In re: PATRICIA M. MILLER v. Pennsylvania Higher Education Assistance Agency, Student Servicing Center

*The Hono rable Danny C. Reeves, United States District Judge for
the Eastern D istrict of Kentucky, sitting by designation.
1
RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2004 FED App. 0246P (6th Cir.)
File Name: 04a0246p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
In re: PATRICIA M. MILLER,
Debtor.
________________________
PATRICIA M. MILLER,
Plaintiff-Appellee,
v.
PENNSYLVANIA HIGHER
EDUCATION ASSISTANCE
AGENCY, STUDENT
SERVICING CENTER,
Defendant-Appellant.
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No. 03-5167
Appeal from the United States District Court
for the Eastern District of Tennessee at Knoxville.
No. 02-00378—R. Leon Jordan, District Judge.
Submitted: June 9, 2004
Decided and Filed: July 28, 2004
Before: SILER and GIBBONS, Circuit Judges; REEVES,
District Judge.*
2 In re Miller No. 03-5167
_________________
COUNSEL
ON BRIEF: Stephen P. Hale, HUSCH & EPPENBERGER,
Memphis, Tennessee, Holly N. Knight, HUSCH &
EPPENBERGER, Nashville, Tennessee, for Appellant. N.
David Roberts, Jr., BAILEY, ROBERTS & BAILEY,
Knoxville, Tennessee, for Appellee.
_________________
OPINION
_________________
JULIA SMITH GIBBONS, Circuit Judge. Plaintiff-
appellee Patricia Miller sought full discharge of her student
loan debt by filing an adversary complaint in bankruptcy
court notwithstanding that over ninety-nine percent of her
outstanding student loan obligations remained unpaid. The
bankruptcy court relied on 11 U.S.C. § 105(a) to grant Miller
a partial discharge by dismissing more than half of her student
loan debt. The district court upheld this discharge. The
guarantor of Miller’s student loans appealed, arguing that
discharge of student loan debt is only available upon a finding
of “undue hardship” pursuant to the bankruptcy code,
11 U.S.C. § 523(a)(8). For the reasons set forth below, we
reverse the decision of the district court, which affirmed the
order of the bankruptcy court, and remand this case for a
determination of whether Miller has shown undue hardship
with respect to the portion of her student loans that the court
discharged.
I.
Miller received a Bachelor of Arts degree from Juniata
College in 1988, a Masters of Arts in Philosophy from the
University of Tennessee-Knoxville (“UT”) in 1992, and
worked towards a Doctorate of Philosophy at UT from 1992

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No. 03-5167 In re Miller 3
to 1997. She failed to complete the requirements for the
doctoral degree. To pay for her education, Miller received
various student loans that are presently guaranteed by the
Pennsylvania Higher Education Assistance Agency
(“PHEAA”). After leaving UT, she requested and received
forbearances and deferments on her student loans.
On May 30, 2001, Miller filed a Chapter 7 bankruptcy
petition. Shortly thereafter, she filed an adversary action in
the United States Bankruptcy Court for the Eastern District of
Tennessee against PHEAA seeking discharge of all of her
outstanding student loan debt, which totaled $89,832.16, as of
April 26, 2002. At the time that she filed the adversary
action, Miller had made payments of only $368.00 towards
her student loans, an amount that represented less than half of
one percent of her student loan obligations. Miller described
her monthly expenses as follows:
rent: $395.00;
utility payments: $75.00;
cable television: $45.00;
telephone charges: $90.00;
cell phone expenses: $40.00;
internet service expenses: $25.00;
food: $275.00;
clothes: $75.00;
laundry: $30.00;
prescriptions, herbs, medical expenses: $65.00;
magazines/books: $15.00;
transportation (not including auto payments or repair
work): $110.00;
auto payment with insurance: $250.00;
auto repairs and maintenance: $100.00; and
other expenses: $115.10.
Miller is single and has no dependents. As of 2001, her gross
annual income was $26,464.00. In that same year, she
received a gift of $3,000.00 from a friend and a $300.00
adjustment from the Internal Revenue Service. At the time of
4 In re Miller No. 03-5167
her adversary action, Miller was employed full-time as an
administrative assistant at a construction company and part-
time as a call center representative.
The bankruptcy court held a trial on April 30, 2002. The
court found that all of Miller’s student loan debts were not
dischargeable pursuant to 11 U.S.C. § 523(a)(8) because the
full amount of the debts did not impose an undue hardship
upon her. Notwithstanding this finding, the bankruptcy court
granted Miller a partial discharge of her student loan
indebtedness. The court decided that Miller’s
nondischargeable student loan obligation was $34,200.00 and
accordingly dismissed the balance of her student loans, an
amount of approximately $55,000.00. PHEAA appealed the
judgment of the bankruptcy court to the United States District
Court for the Eastern District of Tennessee. Miller cross-
appealed. The district court adopted the opinion of the
bankruptcy court and dismissed the appeals of both parties.
