United States District Court, D. Kansas
EDUCATIONAL CREDIT MANAGEMENT CORPORATION, Appellant/Defendant,
v.
VICKY JO METZ, Appellee/Plaintiff.
MEMORANDUM AND ORDER
JOHN
W. BROOMES UNITED STATES DISTRICT JUDGE
Educational
Credit Management Corporation (“ECMC”) appeals
the order and judgment of the bankruptcy court determining
that repayment of the accrued interest on the student loan
debt owed by debtor Vicky Jo Metz would constitute an undue
hardship, and therefore was dischargeable under 11 U.S.C.
§ 523(a)(8). Metz filed a cross appeal asserting that it
was error to discharge only the accrued interest and contends
that discharge of the full debt is compelled by §
523(a)(8). The parties have fully briefed the issues in the
appeal.[1] (Docs. 8, 11, 14.) Additionally, movants
National Association of Consumer Bankruptcy Attorneys,
National Consumer Bankruptcy Rights Center, and National
Consumer Law Center seek to file an amicus brief. (Doc. 12.)
The motion to file an amicus brief is GRANTED. Having
reviewed the record and the applicable law, the bankruptcy
court's order and judgment are AFFIRMED.
I.
Appellate Jurisdiction
ECMC
has elected to have the appeal heard by this court. 28 U.S.C.
§ 158(c)(1).[2] The appeal was timely filed by ECMC, and
the bankruptcy court's order is “final”
within the meaning of 28 U.S.C. § 158(a)(1).
See Fed. R. Bankr. P. 8001-8002.
II.
Standard of Review
This
court functions as an appellate court when reviewing a
bankruptcy court's decision. The court reviews the
“bankruptcy court's legal determinations de novo
and its factual findings under the clearly erroneous
standard.” In re QuVIS, Inc., 469 B.R. 353,
365 (D. Kan. 2012) (citations omitted). Therefore, any
factual findings by the bankruptcy court regarding Metz's
financial situation are reviewed for clear error and whether
those findings result in undue hardship under §
523(a)(8) is reviewed de novo. “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, 132 F.3d 591, 597 (10th Cir. 1997). If there
are “two permissible views of the evidence, the fact
finder's choice between them cannot be clearly
erroneous.” In re Blinder, Robinson & Co.,
124 F.3d 1238, 1241 (10th Cir. 1997) (quoting Anderson v.
City of Bessemer City, 470 U.S. 564, 573-74 (1985)).
III.
Statement of Facts[3]
Vicki
Metz attended community college from 1989 to 1991. She earned
50 credits but no degree. During that time, she borrowed $16,
613.73 in various types of student loans. Metz consolidated
her loans in 1994. At some point, the consolidated loan was
assigned to ECMC. Since the consolidation, Metz has paid a
total of $14, 789.02 toward the loan; $13, 060.75 through
chapter 13 administration. The interest rate on her loan is
9%. As of July 1, 2018, the loan balance was $67, 277.88.
Metz
was 59 at the time of the trial before the bankruptcy court
(August 2018). Metz is single and has no dependents. She
works as a community health worker for Sunflower Health
Services, which is a subsidiary of Centene Management
Corporation. Centene provides aging and disability services
to the State on a contractual basis. Metz has been employed
for a significant number of years. Prior to her current
position, Metz worked for the Kansas Department of Aging and
Disability Services as a senior care administrator. Before
that, she spent 19 years working at the Kansas Department of
Transportation. Metz routinely receives merit raises during
employment. She testified at trial that she expected to
receive a merit raise for 2018 and has received several
raises in prior years.
When
Metz filed her chapter 13 case in 2012, her scheduled gross
monthly income was $3, 500. That is now $3, 800. She has also
increased her other expenditures. Her insurance premiums have
increased from $89 to $213. Metz also borrowed from her
401(k) plan and, between repayment of that loan and regular
retirement contributions, she contributes about $310 monthly
toward retirement. Metz's monthly take home pay is
presently $2, 430. Her expenses are currently $2, 323. This
amount is slightly higher than the amount scheduled in 2012.
