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In re Fern

United States Bankruptcy Appellate Panel of the Eighth Circuit

February 7, 2017

In re: Sara J. Fern Debtor
v.
FedLoan Servicing Defendant Sara J. Fern Plaintiff- Appellee U.S. Department of Education Defendant-Appellant Pennsylvania Higher Education Assistance Agency Defendant

          Submitted: January 6, 2017

         Appeal from United States Bankruptcy Court for the Northern District of Iowa - Dubuque

          Before KRESSEL, FEDERMAN and SHODEEN, Bankruptcy Judges.

          SHODEEN, BANKRUPTCY JUDGE.

         The Defendant, U.S. Department of Education, appeals from the Bankruptcy Court's[1] determination that Fern's student loans are dischargeable based upon undue hardship pursuant to 11 U.S.C. § 523(a)(8). For the reasons that follow, we affirm.

         STANDARD OF REVIEW

         The determination of undue hardship is a legal conclusion subject to de novo review. Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 553 (8th Cir. 2003). Subsidiary findings of fact on which the legal conclusions are based are reviewed for clear error. Educ. Credit Mgmt. Corp. v. Jesperson, 571 F.3d 775, 779 (8th Cir. 2009). We may affirm on any basis supported by the record. Kaler v. Charles (In re Charles), 474 B.R. 680, 687 (B.A.P. 8th Cir. 2012) (citing Stabler v. Beyers (In re Stabler), 418 B.R. 764, 766 n. 2 (B.A.P. 8th Cir. 2009)).

         DISCUSSION

         Between 2002 and 2004 Fern obtained student loans totaling $14, 980 under the William D. Ford Direct Loan Program under three separate promissory notes. She used these funds to participate in classes to become an accounting clerk. After two unsuccessful attempts to complete a required class she could not finish the program. In 2007 Fern obtained an additional student loan of approximately $5, 300 from the Ford Program to attend Capri College for training as an esthetician. After graduating she rented space at a commercial tanning salon and began working in her field of study. Being unable to build up the necessary clientele to support her family she left this job. Fern has never made a payment on her student loan obligations. At the time of trial the aggregate balance owing on Fern's student loans exceeded $27, 000.

         Discharge of student loan debt in bankruptcy is governed by 11 U.S.C. § 523(a)(8) which in relevant part states: "A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt [for education loans] unless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents . . . ." The debtor bears the burden to prove undue hardship by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 289-91 (1991). The term undue hardship is not defined in the Bankruptcy Code. Consequently, the standards to determine what constitutes undue hardship have been developed by the courts. A majority of Circuits follow the test adopted by the Second Circuit in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). The Brunner analysis has been expressly rejected in this Circuit:

We are convinced that requiring our bankruptcy courts to adhere to the strict parameters of a particular test would diminish the inherent discretion contained in § 523(a)(8) . . . We believe that fairness and equity require each undue hardship case to be examined on the unique facts and circumstances that surround the particular bankruptcy.

         Long, 322 F.3d at 554. Instead, the Eighth Circuit follows a more flexible approach under a totality of the circumstances test. Id. Three factors are evaluated to determine undue hardship under this test: (1) the debtor's past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor's and her dependent's reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case. Id.

         1. Past, Present and Future Financial Resources

         Fern is a 35 year old single mother of three children ages 3, 11 and 16. For the last 6 years she has worked at Focus Services, LLC. This job provides her with a monthly income of $1, 506.78 and offers flexibility so she can provide the necessary care for her children when needed. The family also receives food stamps and rental assistance. The children's fathers have ...


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