Case Number: 2021-02045 Filed: 4/5/2023 Doc # 85

FOR PUBLICATION

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF CALIFORNIA

In re: )

)

ANGELO MARTEL LOVE, ) Case No. 19-20532-C-7

CHRISTINE MARIE LOVE, ) Chapter 7

Debtors. )

______________________________) Adversary No. 21-02045-C

)

CHRISTINE MARIE LOVE, )

Plaintiff, ) OPINION

)

v. )

)

UNITED STATES DEPARTMENT OF )

EDUCATION, FEDLOAN SERVICING, )

NELNET )

Defendants. )

)

Before: Christopher M. Klein

United States Bankruptcy Judge

CHRISTOPHER M. KLEIN, Bankruptcy Judge:

This was an “undue hardship” student loan discharge trial.

This trier of fact finds by preponderance of evidence that the

self-represented debtor plaintiff demonstrated “undue hardship on

the debtor and the debtor’s dependants” within the meaning of 11

U.S.C. § 523(a)(8).

Despite widespread belief that student loans are virtually

impossible to discharge in bankruptcy, the § 523(a)(8) tool that

Congress placed in the judicial toolbox in 1978 to assess “undue

hardship” is adequate to the task if only the bar and the bench

correctly do their jobs. Litigants must present factual evidence

of “undue hardship” that enables trial courts to make findings of

fact and conclusions of law by preponderance of evidence to be

reviewed on appeal for “clear error.”

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It is time to demythologize unwarranted and fallacious

dogmas and propaganda that have encrusted, ossified, neutralized,

and transmogrified § 523(a)(8) analysis into a misconception that

student loan debt is virtually impossible to discharge, even

though the “undue hardship” standard of proof is preponderance of

evidence and the standard of appellate review is “clear error.”

It is a paradox. Only the most compelling cases seem to be

able to qualify for discharge as “undue hardship” on a standard

of proof that is preponderance of evidence.

The solution follows from the Supreme Court’s explication of

the proper roles of trial and appellate courts facing “mixed

questions” of law and fact and proper standard of review. U.S.

Bank Nat’l Ass’n v, Village at Lakeridge, 138 S.Ct. 960 (2018).

Student loan “undue hardship” questions depend intensely on

the facts of each case. As such, they are mixed questions of law

and fact in which factual questions predominate over legal

analysis that must, if there has been a trial, be reviewed on

appeal under the deferential “clear error” standard. If there has

been a trial with findings of fact and conclusions of law, then

appellate review must be under the “clear error” standard that

does not permit appellate courts to substitute judgment for that

of the trial court. Lakeridge, 138 S.Ct. at 966-67.

Mindful that factual questions predominate in a § 523(a)(8)

mixed question of law and fact, this court hereby makes findings

of fact and conclusions of law determining that excepting the

subject debt from discharge would constitute an “undue hardship”

on the debtor and her dependents.

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Facts

These findings are rendered after a trial during which the

self-represented plaintiff testified and was cross-examined by

defendants’ counsel. Supplemental Findings are being filed under

seal because some of the relevant facts are intensely private and

personal. Permitting them to be published by those who routinely

post findings on the internet would chill the willingness of

litigants to provide candid testimony about sensitive matters

that are relevant and material to issues before the court.

Christine Love owes the United States Department of

Education about $27,270 for student loans incurred between 2016

and April 2018 while studying Healthcare Administration at

Ashford University, a proprietary school that closed under a

storm of litigation by the California Attorney General.

She may

also be exposed to liability for about $57,697 in student loans

incurred by her now-former spouse.

The studies at Ashford have produced no discernable

improvement in her employment opportunities.

She was forced to abandon her studies due to debilitating

injuries suffered at the hands of her now-former husband. The

This court on its own motion is exercising its protective

authority under 11 U.S.C. § 107(b)(2) relating to potentially

scandalous or defamatory matter and under 11 U.S.C. § 107(c)

because this court finds disclosure would create undue risk of

unlawful injury to the individual debtor.

The California Attorney General obtained a judgment against

Ashford “for misleading students about career outcomes, cost and

financial aid, pace of degree programs, and transfer credits in

order to entice them to enroll at Ashford.” Statement of Dec., at

p. 47, People of the State of California v. Ashford University,

LLC, et al., Case No. 37-2018-00046134-CU-MC-CTL, March 3, 2022.

