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Educational Credit Management Corporation v. Murray

United States District Court, D. Kansas

September 22, 2017




         This matter comes before the court upon Appellant Educational Credit Management Corporation (“ECMC”)'s Notice of Appeal from Bankruptcy Court (Doc. 1). The matter is fully briefed. The court granted Amicus Parties National Association of Consumer Bankruptcy Attorneys (“NACBA”) and National Consumer Bankruptcy Rights Center (“NCBRC”)s' motion to file an amicus brief (Doc. 10).

         I. Background

         Appellant ECMC appeals the United States Bankruptcy Court's decision to partially discharge appellees' student loans pursuant to 28 U.S.C. §§ 158(a)(1), (c)(1)(A). Appellant argues that appellees Alan and Catherine Murray did not meet their burden of establishing an undue hardship as required by § 528(a)(8) and as interpreted by the Tenth Circuit, because they failed to show any of the three elements enumerated in Brunner v. New York State Higher Education Services Corporation, 831 F.2d 395, 396 (2d Cir. 1987).

         Appellees argue that they met all three elements of the undue hardship test and that requiring them to repay the full extent of their student loan debt would contravene the Bankruptcy Code's purpose of providing a fresh start to honest but unfortunate debtors. They urge this court to uphold Judge Somers's decision because it was based on debtors' testimony and the unopposed evidence admitted at trial.

         The amici additionally suggest that debtors should not be required to participate in income-driven repayment programs (“IDRs”), as an alternative to bankruptcy, when it is evident that debtors would never be able to repay their loans in full. Amici suggest that IDRs should not be considered in the undue hardship analysis.

         II. Legal Standard

         A. Standard of Review

         This court functions as an appellate court when reviewing a bankruptcy court's decision, and is authorized to affirm, reverse, modify, or remand the bankruptcy court's order. 28 U.S.C. § 158(a); Fed.R.Bankr.P. 8013. Legal decisions of the bankruptcy court are reviewed de novo. Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302, 1305 (10th Cir. 2004). But the bankruptcy court's factual findings shall not be set aside unless they are clearly erroneous. Fed.R.Bankr.P. 7052 (adopting Fed.R.Civ.P. 52(a)(6)). And the court will give those factual findings due regard given the bankruptcy court's opportunity to judge the facts first hand, including the credibility of witnesses. Id.

         “A finding of fact is clearly erroneous if it is without factual support in the record or if, after reviewing all of the evidence, [the court is] left with the definite and firm conviction that a mistake has been made.” In re Yellow Cab Co-op. Ass'n v. Metro Taxi, Inc., 132 F.3d 591, 597 (10th Cir. 1997)). The United States Supreme Court further defines the clearly erroneous standard by explaining that

If the [bankruptcy] court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the fact finder's choice between them cannot be clearly erroneous.

Anderson v. City of Bessemer City, N.C. , 470 U.S. 564 (1985) (applied in the context of a bankruptcy appeal in In re Blinder, Robinson & Co. v. Stellatos, 124 F.3d 1238, 1241 (10th Cir. 1997)).

         B. Discharging Student Loan Debt under § 523(a)(8)

         11 U.S.C. § 523 sets out the exceptions to the dischargability of debt in bankruptcy. Section 523(a)(8) provides that educational loans are not dischargeable “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents.” 11 U.S.C. § 523(a)(8). “This provision was enacted to prevent indebted college or graduate students from filing for bankruptcy immediately upon graduation thereby absolving themselves of the obligation to repay their student loans. In re Innes, 284 B.R. 496, 502 (D. Kan. 2002) (quoting In re Hornsby, 144 F.3d 433, 437 (6th Cir. 1998)). The Tenth Circuit in Polleys further examined ยง 523(a)(8)'s legislative history, noting that the Report of the Commission on Bankruptcy also recommended that the undue hardship exception to discharge should apply only during the first five years after graduation, and that thereafter it should be lifted ...

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