PHEAA then filed a timely notice of appeal of the district
court’s decision.
II.
A discharge in Chapter 7 bankruptcy does not discharge an
individual debtor’s student loan obligations “unless excepting
such debt from discharge . . . will impose an undue hardship
on the debtor and the debtor’s dependents.” 11 U.S.C.
§ 523(a)(8). In this case, the bankruptcy court found that
Miller had not made a showing of undue hardship.
Nevertheless, the court relied on 11 U.S.C. § 105(a), which
provides that a court “may issue any order, process, or
judgment that is necessary or appropriate to carry out the
provisions of this title,” to grant Miller a partial discharge of
her student loan obligations.
PHEAA argues that a showing of undue hardship – as
provided by § 523(a)(8) – is the only means by which a court
can discharge student loan indebtedness. According to
PHEAA, since Miller has not made a showing of undue

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No. 03-5167 In re Miller 5
hardship, none of her educational loan debt is dischargeable.
The central issues of this appeal are, therefore, whether a
bankruptcy court can rely on § 105(a) to grant a partial
discharge of student loan indebtedness and whether, before a
bankruptcy court grants such a discharge, it must first find
that the portion being discharged satisfies the “undue
hardship” requirement of 11 U.S.C. § 523(a)(8). In reviewing
a bankruptcy case appealed from a district court, this court
reviews the bankruptcy court’s findings of fact for clear error
and conclusions of law de novo. City of White Plains v. A &
S Galleria Real Estate, Inc. (In re Federated Dep’t Stores,
Inc.), 270 F.3d 994, 999 (6th Cir. 2001).
Although the bankruptcy court found that Miller was not
entitled to a complete discharge of her educational loans, the
court utilized its § 105(a) powers to partially discharge her
student loans. This court has sanctioned such a procedure.
See Hornsby v. Tenn. Student Assistance Corp. (In re
Hornsby), 144 F.3d 433, 439-40 (6th Cir. 1998). In Hornsby,
we disagreed with the bankruptcy court’s finding that Chapter
7 debtors had shown that repayment of the entire balance of
their student loans would impose an undue hardship upon
them. Id. at 438. While we concluded that the debtors were
not entitled to a full discharge of their student loans pursuant
to § 523(a)(8), we found that § 105(a) empowered the
bankruptcy court “to take action short of total discharge.” Id.
at 438-39. As will be explained below, we view Hornsby as
authorizing the grant of a partial discharge of a debtor’s
student loans but only when certain requirements are met.
Our holding in Hornsby was that, “pursuant to its powers
codified in § 105(a), the bankruptcy court . . . may fashion a
remedy allowing the Hornsbys ultimately to satisfy their
obligations to [their loan guarantor] while at the same time
providing them some of the benefits that bankruptcy brings in
the form of relief from oppressive financial circumstances.”
Id. at 440. While the Hornsby decision did not direct the
bankruptcy court as to what precise remedy should be
provided to the debtors in that case, the decision did explain
6 In re Miller No. 03-5167
how bankruptcy courts provide debtors with the “benefit of a
fresh start”:
Where a debtor’s circumstances do not constitute undue
hardship, some bankruptcy courts have thus given a
debtor the benefit of a “fresh start” by partially
discharging loans, whether by discharging an arbitrary
amount of the principal, interest accrued, or attorney’s
fees; by instituting a repayment schedule; by deferring
the debtor’s repayment of the student loans; or by simply
acknowledging that a debtor may reopen bankruptcy
proceedings to revisit the question of undue hardship.
Id. Hornsby also explained the need for taking action short of
full discharge of a debtor’s student loans in this way: “In a
student-loan discharge case where undue hardship does not
exist, but where facts and circumstances require intervention
in the financial burden on the debtor, an all-or-nothing
treatment thwarts the purpose of the Bankruptcy Act.” Id. at
439.
We construe the language of these passages as providing
guidance to bankruptcy courts in circumstances where
granting a full discharge of student loan indebtedness is
unwarranted because the debtor cannot show that excepting
the entire balance of her student loans from discharge would
impose undue hardship but where some form of relief seemed
warranted – the precise factual conclusion reached about the
Hornsbys. Therefore, when a debtor does not make a
showing of undue hardship with respect to the entirety of her
student loans, a bankruptcy court may – pursuant to its
§ 105(a) powers – contemplate granting the various forms of
relief discussed in Hornsby, including granting a partial
discharge of the debtor’s student loans. See DeMatteis v.