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ensuing divorce action terminated marital status in August 2019,

leaving for future resolution property division of the family

home. Her husband was sentenced to 6.7 years in state prison.

With spouse in prison and with two minor children, Love

could not afford to pay current debts. The voluntary chapter 7

case was filed January 30, 2019.

Love’s “current monthly income” was $3,390.09 from

employment as a Pharmacy Technician. After taxes and insurance,

her monthly income was $2,834.87. Her monthly expenses were

$3,949.00. She received gifts from her grandmother to help pay

bills. Her annual gross income of $40,681.08 was 43 percent of

the state’s median family income for her size family.

A Notice to File Claims was issued after the chapter 7

trustee made a finding of assets.

The United States Department of Education filed two timely

proofs of claim totaling $88,019.86.

Of that total, $28,249.86

was owed by Love as the borrower. The trustee paid a total of

$3,052.85 ($2,073.05 + $979.80) on those claims.

In this action, Love seeks discharge of all her liability

for student loans. That includes both her direct remaining debt

of $27,270.06 and any potential liability she may have for her

now-former spouse’s remaining debt of $57,697.14.

The United States concedes that Love has never been in

All numbers from Official Forms 106I, 106J & 122A-1.

Claim #11-1, US Dept of Ed c/o NELNET, $59,770.19, borrower

Angelo Love; Claim #13-1 US Dept of Ed c/o FEDLOANSERVICING,

$28,249.86, borrower Christine Love.

Trustee’s Final Report, Dkt #30, filed, 9/11/2019.

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default on student loans. In addition to the $3,052.85 paid in

the chapter 7 case, Love made voluntary additional payments of

$50.59. She was approved for a “REPAYE” flexible repayment plan

with $10.00 monthly payments beginning in February 2019 and made

payments under that plan. In January 2021, she was notified the

monthly REPAYE payment would increase to $284.20 per month. This

adversary proceeding was filed in June 2021.

Love received assistance from the California Keep Your Home

program in order to help with her mortgage, at a cost of an

$18,000 lien that eventually will have to be repaid.

Love has a history of diligent work for over 20 years in

low-paying jobs and of striving to improve her lot in life. From

2000 until 2013 she worked in assisted living facilities in

various humble capacities. She has since worked as a medical

records technician and as pharmacy technician. She presently is

employed in a clerical position reviewing health-care claims for

audits. She believes that she has reached her maximum income

potential. This court agrees and so finds.

Her grandmother explained that she helps Love with “food,

gas, and occasional household necessities and bills due to her

financial struggles.” The court believed that testimony, to which

there was no objection.

This court likewise believed Love’s testimony about her

minimal standard of living. There are no luxuries in her budget.

The evidence reveals a need for continuing medical care due to

her lingering physical injuries.

Based on observing Love’s credible testimony, this court

finds that she is sincere, hard-working, and has made an honest

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effort in good faith to address her student loan debt.

Moreover, this court finds that Love does not have

significant prospects for future increases in income beyond the

rate of inflation and finds that this state of affairs is likely

to persist indefinitely. She is doing the best she can in coping

with the challenges of life.

Jurisdiction

Subject-matter jurisdiction is founded on 28 U.S.C.

§ 1334(b). Determinations of dischargeability of student loans

are core proceedings a bankruptcy judge may hear and determine.

28 U.S.C. § 157(b)(2)(I).

Analysis

Student loan “undue hardship” issues under § 523(a)(8) are

assessed in the Ninth Circuit under the three-part “Brunner

Test,” borrowed from the Second Circuit. United Student Aid

Funds, Inc. v. Pena, 155 F.3d 1108 (9th Cir. 1998); Brunner v.

New York State Higher Educ. Serv. (In re Brunner), 831 F.2d 395

(2d Cir. 1987). Ms. Love’s situation is examined here through the

Brunner prism, focusing on what Brunner and Pena actually held.

Brunner Test

The first step of the three-part Brunner test is: the debtor

“cannot maintain, based on current income and expenses, a

‘minimal’ standard of living for [self] and dependents if forced

to repay the loans.” Pena, 155 F.3d at 1111; Brunner, 831 at 396.

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Second, the debtor must show 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.” Pena, 155 F.3d at 1111; Brunner, 831 at 396.

Third, the debtor “has made good faith efforts to repay the

loans.” Pena, 155 F.3d at 1111; Brunner, 831 at 396.

