 470
U.S. at 573. Cf. Carolin Corp. v. Miller, 886 F.2d 693, 702 (4th Cir.
1989) (bankruptcy court’s ultimate finding that Chapter 11 filing was
not in good faith constitutes finding of fact subject to clearly errone-
ous standard of review). Indeed, the clearly erroneous standard
required the district court as well as requires this court to give great
deference to the bankruptcy court with respect to findings of fact. In
the Matter of Love, 957 F.2d 1350, 1354 (7th Cir. 1992). As the Sev-
enth Circuit has succinctly stated: "Under the clearly erroneous stan-
dard, if the bankruptcy court’s factual findings are plausible in light
of the record viewed in its entirety, a reviewing court may not reverse
even if it would have weighed the evidence differently." Mungo v.
Taylor, 355 F.3d 969, 974 (7th Cir. 2004).
Our review under the clearly erroneous standard is similar in nature
to a sufficiency of the evidence inquiry, where we routinely give def-
erence to the findings of the trier of fact even though we would reach
a different result if we reviewed the evidence on our own in the first
instance. See, e.g., United States v. Burgos, 94 F.3d 849, 862 (4th Cir.
1996) ("A reviewing court, therefore, may not overturn a substantially
supported verdict merely because it finds the verdict unpalatable or
determines that another, reasonable verdict would be preferable.
Rather, we shall reverse a verdict if the record demonstrates a lack of
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evidence from which a jury could find guilt beyond a reasonable
doubt.").
Our de novo review comes into play to determine whether the
bankruptcy court, having made the factual findings that it did with
respect to the Brunner prongs, properly discharged or properly
refused to discharge the debtor’s student loan debt.
In footnote 1 of the majority opinion, the majority denies overturn-
ing any factual findings of the bankruptcy court as clearly erroneous
and asserts that it has accepted every factual finding made by the
bankruptcy court. (Majority Op. at 12-13 n.1). From these premises,
the majority goes on to conclude that Frushour failed to proffer suffi-
cient evidence to support two of Brunner’s three prongs.
While the majority expressly states that it accepts the bankruptcy
court’s factual findings, its actions speak much louder than its words.
In fact, in a not-so-clever sleight of hand, the majority implicitly
holds that two critical factual findings of the bankruptcy court are
clearly erroneous. So why does the majority engage in this act of leg-
erdemain. The answer: the majority’s position simply does not hold
water if any deference is paid to the bankruptcy court’s factual find-
ings. I will now proceed to analyze the Brunner prongs, giving the
proper deference that is owed to the bankruptcy court’s factual find-
ings.
II.
The first prong of Brunner’s three prong test for proving entitle-
ment to an undue hardship discharge of student loan debt, pursuant
to Bankruptcy Code § 523(a)(8), asks whether the debtor can main-
tain, based on the debtor’s current income and expenses, a minimal
standard of living for herself and her dependents if forced to repay the
student loan debt. Brunner, 831 F.2d at 396. Here, the bankruptcy
court found that Frushour could not maintain even a minimal standard
of living for herself and her small child if forced to repay her student
loan debt. Although the majority opinion does not decide whether this
finding is clearly erroneous, the issue is necessarily addressed in my
dissent.
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For the two calendar years preceding the trial in this case (2002 and
2003), Frushour and her young son lived below the poverty guideline
for a two person household set by the United States Department of
Health and Human Services. In 2002, Frushour’s gross income was
$7,738.00, while the applicable poverty guideline was $11,940.00. In
2003, Frushour’s gross income was $11,589.00, while the applicable
poverty guideline was $12,120.00. The record is also undisputed that
at the time of the trial in this case (July 2004), Frushour’s estimated
gross income for calendar year 2004 was $11,976.00, still below the
applicable poverty guideline of $12,490.00. As of March 14, 2004,
Frushour owed Educational Credit Management Corporation (ECMC)
$12,148.70 on her student loan debt.