Case W. Reserve Univ. (In re DeMatteis), No. 02-3003, 2004
WL 445167, at *3 (6th Cir. Mar. 8, 2004) (“Although the
Hornsby decision is not perfectly clear on the question of
partial discharge, the best reading is that Hornsby does in fact
contemplate partial discharge under § 105.”). Accordingly,

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No. 03-5167 In re Miller 7
PHEAA’s assertion that a bankruptcy court must rely
exclusively on § 523(a)(8) to grant any discharge of student
loans in bankruptcy must fail.
While Hornsby contemplated the grant of a partial
discharge of student loan debt pursuant to § 105(a), our
decision did not clearly address whether, in accordance with
§ 523(a)(8), the debtor must show that the portion of her
student loan debt being discharged would impose an undue
hardship if that portion was not discharged in bankruptcy.
Moreover, the decision did not address precisely when “facts
and circumstances” require relief short of full discharge of a
debtor’s student loans. Hornsby acknowledged, however, the
correct proposition that a bankruptcy court may only act
pursuant to § 105(a) “so long as such action is consistent with
the Bankruptcy Act.” 144 F.3d at 439. Although § 105(a)
permits a bankruptcy court to use its equity powers to “issue
any order, process, or judgment that is necessary or
appropriate to carry out the provisions of this title,” “[t]he
equitable powers of section 105(a) may only be used in
furtherance of the goals of the Code.” Childress v. Middleton
Arms, L.P. (In re Middleton Arms, Ltd. P’ship), 934 F.2d 723,
725 (6th Cir. 1991). As the Supreme Court has recognized,
“whatever equitable powers remain in the bankruptcy courts
must and can only be exercised within the confines of the
Bankruptcy Code.” Norwest Bank Worthington v. Ahlers,
485 U.S. 197, 206 (1988). Therefore, it cannot be true that
Hornsby endorsed the idea that, while § 523(a)(8) sets the
condition for “[a] discharge” of student loan indebtedness, a
bankruptcy court could rely on § 105(a) to evade the plain
language of that provision by granting a partial discharge for
reasons other than undue hardship.
Furthermore, we point out that, in leading up to its holding,
Hornsby framed its discussion of how bankruptcy courts grant
a partial discharge in these terms:
Where a debtor’s circumstances do not constitute undue
hardship as to part of the debt but repayment of the entire
8 In re Miller No. 03-5167
1In fact, other courts have read Hornsby in this fashion. See Nary v.
Comp lete Source (In re Nary), 253 B.R. 752, 767 (N.D. Tex. 2000)
(“[This court] therefore adopts the hold ing of Hornsby that § 105(a)
authorizes a bankruptcy court to grant a partial discharge where the undue
hardship requirement of § 523(a)(8) is met as to part but no t all of a
student loan.”).
debt would be an undue hardship, some bankruptcy
courts have partially discharged student loans even while
finding the student loans nondischargeable. See, e.g.,
Griffin v. Eduserv (In re Griffin), 197 B.R. 144, 147
(Bankr. E.D. Okla. 1996) (“[I]t would be an ‘undue
hardship’ for the Debtors to pay any of the accrued
interest and attorneys’ fees associated with . . . student
loans.”); Bakkum v. Great Lakes Higher Educ. Corp. (In
re Bakkum), 139 B.R. 680, 684 (Bankr. N.D. Ohio 1992)
(“The Court, at its discretion, may excuse any portion of
the Debtor’s student loan obligation which would create
an undue hardship.”).
144 F.3d at 440. The limiting condition placed on this
discussion – “[w]here a debtor’s circumstances do not
constitute undue hardship as to part of the debt but repayment
of the entire debt would be an undue hardship” – supports the
notion that bankruptcy courts discharge the portion of student
loan debt for which payment would impose an undue
hardship on the debtor. For example, assume that a debtor
owes $100,000 in student loans, and repayment of the full
amount would impose undue hardship on the debtor but
repayment of $40,000 would not. Hornsby indicates that a
bankruptcy court would discharge $60,000 of the debt, the
amount for which repayment would impose an undue
hardship.1 The citations quoted by Hornsby also support the
conclusion that undue hardship must be shown for the
discharged amount. Accordingly, at a minimum, we do not
read Hornsby as rejecting any interplay between the undue
hardship requirement of § 523(a)(8) and the partial discharge
of student loans pursuant to § 105(a).