Pena and Brunner make a fascinating pair because their facts

led to opposite conclusions regarding “undue hardship.” Each

involved versions of § 523(a)(8) that permitted automatic

discharge regardless of hardship after the lapse of a specified

period. The issue in each was early discharge based on “undue

hardship” in lieu of waiting for the statutory period for

automatic discharge to elapse.

They presented two sides of the same coin. Using the same

test, the Second and Ninth Circuits each affirmed decisions that

had reached opposite conclusions regarding the existence of

“undue hardship.” The facts made all the difference.

Applying the Brunner Test in the Ninth Circuit

Accepting that Brunner is the law of the Ninth Circuit, how

Brunner is actually applied in the circuit is important. One

gains useful insights by comparing and contrasting the respective

successful and unsuccessful assertions of “undue hardship” in

Pena and Brunner. The standard of appellate review looms large in

discerning the appropriate “undue hardship” analysis.

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Minimal Standard of Living on Current Income

The first element of the Brunner test is “cannot maintain,

based on current income and expenses, a ‘minimal’ standard of

living for [self] and dependents if forced to repay the loans.”

Monthly income and monthly expenses were addressed

separately by the Ninth Circuit in Pena.

There was evidence that the Penas’ monthly income

fluctuated. The Ninth Circuit ruled it was not “clear error” for

the bankruptcy court to determine monthly income as $1,748 based

on the sum of take-home pay at the time of filing of $1,370 plus

a fixed disability payment of $378. Although there was evidence

that wages had increased between discovery and time of trial,

there also was evidence that income fluctuated. Hence, the Ninth

Circuit ruled, “we accept as not clearly erroneous the bankruptcy

court’s finding that the Penas’ monthly net income was $1,748.”

Pena, 155 F.3d at 1112.

As to monthly expenses, the Ninth Circuit affirmed as not

clearly erroneous the bankruptcy court’s averaging of monthly

expenses at three stages of the proceeding – when schedules were

filed, when interrogatories were answered, and time of trial. It

specifically rejected the argument that “current” income under

the Brunner test means the time of trial: “where evidence

suggests that the debtor’s income or expenses tend to fluctuate,

it is not inappropriate to average figures over a reasonable

period of time.” Pena, 155 F.3d at 1112.

Comparing average monthly expenses ($1,789) and net monthly

income ($1,748) there was a deficit of $41. In view of that $41

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monthly deficit, the Ninth Circuit ruled: “Clearly, in these

circumstances the Penas could not maintain a minimal standard of

living and pay off the student loans.” Pena, 155 F.3d at 1113.

That conclusion satisfied the first Brunner element in Pena.

Additional Circumstances

Next, the debtor must show that “additional circumstances”

exist indicating that the inability to maintain a minimal

standard of living will “persist for a significant period of the

repayment period of the student loans.”

In Pena, two factual findings by the bankruptcy court

satisfied the second Brunner element: First, there was the

finding of Mrs. Pena’s ongoing mental disability about which she

testified as impairing her ability to obtain “meaningful

permanent employment.” The Ninth Circuit rejected the proposition

that expert corroboration of the medical condition was required,

reasoning that the trial court was entitled to believe her

testimony and that the existence of a back disability award, as

well as receipt of ongoing disability payments sufficed such that

it was not clear error for the trial court to conclude that the

condition would persist.

The Ninth Circuit distinguished Pena from Brunner as

different because in Brunner there was no evidence that Ms.

Brunner’s mental state impaired her capacity to work. Pena, 155

F.3d at 1113-14.

Second, as other evidence, the Ninth Circuit ruled that low

value of the education provided is “relevant to [the student’s]

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future ability to pay off the student loans.” Specifically, the

loans incurred to pay ITT Technical Institute yielded a

credential as “Associate in Specialized Technology” that was

useless to Mr. Pena because it did not help him in his employment

and was not accepted by other colleges for course work credit.

Hence, the “bankruptcy court did not err in considering that

[Mr. Pena’s] income was not likely to increase as a result of his

ITT education.” Pena, 155 F.3d at 1114.

These findings satisfied the second Brunner prong.

“Good Faith” Effort to Repay Loans

As to “good faith,” the Ninth Circuit ruled the “bankruptcy

court did not clearly err in finding that the Penas exhibited

good faith in attempting to pay back the student loans.”

