United States Bankruptcy Appellate Panel of the Eighth Circuit
In re: Sara J. Fern Debtor
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
from United States Bankruptcy Court for the Northern District
of Iowa - Dubuque
KRESSEL, FEDERMAN and SHODEEN, Bankruptcy Judges.
SHODEEN, BANKRUPTCY JUDGE.
Defendant, U.S. Department of Education, appeals from the
Bankruptcy Court's 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
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)).
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.
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.
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.
Past, Present and Future Financial Resources
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 ...