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No. 03-5167 In re Miller 9
We acknowledge that this understanding of Hornsby is at
odds with the unpublished opinion of this court in DeMatteis
v. Case Western Reserve University, a decision that we are
not bound to follow. See Bell v. Johnson, 308 F.3d 594, 611
& n.7 (6th Cir. 2002); Salamalekis v. Comm’r of Soc. Sec.,
221 F.3d 828, 833 (6th Cir. 2000) (both explaining that
unpublished decisions are not binding on this court). The
court in DeMatteis rejected the conclusion of the bankruptcy
appellate panel in that case that, in the context of discharging
student loans, § 105(a) acts as an “overlay” on § 523(a)(8).
2004 WL 445167, at *2-3. Rather, the DeMatteis court
reasoned that Hornsby should be read as advocating an
“independent § 105 equitable grounds theory.” Id. at *3.
This determination in DeMatteis suggests that the grant of
a partial discharge of student loan indebtedness pursuant to
§ 105(a) need not be made upon a showing of undue hardship
with regard to the amount discharged. We cannot accept this
conclusion. First, we believe that the plain text of the
bankruptcy code as well as the language of Hornsby, as
already discussed, point to a contrary conclusion. Second,
besides ignoring that § 523(a)(8) specifically governs
discharges of student indebtedness, relying on § 105(a)
independently provides no rubric with which bankruptcy
courts are able to evaluate whether to grant a partial discharge
of student loan indebtedness to a debtor in bankruptcy.
Pursuant to the reading of Hornsby given in DeMatteis,
bankruptcy courts may grant a full discharge of student loan
debt only when the debtor shows that excepting her entire
student loan burden would impose an undue hardship, but a
court may grant a partial discharge – including a discharge in
excess of fifty percent of outstanding student loan obligations
– for whatever reason it views as being encompassed by the
court’s equitable authority under § 105(a).
In sum, we stress that the requirement of undue hardship
must always apply to the discharge of student loans in
bankruptcy – regardless of whether a court is discharging a
debtor’s student loans in full or only partially. The parties
10 In re Miller No. 03-5167
have not cited any authority from our sister circuits that
embraces the idea that a partial discharge of student loan debt
can be granted without a finding of undue hardship, and
indeed we were unable to locate any such case law. In fact,
the weight of authority fits squarely with our conclusion. See
Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325
F.3d 1168, 1175 (9th Cir. 2003) (“We therefore conclude that
before the bankruptcy court can partially discharge student
debt pursuant to § 105(a), it must first find that the portion
being discharged satisfies the requirements under
§ 523(a)(8).”); Hemar Ins. Corp. of Am. v. Cox (In re Cox),
338 F.3d 1238, 1243 (11th Cir. 2003) (rejecting debtor
argument that § 105 allows a bankruptcy court to partially
discharge student loans if the undue hardship burden is not
met and instead holding that “[t]he bankruptcy court’s
equitable powers . . . do not allow it to override the specific
statutory language found in § 523(a)(8)”); Educ. Credit
Mgmt. Corp. v. Moore, No. 02-17519, 97 Fed. Appx. 88, 89
(9th Cir. Mar. 15, 2004) (holding that debtor is not entitled to
partial discharge of student loans when debtor has not shown
undue hardship pursuant to 11 U.S.C. § 523(a)(8)); Educ.
Credit Mgmt. Corp. v. Blair (In re Blair), 291 B.R. 514, 520
(B.A.P. 9th Cir. 2003) (finding that bankruptcy court erred in
granting partial discharge of student loan debt when debtor
had not established undue hardship); see also Tenn. Student
Assistance Corp. v. Mort (In re Mort), 272 B.R. 181, 185
(W.D. Va. 2002) (concluding that “[t]he authority to grant the
discharge of a student loan debt – whether of the whole debt
or only a portion thereof – must be conditioned upon a
finding of undue hardship”); cf. Banks v. Sallie Mae Servicing
Corp. (In re Banks), 299 F.3d 296, 300 (4th Cir. 2002)
(“Allowing the Debtor to pay off loan principal without first
permitting the application of the payment to satisfy
postpetition interest would reduce the overall amount that the
Debtors would have to pay . . . thus allowing the Debtors to
accomplish indirectly what they could not accomplish directly
under the plain language of §523(a)(8), i.e., a partial
discharge of the interest on their student loan debts without a
showing of undue hardship.”) (alteration in original).

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No. 03-5167 In re Miller 11
2As we noted in Hornsby, Rice concerned the standard governing
discharge of Health Education Assistance Loans, but these factors are
nonetheless relevant to evaluate the discharge o f ordinary student loans.