The record showed that there had been “several” payments and

“after being laid off ..., the debtors were given a 90-day

deferment, but then were unable to meet their obligations and

filed chapter 7.” This sufficed to support the bankruptcy court’s

finding of “good faith” efforts to repay the loans.

The Ninth Circuit rejected the argument that good faith was

undermined by their use of Mrs. Pena’s $8,000 back disability

benefit award to buy a used car and pay other bills.

The Ninth Circuit explained:

USA Funds does not suggest why good faith would have

required the Penas to pay the student loan debt prior to

paying down portions of their other debts ($43,360 minus

$8,685) when the other debts were approximately four times

the amount of the student loans.

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Contrasting the Pena’s situation with the facts in Brunner,

the Ninth Circuit noted that Ms. Brunner failed to establish good

faith because she filed for discharge within a month after the

first payment of her loans came due, made virtually no attempt to

repay, and never requested the available deferment of payment

that was available to those who are unable to pay because of

prolonged unemployment. Pena, 155 F.3d at 1114.

Hence, in Pena “several” payments and brief deferment during

a job loss, followed by a chapter 7 filing, sufficed to satisfy

the “good faith” prong of Brunner against attack as clear error.

Ninth Circuit Decisions After Pena

The Ninth Circuit’s first noteworthy student loan decision

in the shadow of Pena was Saxman in 2003, ruling that bankruptcy

courts have equitable power to partially discharge student debt

to the extent payment would constitute an “undue hardship.”

Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168

(9th Cir. 2003); cf. Graves v. Myrvang (In re Myrvang), 232 F.3d

1116 (9th Cir. 2000) (§ 523(a)(15)).

In other words, bankruptcy courts have equitable power to

scale down student loan debt. E.g., Nitcher v. Educ. Credit Mgmt.

Corp. (In re Nitcher), 606 B.R. 67, 80 (Bankr. D. Or. 2019).

Another key Ninth Circuit decision in the wake of Pena was

Hedlund, a partial discharge case in which the Ninth Circuit

clarified and enforced the standard of review for “undue

Pena, 155 F.3d at 1114.

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hardship” determinations made by bankruptcy judges.

In Hedlund, the Ninth Circuit disapproved a district court’s

use of de novo review in which the district court had substituted

its judgment for that of the bankruptcy trial court and reversed

a determination of Brunner “good faith.” The Ninth Circuit, in

turn, reversed the district court because it erred by applying

the wrong standard of review: “a good faith finding under Brunner

should be reviewed for clear error.” Hedlund v. Educ. Res. Inst.

Inc., 718 F.3d 848, 854 (9th Cir. 2013). In short, Hedlund holds

it is error for an appellate court to substitute its judgment for

that of the trial court on the question of Brunner “good faith.”

The Ninth Circuit explained that “good faith” is “an

essentially factual inquiry” driven by “data of practical human

experience.” Hedlund, 718 F.3d at 854, citing Figter Ltd. v.

Teachers Ins. & Annuity Assoc. of Am. (In re Figter Ltd.), 118

F.3d 635, 638 (9th Cir. 1997); accord, United States v. McConney,

728 F.2d 1195, 1203-04 (9th Cir. 1984) (en banc).

Nor is the Ninth Circuit position regarding review of “good

faith” unique. The Seventh Circuit (which applies Brunner under

the name Roberson) has reached the identical conclusion on the

same reasoning: the Brunner good faith standard “combines a state

of mind (a fact) with a legal characterization (a mixed question

of law and fact) that Supreme Court precedent teaches be “treated

as factual in nature.” Krieger v. Educ. Credit Mgmt. Corp., 713

F.3d 882, 884 (7th Cir. 2013) (“It is important not to allow

judicial glosses, such as the language in Roberson and Brunner,

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to supersede the statute itself.”) (Easterbrook, J.).

The “Mixed Question” Conundrum

Despite the apparent clarity of a “clear error” review,

confusion persisted. Student loan creditors that lost “undue

hardship” cases in bankruptcy court would appeal and urge the

appellate court to substitute its judgment for that of the trial

court. Implicit in the arguments was a sense that “undue

hardship” is some form of a “mixed question” for which it is fair

game to substitute judgment on appeal.