Notably, ECMC does not deny or dispute that Frushour lived
below the applicable poverty guideline for the two and one half years
prior to trial. However, ECMC strenuously objects to Frushour avail-
ing herself of a § 523(a)(8) discharge on the basis, inter alia, that
Frushour’s current minimal lifestyle is voluntarily self-imposed, a
rather absurd assumption that Frushour would "voluntarily" choose to
live below the poverty guidelines. According to the logic of ECMC,
the bankruptcy court’s finding that Frushour could not maintain even
a minimal standard of living for herself and her small child, if forced
to repay her student loan debt, is clearly erroneous because Frushour
voluntarily chose a career which is significantly lower paying than her
previous career in the restaurant and tourism industry. ECMC’s other
main argument, in challenge of the bankruptcy court’s Frushour-
favorable finding with respect to Brunner’s first prong, is that
Frushour failed to prove that her expenses would increase commensu-
rate with any increases in her income. Both of these arguments are
without merit.
Necessarily implicit in the bankruptcy court’s finding that Frushour
could not maintain even a minimal standard of living for herself and
her small child, if forced to repay her student loan debt, is its finding
that Frushour was maximizing her income potential. At the evidenti-
ary hearing in this case, in response to the question of whether she
had received any recent job offers or knew of any opportunities where
she could earn significantly more income while covering for addi-
tional childcare cost, Frushour testified that "[she] found that" even
if she took a job that would give her more income or worked a second
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job, she would only break even because of the required childcare
expense. (J.A. 14).
In its discussion of Brunner’s second prong, the majority opinion
dismisses any ability of the bankruptcy court to rely on this testimony
based upon its opinion that such testimony is founded on little more
than speculation. This farfetched opinion is simply belied by the
record. This testimony, which on its face bespeaks of a basis of per-
sonal knowledge, is supported by common sense and experience,
upon which the bankruptcy court is entitled to rely as the finder of
fact. Bose Corp. v. Consumers Union of U.S., Inc., 466 U.S. 485, 501
n.17 (1984) (application of ordinary principles of logic and common
experience are ordinarily entrusted to trier of fact); Chapman & Cole
v. Itel Container Int’l, Corp., 865 F.2d 676, 683 (5th Cir. 1989) ("As
the finder of fact, a judge must rely upon his or her experience and
common sense."). First, very few persons would voluntarily choose
to live below the poverty guideline, especially a loving mother with
a young child. One cannot reasonably dispute that because Frushour
is a single parent with absolutely no coparental support, her working
a full-time or even a part-time job in the restaurant and tourism indus-
try would require her to pay a third party to care for her young son
during non-school hours. As it stands now, Frushour’s current self-
employed situation allows her the flexibility to care for her young son
at no expense to her. In contrast, common sense and experience dem-
onstrate that the restaurant and tourism industry routinely requires its
employees to work nights and weekends, a time when childcare cost
is at a premium.* In sum, the record here, as obviously augmented by
the bankruptcy court’s common sense and experience, abundantly
supports the bankruptcy court’s implicit finding that Frushour was
maximizing her income potential and, thus, such finding is not clearly
erroneous.
Having already established that the bankruptcy court’s implicit
finding that Frushour was maximizing her income potential is not
clearly erroneous, ECMC’s argument that Frushour failed to prove
that her expenses would increase commensurate with any increases in
*While not a part of the record, my adult children tell me that it is not
uncommon for babysitters to charge as much as $10 per hour while car-
ing for a single child.
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her income disappears. The record is undisputed that Frushour’s sole
means of transportation is an exceptionally old (fourteen years) vehi-
cle with extremely high mileage (250,000). The only reasonable infer-
ence from these facts is that, in the near future, Frushour will incur
significant transportation expenses either in the form of substantial
car repairs or the purchase of another vehicle. In either situation, she
will almost certainly have to finance the cost over a number of years.
The record is also undisputed that Frushour pays only $200 per month
in rent. Common sense and experience also dictate that her housing
expenses will only increase and perhaps significantly so given the
extremely low amount of rent she currently pays. Moreover, accord-
ing to her Schedule J, Frushour presently claims no medical expenses
as part of her monthly living expenses. Given that Frushour has no
health insurance and children being children, one can only reasonably
expect that her medical expenses will increase during the foreseeable
future. The very idea that Frushour’s expenses would not increase
commensurate with any increases in her income is patently absurd.
