Palmer, Jr. v. Galaxy Int Purchasing LLC

This document was signed electronically on March 31, 2021, which may be different from its

entry on the record.

IT IS SO ORDERED. >, | \ | | / |

Dated: March 31, 2021

: a ALAN M. KOSCHIK

D>. J U.S. Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

In re )

) Case No. 12-51428

BARRY A. PALMER, JR., )

) Chapter 7

Debtor. )

) Adversary Proceeding No. 15-05073

)

BARRY A. PALMER, JR., )

) Judge Alan M. Koschik

Plaintiff, )

v. )

)

GALAXY INTERNATIONAL )

PURCHASING, LLC, )

)

Defendant. )

MEMORANDUM DECISION FOLLOWING TRIAL ON

COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT

The Court held a trial in this adversary proceeding to determine the dischargeability of

certain alleged student loan debts owed by plaintiff-debtor Barry A. Palmer, Jr. (the “Plaintiff,”

the “Debtor,” or “Palmer”) to defendant-creditor Galaxy International Purchasing, LLC (the

“Defendant” or “Galaxy”). This Memorandum Decision constitutes the Court’s findings of fact

and conclusions of law pursuant to Federal Rule of Civil Procedure 52, made applicable in

adversary proceedings in bankruptcy by Federal Rule of Bankruptcy Procedure 7052.

JURISDICTION AND VENUE

This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334

and General Order No. 2012-7 entered by the United States District Court for the Northern

District of Ohio on April 4, 2012. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(I).

Venue is proper pursuant to 28 U.S.C. § 1409(a).

PROCEDURAL HISTORY

The Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code on April

30, 2012. Among his assets, he scheduled no real property and a total of $5,700 in personal

property, consisting primarily of a 2003 Ford Focus with 110,000 miles valued at $4,000.

The Debtor scheduled no debt entitled to priority pursuant to 11 U.S.C. § 507(a), but did

schedule five separate student loan debts to one creditor, “Chela/Sallie Mae,” in the aggregate

amount of $18,872. He did not schedule any debts owed to Galaxy, nor did he serve Galaxy

with notice of his bankruptcy filing. His scheduled general unsecured debts totaled $49,237.13.

The Debtor scheduled gross monthly income of $3,271.67, with a net of $2,501.81 after

payroll deductions. As of the petition date, he was unmarried and had one dependent daughter,

then aged 5. He scheduled monthly expenses totaling $2,400.00, leaving a monthly surplus of

$101.81. Significant expenses included $300 per month in childcare, $200 per month for a car

payment, and $250 per month for rent or mortgage expenses.

On June 18, 2012, the chapter 7 trustee, Marc P. Gertz, filed a no-asset report. The

Debtor reaffirmed the $1,798.02 debt secured by his Ford Focus, which at that point had only

seven payments remaining. He completed his financial management course. The Court entered

an order of discharge on August 27, 2012. (Main Case Docket No. 13.) The Court entered a

final decree and closed the case on August 30, 2012. (Main Case Docket No. 15.) Galaxy never

appeared in the case and was not served with the notice of the final decree issued by the Court’s

Bankruptcy Noticing Center. (See Main Case Docket No. 14.)

Two and a half years later, on April 23, 2015, the Debtor filed a motion to reopen this

case (Main Case Docket No. 16) for the purpose of filing the instant adversary proceeding. After

a hearing, the Court granted the motion to reopen on July 18, 2015. (Main Case Docket No. 20.)

Galaxy filed a notice of appearance in the main case on July 22, 2015.

The Debtor filed the instant adversary proceeding on July 29, 2015. The Defendant filed

its answer on August 31, 2015. (Docket No. 6.) The parties filed stipulations of fact on January

8, 2016 (Docket No. 12) (the “Stipulations”). The Stipulations are a single page and stipulate to

a single fact:

Defendant Galaxy International Purchasing LLC obtained a Summary Judgment

against Plaintiff Barry A. Palmer Jr. in Case No. CV-2014-05-2429, Summit

County Court of Common Pleas in the sum of $22,102.43, plus accrued interest of

$9,385.24 through November 19, 2014, plus interest thereafter at 7.95 percent per

annum plus costs.

(Stipulations at ¶ 1.)

The Court held a trial in this adversary proceeding on July 18, 2016. On August 15,

2016, both the Plaintiff (Docket No. 22) and the Defendant (Docket No. 23) filed their post-trial

briefs.