An example is the district court’s reversal of the Hedlund

bankruptcy court, which the Ninth Circuit later reversed for

The Seventh Circuit’s Krieger decision is indicative of a

growing realization that something is rotten in Brunner. The

critiques come from two directions. First, per Krieger, too much

judicial gloss has transmogrified Brunner. Second, the question

in Brunner (what showing is required to prove “undue hardship”

when discharge is automatic after five years?) is very different

than the question after the automatic discharge was repealed

(what showing is required to prove “undue hardship” when it is

the only route to discharge lifetime?). Judge Pappas was an early

voice crying in the wilderness: Roth v. Educ. Credit Mgmt Corp.

(In re Roth), 490 B.R. 908, 920-23 (9th Cir. BAP 2013). The

chorus is gaining volume. E.g., McDowell v. Educ. Credit Mgmt

Corp. (In re McDowell), 549 B.R. 744, 765-66 n.32 (Bankr. D.

Idaho 2016); Rosenberg v. N.Y. State Higher Educ. Servs. Corp.

(In re Rosenberg), 610 B.R. 454, 458-59, 373 Ed. Law Rptr. 836

(Bankr. S.D.N.Y. 2020); Clavell v. U.S. Dep’t of Educ. (In re

Clavell), 611 B.R. 504, 513-14 (Bankr. S.D.N.Y. 2020); Wolfson v.

DeVos (In re Wolfson), 2022 WL 5055468 (Bankr. D. Del. 2022). See

generally Bruce Grohsgal, The Long Strange Trip to a Certainty of

Hopelessness: The Legislative and Political History of the

Nondischarge of Student Loans in Bankruptcy, 95 Am. Bankr. L.J.

443 (2021).

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using an improper standard of review. Hedlund, 718 F.3d at 854.

A more subtle version is paying lip-service to “clear error”

but then using the “mixed question” label as license to nit-pick

the trial court all the way to reversal in a manner that is the

antithesis of “clear error” review. E.g. Educ. Credit Mgmt. Corp.

v. Mason (In re Mason), 464 F.3d 878, 884-85 (9th Cir. 2006).

III

Supreme Court Resolves “Mixed Question” Conundrum

The “mixed question” conundrum was not unique to student

loans and befuddled appellate courts in a variety of arenas.

In 2018, parsing the Title 11 definition of “insider,” the

Supreme Court cleared up the confusion about “mixed questions.”

Giving a master class on the roles of trial and appellate

courts, the unanimous Supreme Court prescribed a controlling

analysis for assessing “mixed” questions of law and fact and the

proper implementation of “clear error” review. U.S. Bank Nat’l

Ass’n v. Village at Lakeridge, LLC, 138 S.Ct. 960, 965-69 (2018)

(9-0 decision) (“Lakeridge”).

Roles of the Respective Courts

The Supreme Court focused in Lakeridge on the roles of the

respective trial and appellate courts.

Before the Ninth Circuit squarely decided the “clear error”

standard of review question in Hedlund, it had declined to find

error in a district court’s substitution of judgment in an appeal

in which it did not purport to determine the correct standard of

review. Rifino v. United States (In re Rifino), 245 F.3d 1083,

1087 n.2 (9th Cir. 2001) (de novo review.)

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A bankruptcy court “must tackle three kinds of issues – the

first purely legal, the next purely factual, the last a

combination of the other two.” Lakeridge, 138 S.Ct. at 965.

An appellate court “must consider all its component parts,

each under the appropriate standard of review.” Lakeridge, 138

S.Ct. at 965.

The first step is choice by the bankruptcy judge of a legal

test to determine the issue before the court at trial. An

appellate panel “reviews such a legal conclusion without the

slightest deference.” Lakeridge, 138 S.Ct. at 965.

Next, the bankruptcy judge must “make findings of what we

have called ‘basic’ or ‘historical’ fact – addressing questions

of who did what, when or where, how or why. Lakeridge, 138 S.Ct.

at 966.

An appellate court reviews such factual findings “only for

clear error – in other words, with a serious thumb on the scale

for the bankruptcy court.” Lakeridge, 138 S.Ct. at 966.

Finally, the bankruptcy judge must “determine whether the

historical facts found satisfy the legal test.” This is the so-

called “mixed question” that asks “whether the historical facts

... satisfy the statutory standard, or to put it another way,

whether the rule of law as applied to the established facts is or

is not violated.” Lakeridge, 138 S.Ct. at 966, quoting Pullman-

Standard v. Swint, 456 U.S. 273, 289, n.19 (1982).