Indeed, one should be definitely and firmly convinced that a mistake
had been committed if the bankruptcy court had found that Frushour’s
expenses would not increase commensurate with any increases in her
income.
In sum, there is simply no sound basis to hold that the bankruptcy
court was clearly erroneous in finding that Frushour could not main-
tain even a minimal standard of living for herself and her small child,
if forced to repay her student loan debt.
III.
Brunner’s second prong asks whether additional circumstances
exist indicating that Frushour’s current state of financial affairs is
likely to persist for a significant portion of the repayment period. At
trial, Frushour testified that the repayment period for the entire
amount of her student loan debt, plus continuing interest, is approxi-
mately eight more years.
While "recogniz[ing] that Frushour’s circumstances are far from
ideal," (Majority Op. 11), the majority opinion implicitly holds that
the bankruptcy court’s finding in favor of Frushour with respect to
Brunner’s second prong is clearly erroneous because Frushour has
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provided no additional circumstances beyond the debt itself that show
her hardship is undue. Indeed, implicit in this holding is the majority
opinion’s assertion that Frushour’s hardship is but a "garden variety
type."
Once again, the record belies this assertion. How much clearer does
the record have to be to plainly show that Frushour’s hardship far
exceeds the garden variety type given the following facts: (1)
Frushour and her young son have lived below the applicable poverty
guideline for the two and one half years immediately preceding the
trial in this case; (2) Frushour receives no child support from the
child’s father or help from her family; (3) the other jobs which
Frushour is skilled to perform do not pay enough to offset the child-
care expenses she would necessarily incur; (4) Frushour has no
money budgeted for medical expenses; (5) she has no health insur-
ance; and to top it all off, (6) Frushour’s sole means of transportation
is a fourteen year old car with a whopping 250,000 miles on it. Given
that the hopelessness and dire nature of Frushour’s situation screams
off the pages of the record on appeal, how can we not accept the
bankruptcy court’s first-hand impression of the same?
Notably, in implicitly holding the bankruptcy court’s finding with
respect to Brunner’s second prong is clearly erroneous, the majority
opinion credits and largely relies upon ECMC’s argument that a vol-
untarily underemployed debtor cannot take advantage of Bankruptcy
Code § 523(a)(8). As already explained above, the record abundantly
supports the bankruptcy court’s implicit finding that Frushour has and
is maximizing her income potential under the totality of the circum-
stances. Accordingly, the majority opinion’s implicit clearly errone-
ous holding with respect to Brunner’s second prong relies upon a
fallacious basis.
In sum, given the largely undisputed factual circumstances of her
financial condition and the very doubtful chances for improvement in
the foreseeable future, the abstract legal conclusion drawn by the
majority in implicitly holding that the bankruptcy court’s finding with
respect to Brunner’s second prong is clearly erroneous is simply not
sustainable, its philosophic meanderings notwithstanding.
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IV.
Brunner’s third prong asks whether the debtor has made good faith
attempts to repay her student loan debt. Brunner, 831 F.2d at 396.
Here, after considering the documentary evidence and Frushour’s tes-
timony at trial, the bankruptcy court found that Frushour made good
faith efforts to repay her student loan debt.
Because the record solidly supports this finding, the finding is not
clearly erroneous. Frushour applied for and obtained forbearance of
her student loan payments until August 1998. She then made twenty-
three consistent payments of $113.41 or $189.00 until approximately
June 2000. Subsequently, Frushour began to fall on hard times, with
her annual income dropping approximately $5,000 to $15,000
between the years 2000 and 2001. From then on she has lived below
the applicable poverty guideline. Finally, there is no evidence in the
record to suggest that Frushour took out her student loans with any
intention of defaulting. These undisputed facts support the bankruptcy
court’s finding that Frushour made good faith attempts to repay her
student loan debt.