Hornsby, 144 F.3d at 437 n.7.
While the undue hardship requirement applies to any
discharge of student loan indebtedness, the bankruptcy code
itself does not define “undue hardship.” As a result, this court
has looked to the test enunciated by the Second Circuit in
Brunner v. New York State Higher Education Services Corp.,
831 F.2d 395 (2d Cir. 1987), to decide if a debtor has made
the requisite showing of undue hardship. See, e.g., Hornsby,
144 F.3d at 437-38; Rice v. United States (In re Rice), 78 F.3d
1144, 1149-50 (6th Cir. 1996). The Brunner test requires a
three-part showing by the debtor:
(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 repay
the loans.
Brunner, 831 F.2d at 396. This court, however, has not
formally adopted the Brunner test and may look to other
factors, including “the amount of the debt . . . [and] the rate
at which interest is accruing” as well as “the debtor’s claimed
expenses and current standard of living, with a view toward
ascertaining whether the debtor has attempted to minimize the
expenses of himself and his dependents.” Hornsby, 144 F.3d
at 437 (quoting Rice, 78 F.3d at 1149) (first alteration in
original).2 In addition, “the debtor’s income, earning ability,
health, educational background, dependents, age, accumulated
wealth, and professional degree” may also be considered.
Rice, 78 F.3d at 1149. Finally, a court may inquire into
“whether the debtor has attempted to maximize his income by
12 In re Miller No. 03-5167
seeking or obtaining stable employment commensurate with
his educational background and abilities.” Id. at 1149-50.
In considering whether to discharge Miller’s student loans,
the bankruptcy court first analyzed whether Miller had shown
by a preponderance of the evidence that she satisfied all three
Brunner factors. The court found that Miller did not satisfy
the second and third factors of the Brunner test. According
to the bankruptcy court, Miller did not show that her financial
situation was more than temporary because she is intelligent
and well-spoken, albeit underemployed. The court also
concluded that Miller had not satisfied Brunner’s good faith
prong because in the five years since she had left school, she
had contributed only $368.00 towards repayment of her
student loans, which totaled almost $90,000, while using such
“non-essentials” as personal internet service, long distance
telephone service, cell phone service, and cable television.
Despite not meeting the Brunner factors for undue
hardship, the court relied on its “§ 105(a) powers” to partially
discharge her student loans:
The Debtor, for the most part, leads a modest lifestyle.
PHEAA’s sought-after reduction of the Debtor’s phone
expenses and the total elimination of her cable and
internet services would barely generate a third of the
funds necessary to meet even the most basic loan
consolidation schedule. Further, earnings from
additional hours worked at the Debtor’s second job are
not a permanent solution to this dilemma. The court will
not require the Debtor to work 56 hours per week for the
next 25 years in order to repay her student loans. To do
so would make her a slave to the loans and would
deprive her of any future hope for financial
independence. The court also cannot place total reliance
on the funds freed up by the discharge of the Debtor’s
credit card bills. Those funds, while substantial, are
partially offset by automobile payments and the

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No. 03-5167 In re Miller 13
inevitable maintenance and replacement costs associated
with an older used car.
Consequently, when determining whether Miller’s student
loans should be partially discharged, the court did not apply
the Brunner factors, or any other factors relied upon by this
court in making a finding of undue hardship, but rather
constructed its own framework for granting a partial
discharge.
In so doing, the bankruptcy court impermissibly used its
equitable authority. Section 523(a)(8) permits the discharge
of student loans only upon a finding that denying such
discharge would impose undue hardship on the debtor.
11 U.S.C. § 523(a)(8). Relying on § 105 to discharge student
loan indebtedness for reasons other than undue hardship
impermissibly contravenes the express language of the
bankruptcy code. See Ray v. City Bank & Trust Co. (In re C-
L Cartage Co.), 899 F.2d 1490, 1494 (6th Cir. 1990)
(“Bankruptcy courts . . . cannot use equitable principles to
disregard unambiguous statutory language.”). Therefore,
because we do not read Hornsby as rejecting the idea that the
undue hardship requirement of § 523(a)(8) must be satisfied
with the grant of a partial discharge, and because we believe
that § 523(a)(8) must apply to all discharges of student loan
debt, we remand this case so that the bankruptcy court can
determine if Miller has shown undue hardship with respect to
the portion of her educational loans that were discharged.
III.
For the foregoing reasons, we reverse the decision of the
district court affirming the order of the bankruptcy court and
remand this case to the district court with instructions to
remand to the bankruptcy court for proceedings consistent
with this opinion.

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