Warner v. Resh et al

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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Decision
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	Case No. 09-40475 EDJ
Chapter 7
CYNTHIA D. WARNER,
Debtor./
CYNTHIA D. WARNER, 	Adv. No. 09-04232 AJ
Plaintiff,
vs.
JANE BRYSON,
U.S. DEPARTMENT OF EDUCATION, ET AL.,
Defendant./
DECISION: COMPLAINT TO DISCHARGE STUDENT LOAN OBLIGATION
A hearing was held August 9, 2010 on the above-named parties’
cross-motions for summary judgment. 	Plaintiff Cynthia Warner
(“Warner”) appeared on her own behalf. 	Michael Cosentino of the Law
Offices of Michael Cosentino and Douglas Chang of the Office of the
U. S. Attorney appeared on behalf of The United States Department of
Education (“Education”).
Signed: August 24, 2010

EDWARD D. JELLEN
U.S. Bankruptcy Judge

Entered on Docket
August 25, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 1 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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1 All future section references, unless otherwise noted, are
to the Bankruptcy Code, 11 U.S.C. § 101, et. seq.
2 The court notes that Education filed several objections to
documents Warner purported to present as evidence in support of
her motion for summary judgment. 	Because the court did not rely
on any of the disputed documents to reach its decision herein,
the Education objections are moot.
2	Decision
By her complaint, Warner seeks to have certain student loan
obligations discharged under Bankruptcy Code § 523(a)(8) 1
. 	Warner
filed her motion for summary judgment on July 7, 2010, and Education
filed its cross-motion for summary judgment on July 26, 2010. 	The
court, having reviewed the briefs submitted by the parties, having
determined that there are no genuine issues of material fact to be
determined by a trial, and for the reasons hereinafter discussed,
will enter its judgment against Warner and in favor of Education.
I. 	Background
According to the pleadings submitted by the parties in support
of their cross motions for summary judgment, the following facts are
not disputed. 2
Warner is a 50 year old woman with no dependants whose income
is comprised of nominal compensation associated with authoring an
online arts blog and income received through odd jobs. 	She also
receives state aid in the form of food stamps. The bulk of Warner’s
vocational activity is performed for no financial compensation.
Warner took out the loans at issue in order to attend the
University of California at Berkeley and Sacramento State
University. 	The loans were eventually assigned to Education
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 2 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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3	Decision
following Warner’s default thereon. 	The parties do not dispute
Warner’s current indebtedness to Education.
At the August 9 hearing, the parties agreed on the record that
Education has presented Warner with the opportunity to repay her
loan through its Income Based Repayment Program (“IBRP”), which
operates to limit the amount that an obligor is required to pay
based on income and family size. 	Warner acknowledged that based on
the income reflected in her tax return, her repayment obligation
under IBRP would be zero dollars per month.
II. 	Discussion

Summary Judgment
Federal Rule of Civil Procedure 56, applicable herein via
Federal Rule of Bankruptcy Procedure 7056, provides for summary
judgment where "there is no genuine issue as to any material fact
and ... the moving party is entitled to a judgment as a matter of
law." 	Fed. R. Civ. P. 56(c). 	“[A]t the summary judgment stage the
judge’s function is not himself to weigh the evidence and determine
the truth of the matter but to determine whether there is a genuine
issue for trial.” 	Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
249 (1986). 	The court concludes that there is no genuine issue of
material fact here that must be resolved through a trial.
Undue Hardship Discharge
Bankruptcy Code § 523(a)(8) provides that qualified education
loans are excepted from a debtor’s discharge, unless such exception
would impose an undue hardship on the debtor and the debtor’s
dependants. 	11 U.S.C. § 523(a)(8). 	The Ninth Circuit has adopted a
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 3 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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4	Decision
three-part test laid out by the Second Circuit in In re Brunner that
the debtor must satisfy in order to demonstrate undue hardship
within the meaning of § 523(a)(8). 	See United Student Aid Funds,
Inc. v. Pena, 155 F.3d 1108, 1112 (9th Cir. 1998) (adopting the
Second Circuit test laid out in Brunner v. New York State Higher
Educ. Svcs., 46 B.R. 752, 758 (S.D.N.Y. 1985), aff’d 831 F.2d
395,396 (2nd Cir. 1987)). 	The Brunner test requires that the debtor
establish three elements: 1) that she cannot maintain, based on
current income and expenses, a minimal standard of living for
herself and her dependants, 2) that additional circumstances exist
indicating that this state of affairs is likely to persist for a
significant portion of the repayment period, and 3) that the debtor
has made good faith efforts to repay the loans. 	See Brunner, 831
F.2d at 396. 	The burden of proving the three Brunner elements and
therefore demonstrating undue hardship is on the debtor. 	See Rifino

United States, et al., 245 F.3d 1083, 1087-88 (9th Cir. 2001).
Minimal Standard of Living