The problem becomes whether the ruling on the mixed question

is to be reviewed on appeal de novo or for clear error.

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Nature of the Mixed Question Controls Standard of Review

As posited by the Supreme Court, the inquiry is: “What is

the nature of the mixed question here and which kind of court

(bankruptcy or appellate) is better suited to resolve it?”

Lakeridge, 138 S.Ct. at 966.

Mixed questions “are not all alike.” Lakeridge, 138 S.Ct. at

967.

When a particular mixed question requires courts “to expound

on the law, particularly by amplifying or elaborating on a broad

legal standard” and “developing auxiliary legal principles of use

in other cases,” then de novo review is appropriate. Lakeridge,

138 S.Ct. at 967, citing Salve Regina College v. Russell, 499

U.S. 225, 231-33 (1991).

When a mixed question “immerses courts in case-specific

factual issues – compelling them to marshal and weigh evidence,

make credibility judgments, and otherwise address what we have

(emphatically if a tad redundantly) called ‘multifarious,

fleeting, special, narrow facts that utterly resist

generalization,’” then appellate courts should review the

decision with deference. Lakeridge, 138 S.Ct. at 967, citing

Pierce v. Underwood, 487 U.S. 552, 561-62 (1988); Anderson v.

Bessemer City, 470 U.S. 564, 574-76 (1985).

After Lakeridge, the rule is: “the standard of review for a

mixed question all depends — on whether answering it entails

primarily legal or factual work.” Lakeridge, 138 S.Ct. at 967.

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“Mixed Questions” in “Undue Hardship” Cases

The mixed question that a bankruptcy court addresses in a

§ 523(a)(8) “undue hardship” student loan discharge case immerses

the court in case-specific factual issues. The controlling law –

the Brunner test – is well known and needs little explication.

The bankruptcy court, to use the words of the Supreme Court,

“takes a raft of case-specific historical facts, considers them

as a whole, balances them one against another – all to make a

determination:” whether the debtor’s current income and expenses

permit a “minimal” standard of living for herself and her

dependents; whether additional circumstances make the state of

affairs likely to persist for a significant portion of the

repayment period of the student loan; and whether the debtor has

made a “good faith” effort to repay the loans.

As the Supreme Court explained in Lakeridge: “Just to

describe that inquiry is to indicate where it (primarily)

belongs: in the court that has presided over the presentation of

the evidence, that has heard all the witnesses, and that has both

the closest and the deepest understanding of the record – i.e.,

the bankruptcy court.” Lakeridge, 138 S.Ct. at 968.

The Supreme Court also reasoned that an alternative approach

which gets to the same answer is to ask how much legal work is

entailed in applying the controlling test? Its answer was

“precious little.” Norms and criteria already exist. The multi-

part test is already in place.

Since answering the § 523(a)(8) “undue hardship” question is

primarily factual in nature, it follows that deferential “clear

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error” review applies when, as here, the bankruptcy court holds a

trial and makes findings of fact and conclusions of law.

The import of Lakeridge to this adversary proceeding is that

it undermines the vitality of Ninth Circuit decisions that are

not consistent with the Lakeridge “mixed question” rule. Rifino

permitted a district court to substitute judgment for that of the

bankruptcy court in a manner disapproved by Lakeridge. Rifino,

245 F.3d at 1087 n.2. Likewise, the nit-picking analysis of “good

faith” in Mason is contradicted by Lakeridge. Mason, 464 F.3d at

884-85. Both Rifino and Mason were garden-variety decisions in

which a bankruptcy court found “undue hardship.”

§ 523(a)(8) “Undue Hardship” in this Case

We now return to applying the three-part Brunner-Pena test

to the facts of this case.

When bankruptcy courts decide student loan cases without

trial, appellate courts correctly apply de novo review and may

substitute judgment for that of the bankruptcy court. That was

the situation in the original Brunner case. Subsequent examples

show that appellate courts that view records only in the abstract

and do not have to look debtors in the eyes do not hesitate to

reverse “undue hardship” determinations on review de novo.