The majority opinion conveniently overlooks this evidence of
Frushour’s good faith efforts at repayment; choosing to focus instead
on Frushour’s desire to emerge from bankruptcy with a completely
fresh start, unencumbered by any obligations to repay her student loan
debt under the income contingent repayment plan belatedly offered
through the William D. Ford Direct Loan Consolidation Program.
Indeed, this is the majority opinion’s only rationale for implicitly
holding the bankruptcy court’s finding, regarding Frushour’s good
faith efforts at repayment, is clearly erroneous.
Review of the record plainly shows why the majority’s implicit
holding is not sustainable. First, the record contains no evidence to
suggest that Frushour knew of the between zero and five dollars
income contingent repayment option under the William D. Ford
Direct Loan Consolidation Program prior to her seeking to discharge
her student loan debt through the present adversary proceeding. Sec-
ond, and more importantly, when the bankruptcy court specifically
asked ECMC’s attorney at the adversary proceeding whether she
believed it (i.e., the bankruptcy court) needed to look at undue hard-
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ship on Frushour in the context of the low monthly contingent repay-
ment amount or whether she believed it should look at undue hardship
on Frushour in the context of the total debt, counsel for ECMC
emphatically answered: "The total debt, Your Honor. That was just
for purposes of options that are available." (J.A. 27). This answer by
ECMC’s counsel necessarily steered the bankruptcy court to consider
the good faith inquiry in the context of Frushour’s good faith efforts
to repay her student loan debt as it was presently constituted, not upon
the income contingent repayment plan.
To overturn the bankruptcy court’s good faith finding on this
record is simply beyond the purview of appellate review. Particularly
outrageous is the majority opinion’s total disregard of the bankruptcy
court’s first-hand opportunity to observe Frushour’s demeanor and
genuineness on the witness stand. This is a good faith inquiry! First
hand impressions greatly matter! In sum, given Frushour’s not insub-
stantial repayment history and the bankruptcy court’s ability to make
a first-hand assessment of her demeanor and genuineness in testifying
about her student loan repayment history and dire financial condition,
I would uphold the bankruptcy court’s finding that Frushour has satis-
fied Brunner’s third prong.
V.
To summarize my dissenting views, Brunner called for the bank-
ruptcy court to make findings of fact with respect to each of its three
prongs. As the trier of fact, the bankruptcy court obviously made its
findings with respect to these three prongs based upon reasonable
inferences founded on common sense and experience from the direct
and circumstantial evidence in the case. For the reasons above set
forth, these findings are not clearly erroneous. The majority opinion’s
implicit holdings otherwise with respect to Brunner’s second and
third prongs plainly exceed the limits of our circumscribed standard
of review in reviewing a bankruptcy court’s findings of fact for clear
error. Accordingly, I would affirm the district court’s affirmance of
the bankruptcy court’s order discharging Frushour’s student loan debt
pursuant to Bankruptcy Code § 523(a)(8).
If, as the majority posits, it has not found any of the bankruptcy
court’s findings of fact clearly erroneous, it is incredulous that the
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majority would find the bankruptcy court’s legal conclusions drawn
from those facts, as found by the bankruptcy court and affirmed by
the district court, as insufficient to support an undue hardship dis-
charge of Frushour’s remaining student loan debt. When all the cam-
ouflage is stripped away from the majority’s position, it is quite
apparent that its philosophical scruples are offended over the thought
that one should seek a discharge, under any circumstances, of a stu-
dent loan debt. The majority simply finds it repugnant that anyone
would seek discharge of his or her student loan debt, even under the
most dire financial circumstances.
With all respect due the majority opinion, its reasoning is subtly
fallacious in implicitly concluding that the bankruptcy judge was
clearly erroneous in finding in favor of Frushour with respect to Brun-
ner’s second and third prongs. Should this irrational reasoning
become pervasive, it would trump the reasonable interpretation of
undue hardship and Bankruptcy Code § 523(a)(8) would become a
nullity by judicial fiat.
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