To determine whether Warner is capable of maintaining a minimal
standard of living, the court must examine her finances. 	See
Education Credit Management Corporation v. Howe, 319 B.R. 886, 890
(9th Cir. BAP 2005). 	“The meaning of a minimal standard of living
must be determined in light of the particular facts of each case.”
Id. (internal citations omitted).
Warner’s finances are in poor shape. 	Her income “amounts to a
few hundred dollars a month from friends and family or an odd job.”
Motion for Summary Judgment by Plaintiff at 8. 	Warner lives with
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 4 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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3 Warner and Education executed a Stipulation re Medical
Conditions wherein Warner agreed that she would not raise a
mental or physical condition as a factor that prevents her from
working. 	See Chang Declaration, Exhibit C. 	The court
accordingly does not consider Warner’s mental or physical state
(continued...)
5	Decision
her mother, receives food stamps from the state, and owns no car.
She devotes a substantial number of hours to her arts blog, for
which she is compensated approximately one cent each time a reader
views one of her articles. 	The court holds that Warner satisfies
the first prong of the Brunner test because she would not be able to
maintain a minimal standard of living if required to make the
contractually required payments on her student loan obligations.
b. Additional Circumstances
The second inquiry under the Brunner test is whether additional
circumstances indicate that Warner’s current inability to make loan
payments is likely to persist. 	To find in Warner’s favor, the court
must conclude that factors exist such that her “income cannot
reasonably be expected to increase” for a substantial portion of the
loan’s repayment period.” 	Education Credit Management Corporation
v. Nys, 446 F.3d 938, 946 (9th Cir. 2006).
The Ninth Circuit in In re Nys identified several non-exclusive
factors to aid the court in deciding whether such additional
circumstances exist. 	The Nys factors relevant to the court’s
analysis here include: the obligation to care for a dependant,
limited and/or poor education, lack of skills, underemployment, age,
and a lack of assets. 3 	On balance, these factors weigh in favor of
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 5 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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3(...continued)
as factor here.
6	Decision
finding that Warner will be able to turn things around financially
in the future.
Warner does not care for any dependants, has the benefit of
education, and has developed a skill set in media and journalism
related to the arts. 	In addition, the bulk of Warner’s current
vocational activity is for no pay. 	The court is confident Warner
has the basic tools to increase her income in the future by
obtaining paid employment. 	See Birrane v. Pennsylvania Higher
Education Assistance Agency, 257 B.R. 490, 498-99 (9th Cir. BAP
2002)(concluding that debtor who worked a significant number of
hours per week for no compensation for a dance company she started
had “quite good” future income earning potential due to her hard
work and talent. 	Id.)
While it is true that Warner is 50 years old, this factor does
not, in the context of the undisputed facts present here, justify a
conclusion that Warner will never secure paid work. 	See, e.g.,
Winsborough v. United States Department of Education, 341 B.R. 14,
19 (Bankr. W.D. Mo. 2006) (“The mere fact that Debtor is near normal
retirement age does not mean that the debt should be discharged.”)
Nor is the court persuaded that Warner’s lack of assets with which
to pay the loan has any bearing on her future income potential.
The court holds that Warner fails the second prong of the
Brunner test because it is reasonable to expect her income to
increase over the repayment period of her student loans.
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 6 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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4 At the time of the Birrane decision, the income-based
repayment plan offered by the Department of Education was called
the Income Contingent Repayment Plan, which, like IBR, tied loan
repayments to the debtor’s annually adjusted income. 	See Birrane
at 494-95.
7	Decision
c. Good Faith
The final prong of the Brunner test requires that the debtor
exhibit good faith in her efforts to repay the student loans.
Because the court finds that Warner does not satisfy the second
prong of the Brunner test, the third prong of the Brunner test is
moot. 	See In re Howe, 319 B.R. at 889. 	However, even if the court
were to conclude that Warner satisfied the second Brunner element,
her failure to renegotiate her debt through Education’s IBRP weighs
against a finding that she has made a good faith effort to repay the
debt.
Under Education’s Income Based Repayment Plan (“IBRP”) Warner
would pay $0 per month based on her reported 2009 adjusted gross
income. 	Should Warner’s income increase, payments under the IBRP
would be determined based upon her income level, not the
contractually required payments on her student loans.
The Ninth Circuit BAP has held that good faith is measured by
the debtor’s efforts to negotiate a repayment plan. 	See In re
Birrane, 287 B.R. 490, 500 (9th Cir. BAP 2002). 	In Birrane, the BAP
found that the debtor failed the good faith prong of the Brunner
test because she failed to discuss repayment options similar to
IBR 4, even though the debtor in that case was unaware of such
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 7 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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8	Decision
programs prior to trial. 	See also Mason v. Educational Credit
Management Corporation, 464 F.3d 878, 884-85 (9th Cir. 2006)
(holding that a debtor’s failure to negotiate a repayment plan is
evidence the debtor has not met the burden of establishing good
faith). 	In this case, Warner is aware of the repayment options
available to her through the IBRP, but has declined to pursue them.
Under these circumstances, the court cannot make a finding that
Warner has made a good faith effort to repay her student loan
obligation.
The court holds that Warner fails the third prong of the
Brunner test because she declined to pursue repayment through IBRP
and therefore has not made a good faith effort to repay her student
loans.
III. 	Conclusion
For the foregoing reasons, the court holds that Warner is
not entitled to an undue hardship discharge of her student loan
obligations under Bankrtutcy Code §523(a)(8). 	The court will issue
its judgment in favor of Education.
END OF DECISION
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 8 of 9

UNITED
STATES
BANKRUPTCY
COURT
NORTHERN DISTRICT OF CALIFORNIA
1300 Clay Street (2d fl.)
Oakland, CA. 94612
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COURT SERVICE LIST
Cynthia D. Warner
P.O. Box 4184
San Leandro, CA 94579
Douglas K. Chang
Office of the U.S. Attorney
450 Golden Gate Ave. 10th Fl.
Box 36055
San Francisco, CA 94102
Michael Cosentino
Law Offices of Michael Cosentino
P.O. Box 129
Alameda, CA 94501
Case: 09-04232 Doc# 99 Filed: 08/24/10 Entered: 08/25/10 17:37:10 Page 9 of 9