The difference was determined to be due to higher cable tv
bills, slightly higher car payments, and car and renter's
insurance premiums. Metz withholds $772 each month for income
taxes, which is $206 higher than the amount withheld in 2012.
Metz has consistently received tax refunds. The past three
tax years resulted in refunds of $939, $1, 067, and $1, 135.
Metz's rent is $550 and her car payment is $313. Metz has
included $400 a month for food and reasonable amounts for
utilities. After utilizing Metz' figures, she has $107 of
disposable income after her stated expenses. (Def. Exh. H.)
Metz
has filed three separate chapter 13 cases. Her first case was
filed in 2001 and later converted to chapter 7 in 2006. She
proposed a $100 monthly payment on her student loan and ended
up paying $4, 717 during the first case. She then filed a
second chapter 13 shortly after the discharge of her first
case. Her chapter 13 plan was confirmed and later completed
in December 2011. She then filed her third action in 2012. In
her last two cases, she proposed that her student loan debt
be paid pro rata with other unsecured creditors. Her payment
was approximately $154 per month in her last case. (Tr. at
55.) ECMC received $4, 112 in the second case and, in the
third, $4, 230.
Metz is
eligible to consolidate her loan under a variety of
income-based payment options (“income-based payment
plans”). (Def. Exh. U.) Those plans include an Income
Contingent repayment plan (“ICRP”), an
Income-Based repayment plan (“IBR”), or the
Revised Pay as You Earn plan (“REPAYE”). Metz has
not applied for payment under the income-based payment plans.
The regulations provide a formula under which the payments
are calculated under the various plans. Depending on the
plan, the payments would be based on Metz's adjusted
gross income and whether her income was above or below the
federal poverty level. See 34 C.F.R. § 685.208(k). The
evidence at trial provided that the payment options available
included monthly payments from $203 to $508. The payments
would be as follows: $203.53 under REPAYE; $305.30 under IBR;
and $508.23 under ICRP. (Def. Exh. U.) The bankruptcy court
determined that none of these payments would result in Metz
being able to fully repay the balance due over a 25-year
repayment period. Under the regulations for the income-based
payment plans, after the applicable time period, either 20 or
25 years, the remaining balance on the loan is forgiven. At
that time, a taxpayer may be subject to income taxes based on
the amount forgiven.
Metz
testified that she did not apply for the income-based payment
plans because she did not believe that she could afford the
monthly payment under any of the plans. (Tr. at 54.) Metz
also testified that she was concerned about the amount of
interest that would accumulate over the loan under the
income-based payment plans. (Tr. at 22.) Metz sought a
discharge of her entire student loan debt. (Doc. 5-3,
Complaint to Determine Dischargeability.)
IV.
Analysis
Under
the relevant statute, a debtor will not receive a discharge
“for an educational ... loan made, insured or
guaranteed by a government unit, ” “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). To determine
whether an undue hardship exists, the Tenth Circuit applies
the following three-part test articulated in Brunner v.
New York State of Higher Education Services:
(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.
Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302,
1307 (10th Cir. 2004) (quoting Brunner, 831 F.2d
395, 396 (2nd Cir. 1987)).
“If
the court finds against the debtor on any of the three parts,
the inquiry ends and the student loan is not
dischargeable.” Id. Although the Tenth Circuit
has adopted the Brunner test, it has cautioned that
“to better advance the Bankruptcy Code's
‘fresh start' policy, and to provide judges with
the discretion to weigh all the relevant considerations, the
terms of the test must be applied such that debtors who truly
cannot afford to repay their loans may have their loans
discharged.” Id. at 1309. The Brunner
test does not “rule out consideration of all the facts
and circumstances.” Id. In this case, the
bankruptcy court discharged the accrued interest on the loan
based on its finding that failure to discharge the accrued
interest would impose an undue hardship on Metz. Although the
bankruptcy court concluded that Metz could pay the monthly
payment under an ...