The Supreme Court was insistent about the line it was

drawing regarding “mixed questions” in which facts predominate:

if an appellate court someday finds that further refinement

of the arm’s length standard is necessary to maintain

uniformity among bankruptcy courts, it may step in to

perform that legal function. By contrast, what it may not do

is review independently a garden-variety decision, as here,

that the various facts found amount to an arm’s length (or

non-arm’s-length) transaction and so do not (or do) confer

insider status.

Lakeridge, 138 S.Ct. at 968 n.7 (emphasis in original).

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The first step is whether the debtor “cannot maintain, based

on current income and expenses, a ‘minimal’ standard of living

for [self] and dependents if forced to repay the loans.” Pena,

155 F.3d at 1111; Brunner, 831 at 396.

The debtor’s gross income in 2019 was $40,681. In 2021, it

was $40,992. She works full time. Opportunities for overtime work

are too infrequent to be deemed material.

Her monthly obligations at the time of trial totaled $3,763

and after taxes take-home pay was $2,807. Her grandmother has

been helping her cover the imbalance.

Examination of the items on her monthly budget reveals no

excessive items.

This trier of fact is persuaded by preponderance of evidence

that the debtor is not able to maintain a “minimal” standard of

living for herself and dependents if forced to repay the loans.

Second, the debtor must show 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.” Pena, 155 F.3d at 1111; Brunner, 831 at 396.

The circumstances of the debtor are such that this trier of

fact is persuaded by preponderance of evidence that this state of

affairs is likely to persist for at least the remaining portion

of the repayment period, and well beyond.

The debtor has demonstrated that she is doing the best she

can. There is no upward career path presently available to the

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debtor. There is no reason to believe her compensation will

increase by more than the rate of inflation.

In addition, as with Pena, the low value of the Ashford

education may be considered as evidence probative of the

likelihood that the state of affairs will persist. Pena, 155 F.3d

at 1114. It is particularly pertinent that the California

Attorney General obtained a judgment against Ashford “for

misleading students about career outcomes, cost and financial

aid, pace of degree programs, and transfer credits.”

Moreover, as Ashford is no longer an operating entity there

is no realistic opportunity to resume her academic program. It is

doubtful that transfer credits would be accepted. Even if it were

possible to resume the education, additional debt would have to

be incurred and opportunities for promotion upon completion are

too speculative to be credited.

In sum, the preponderance of evidence demonstrates that the

present state of affairs is likely to persist for a long time.

Third, the debtor must have “made good faith efforts to

repay the loans.” Pena, 155 F.3d at 1111; Brunner, 831 at 396.

It is conceded that the debtor never has been in default on

payments.

A total of $3,052 was paid on the two timely proofs of claim

filed by the United States in the chapter 7 case.

This court specifically rejects the argument by the United

Note 2 supra.

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States that the chapter 7 dividend should not be treated as

having been voluntary and made in “good faith.” Rather, as a

matter of law and of fact, payments on claims in a voluntary case

under the Bankruptcy Code that was filed by the debtor in good

faith are “voluntary” payments that are made in good faith for

purposes of the “good faith” component of the Brunner-Pena test.

In addition, after filing her voluntary chapter 7 case in

January 2019, the debtor made voluntary additional payments

totaling $50.59. The notice to the debtor in January 2021, that

required payment under her “REPAYE” flexible repayment plan would

increase to $284.00 per month is what precipitated the filing of

this adversary proceeding.

Nor is the debtor’s “good faith” undermined by not now

seeking potential new administrative remedies that have arisen

since this adversary proceeding was filed – she has heretofore

participated in good faith in seeking administrative relief and

been rewarded with a $284.00 monthly payment that is plainly

beyond her means to pay. Enough is enough.

In sum, the debtor has demonstrated by preponderance of

evidence “good faith efforts to repay the loans” within the

meaning of the Brunner-Pena test.

Administrative Alternatives

The United States has provided a post-trial statement asking

that Love apply for “Borrower Defense” administrative relief in

lieu of a § 523(a)(8) “undue hardship” judgment.

It is suggested that the debtor is a member of the class

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action known as Sweet v. Cardona, No. C 19-03674 WHA (N.D. Cal.),

the settlement of which could qualify the debtor for a refund of

$1,033.04. And it is urged that she pursue the “New Process” for

student loan bankruptcy discharges as an administrative matter.

This court declines the invitation.

