Bronsdon v. Educational Credit Management Corporation

UNITED STATES BANKRUPTCY COURT
DISTRICT OF MASSACHUSETTS
In re 	: 	Chapter 7
DENISE MEGAN BRONSDON 	: 	CASE NO. 07-14215-FJB
DEBTORS 	:
DENISE MEGAN BRONSDON, 	:
PLAINTIFF, 	:
v. 	: 	ADV. PRO. NO. 08-1062-JBR
EDUCATIONAL CREDIT MANAGEMENT 	:
CORPORATION,
DEFENDANT. 	:
__________________________________________:
MEMORANDUM OF DECISION AFTER REMAND
The District Court vacated this Court’s order in the above proceeding in light of
the District Court’s conclusion that this Court made a legal error by “giving no weight to
the ICRP [Income Contingent Repayment Plan] in the undue hardship analysis.” The
District Court remanded the proceeding with specific instructions that this Court
“determine whether undue hardship exists in view of the fact that (a) participation in the
ICRP will not necessarily, or even likely, result in any tax liability,[1] and (b) the
availability of the ICRP option must be considered and given some weight without
1The District Court noted that the tax liability at the end of the 25 year repayment
period under the ICRP may not result in a tax liability as such liability “is strictly
contingent on Bronsdon’s financial status in the far future.” Determination of such
liability is “speculative” as the District Court notes, but in a case such as the one
presently before this Court, where the Debtor has made diligent efforts to find ways to
increase her income and where her lifestyle may be accurately described as meager, to
subject the Debtor to such uncertainly as she enters her senior years is not required by
11 U.S.C. § 523(a)(8).
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necessarily being decisive. [sic]”
As the District Court noted, “[t]he decision whether to discharge [a student loan]
in a case where the debtor is eligible but declines to participate in the ICRP must be the
result of an individualized analysis in which the ICRP is given weight but for which no
particular outcome is prescribed.” District Court Memorandum of Decision at 21.
As this Court explained in its Memorandum of Decision, the Debtor testified that
she was aware of the William D. Ford Program. If the Debtor were to participate in the
program under the ICRP, based on today’s formula prescribed by the Secretary of
Education, 2 she would not be required to make monthly payments based on her income
and expenses at the time of trial. That the Debtor would not be required to repay her
student loan under the ICRP, however, does not mandate a finding that her failure to
participate in the program prevents a discharge of the student loan debt under the
Bankruptcy Code. Had Congress intended that debtors who qualify for zero repayment
plans under the ICRP be compelled to sign up for that plan, it could have added that
provision when the Bankruptcy Code underwent a major overhaul in 2005. Without
such clear direction from Congress, finding the failure to participate in a zero payment
ICRP is per se a lack of good faith, to the extent good faith is even an element of the
test for determining undue hardship, 3 would be an abdication of this Court’s
2The Secretary of Education has the power to establish ICRP schedules based
on a borrower’s adjusted gross income. See 20 U.S.C . § 1087e(d) and (e).
3The two tests for determining dischargeabilty of student loans are the totality of
the circumstances test and the Brunner test. “Some courts conclude that either test
leads to the same outcome, a conclusion neither this Court nor the BAP have endorsed.
‘The significant difference between the Brunner approach and the totality of the
circumstances test is the requirement in Brunner that a debtor demonstrate that she has
2
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responsibility to determine dischargeabilty of student loans. Moreover as one court
noted with respect to zero repayment plans, “shackling [the debtor] to the program
would seem a pointless exercise since it would not entail the likelihood of any significant
repayment.” 	In re Brown, 378 B.R. 623, 629 (Bankr. W.D.Mo. 2007). See also In re
Ford, 269 B.R. 673, 677-78 (8th Cir. B.A.P. 2001) (ICRP of zero payments not a
realistic option for 62 year old with no prospects for repayment as loan would increase
because of interest and not be forgiven until debtor was 87 years old); In re Barrett, 339
B.R. 435, 443 (Bankr. N.D. Ohio 2004) (“Looking at debtor's finances and prospects, the
court does not see that debtor's financial situation is going to improve, in the next year
or twenty-five years, to provide for any meaningful repayment of the debt. Debtor lives
modestly and is unable to meet all expenses with his income, making participation in
any repayment plan an undue hardship. While defendant may believe holding debtor
hostage for twenty-five years to debt and compounding interest is not an undue
hardship, the court does not accept this view.”); In re Alston, 297 B.R. 410, 418 (Bankr.
E.D.Pa. 2003) (“Retention of this now ten year old debt for another twenty-five years
with the speculative hope that the Debtor's financial circumstances will improve runs
counter to this legislative principle [of a fresh start for the poor but honest debtor.]”).
In the instant case shackling the Debtor to the ICRP would be such a pointless
exercise. Although her current payments under the ICRP would be zero, interest would
made good faith efforts to repay the educational loans at issue.’ ECMC v. Kelly (In re
Kelly), 312 B.R. 200, 206 (1st Cir. BAP 2004).” In re Denittis, 362 B.R. 57, 63 (Bankr.
D. Mass. 2007).
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continue to accrue despite the fact that the Debtor’s chances of ever repaying any
portion of the loan are virtually non-existent. The Debtor is now 65 years old, has failed
to pass the Massachusetts bar examination three times. She testified she has no plans
to retake the exam, which is reasonable in light of her testimony that she lacks the funds
to do so, has not come within “striking distance” of passing, and importantly had a
adverse physical reaction during the third examination whereby she almost fainted.
Moreover, as set forth in this Court’s Memorandum of Decision, the Debtor has
attempted unsuccessfully to find employment as a secretary and has sought to publish
a novel. These efforts demonstrate her good faith despite her reluctance to be forced
into the Ford Program.
Nor are circumstances likely to improve for the Debtor. But for the ability to live
in the den of her father’s home, the Debtor, without some sort of financial aid, could
easily become homeless. In view of her age and work history, her prospects for a better
financial future are dim. To subject her to a meaningless repayment plan when she
clearly does not have the ability to repay these student loans now or in the foreseeable
future is not required by 11 U.S.C. §523(a)(8) and is inconsistent with this Court’s role
as the adjudicator of undue hardship.
CONCLUSION
For the reasons set forth herein, the Court concludes that the Debtor’s failure to
participate in the ICRP is insufficient to demonstrate a lack of good faith (again
assuming such finding is integral to the test under 11 U.S.C. § 523(a)(8)) when weighed
against this Debtor’s efforts to try to improve her financial circumstance. Therefore the
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student loans owed to Educational Credit Management Corporation are DISCHARGED.
A separate order shall issue.
Dated: January 8, 2010 	__________________________
Joel B. Rosenthal
United States Bankruptcy Judge
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