The debtor’s evidence adduced at trial establishes by the

requisite preponderance of evidence all three elements of the

Brunner-Pena test. She is entitled to a judgment determining that

excepting the total student loan debt from discharge would impose

an “undue hardship” on the debtor and the debtor’s dependents

within the meaning of § 523(a)(8). She is entitled to the relief

now without awaiting mere possibilities of administrative relief.

There is no requirement of law that administrative remedies

have been exhausted before a § 523(a)(8) “undue hardship” action

is ripe for decision. Such a requirement, in view of the delays

characteristic of the bureaucracy inherent in student loan

administration, would be a contradiction in terms.

Much of the proposed administrative relief under the “New

Process” announced November 17, 2022, remains uncertain and is

embroiled in partisan litigation challenging the validity of that

and other administrative initiatives.

United States’ Response to Post-Trial Order, at 2, Dkt 81.

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The United States says: “Education is willing to refund Love

the $1,033.04 distribution made to Education by the Chapter 7

trustee in this case, and it believes the trustee has agreed to

Education making this refund to Love.”

This is puzzling.

First, there is no Chapter 7 trustee serving in the case who

could have agreed to anything. Upon entry of the Final Decree on

March 26, 2020, the Chapter 7 trustee was discharged and the

trustee’s bond was released from further liability.

When the case was reopened in 2021 pursuant to § 350(b) and

Rule 5010 incident to filing Love’s adversary proceeding, it was

ordered that no trustee be appointed. 11 U.S.C. § 350(b); Fed. R.

Bankr. P. 5010.

None has since been appointed.

Even if a trustee had been appointed, it is unlikely a

Chapter 7 trustee could agree to a refund to the debtor of a

claim distribution without complying with § 502(j) and at least

giving notice to the other creditors who, like the Department of

Education, received paltry 3.47% dividends and may wish to assert

rights in the proceeds. 11 U.S.C. § 502(j).

Moreover, there is uncertainty about the relief that would

Id. at 3 (emphasis supplied).

Final Decree, 3/26/2020, Dkt. 42.

Order Reopening Case, 6/21/2021, Dkt. 46.

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be provided for Love by this proposed administrative action.

Her direct liability for the $27,270 that she owes on her

own account is one thing.

But there is also potential for liability for the $57,697

owed on student loans to her former spouse that were contracted

during the marriage and could construed as a community debt for

which remaining community property – including Love’s home –

might be liable

The loan summary to the proof of claim #13 filed by the

Department of Education on her former spouse’s debt includes the

intriguing notation “spousal consol.” If that connotes spousal

liability, then she has more student loan debt to discharge.

The uncertainty stems from California community property law

with respect to liability and property settlements in divorces.

At best, California law is sufficiently confused that it cannot

be said with confidence that Love has no liability when there has

been no completed marital settlement agreement. Compare Cal.

Family Code § 916, with Cal. Family Code § 2641(b)(2).

Nor can the United States say the issue is fanciful. The

U.S. Department of Education has litigated the effect of a

California marital settlement agreement regarding allocation of

student loan debt between divorcing spouses. U.S. Dep’t of Educ.

v. Carrion (In re Carrion), 601 B.R. 523 (9th Cir. BAP 2019).

Also dubious is a statement that could be construed as

suggesting that discharging the debt under § 523(a)(8) could

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disqualify the debtor for some student loan benefits.

Perhaps

it is inept gobbledegook, but it could be construed as offending

§ 525(c). 11 U.S.C. § 525(c).

In short, blandishments of possible administrative relief

are of uncertain value when compared with the alternative of

immediate discharge of all of Love’s student loan liability

pursuant to § 523(a)(8) in an enforceable judicial judgment.

Conclusion

The debtor having proved by preponderance of evidence all

elements of the controlling Brunner-Pena test for discharge of

all of her student loan liability as “undue hardship” under

§ 523(a)(8), judgment to that effect will be entered in a

separate order.

Date: April 5, 2023

______________________________

UNITED STATES BANKRUPTCY JUDGE

The ambiguous statement is:

Additionally, new Education provisions will no longer count

Pell Grants received for the same period of attendance at

school, as loans receiving Borrower Defense discharge for

purposes of Pell Grant limits, restoring eligibility if Love

chooses to return to school. However, if her loans are

discharged through bankruptcy, she has no debt eligible for

relief under the Sweet v. Cardona class action settlement

and will not receive those benefits.

United States’ Response to Post-Trial Order, at 3, Dkt 81.

April 05, 2023

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