BURDEN OF PROOF

In actions to determine the dischargeability of a purported student loan debt pursuant to

11 U.S.C. § 523(a)(8), the creditor has the initial burden to establish, by a preponderance of the

evidence, the existence of the debt and that the debt is an educational loan or repayment

obligation within the statute’s parameters. Roth v. Educational Credit Management Corporation

(In re Roth), 490 B.R. 908, 916 (B.A.P. 9th Cir. 2013); see also Grogan v. Garner, 498 U.S. 279,

287, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (establishing preponderance of evidence standard

for nondischargeability actions).

If the creditor succeeds, the burden then shifts to the debtor to prove that repayment of

the educational loan or other educational debt would result in an undue hardship so as to avoid a

nondischargeable judgment. This includes the burden to prove, by a preponderance of the

evidence, all three prongs of the test established in Brunner v. New York State Higher Education

Services Corp., 831 F.2d 395 (2d Cir. 1987). Roth, 490 B.R. at 916-17; see also Oyler v.

Educational Credit Management Corporation (In re Oyler), 397 F.3d 382, 385 (6th Cir. 2005)

(adopting the Brunner test for use in the Sixth Circuit). Undue hardship is a question of law, but

based on subsidiary findings of fact. See Educational Credit Management Corporation v.

Jesperson (In re Jesperson), 571 F.3d 775, 779 (8th Cir. 2009).

The burden of proof in this action is foremost in the Court’s mind as it finds the

following facts based on the limited record presented by the parties at trial.

FINDINGS OF FACT

The evidentiary record in this case is thin for a case that proceeded to trial. The Debtor

was the only witness. While the Defendant’s witness list (Docket No. 20) submitted in advance

of trial disclosed a representative of the Defendant, N. John Rudd, Mr. Rudd was never called

and did not submit a declaration. The Defendant introduced seven exhibits, to which the

Plaintiff did not object. As such, the Court’s findings of fact in this case are derived from (a) the

Court’s docket, including the petition and other documents submitted under penalty of perjury in

the Main Case, (b) the exhibits admitted at trial, and (c) the Debtor’s uncontroverted testimony at

trial on direct and cross-examination.

Debtor’s Educational History and Student Loan History.

The Debtor was a student at the University of Akron from 2005 until the fall of 2007. He

withdrew from the University of Akron near the start of the spring 2008 semester, because his

daughter had been born in April of 2007. The exact date of his withdrawal from the University

of Akron is unknown, but it is uncontroverted that he never attended a class at the University of

Akron in or after 2008.

On December 19, 2007, prior to his withdrawal, the Debtor signed a “Loan

Request/Credit Agreement” (the “Credit Agreement”). The lender that was a party to the Credit

Agreement was Union Federal Savings Bank. The type of loan is listed as an “Astrive

undergraduate loan.” The Credit Agreement identifies the school as the University of Akron,

and the “academic period” as “01/2008 to 05/2008.”

The Credit Agreement recites in its terms and conditions:

I understand and agree that this loan is an education loan and certify that it will be

used only for costs of attendance at the School. I acknowledge that the requested

loan is subject to the limitations on dischargeability in bankruptcy contained in

Section 523(a)(8) of the United States Bankruptcy Code because either or both of

the following apply: (a) this loan was made pursuant to a program funded in

whole or in part by The Education Resources Institute, Inc. (“TERI”), a non-profit

institution, or (b) this is a qualified education loan as defined in the Internal

Revenue Code. The means that, in the event of bankruptcy, my other debts are

discharged, I will probably still have to pay this loan in full.

(Ex. 2 at 10, hereinafter the “Credit Agreement Certification.”)

Galaxy introduced no records directly showing that Union Federal Savings Bank ever

funded the loan, let alone to whom the proceeds were advanced. Galaxy relies solely on the

State Court Judgment. The Defendant’s exhibits, including those from the State Court Case, do

not include account statements or any other documents prepared or issued by the University of

Akron during the ordinary course of its business.

Neither side has introduced any documents subpoenaed from the University of Akron, or

from any other source, to show whether or not the Plaintiff was a student in 2008, whether he

incurred any tuition obligation, or whether Union Federal Savings Bank funded the loan

contemplated by the Credit Agreement to satisfy any such tuition obligation incurred by the

Debtor with the University of Akron.

Pursuant to a Bill of Sale and a Blanket Endorsement of Credit Agreements, each dated

November 16, 2009, Union Federal Savings Bank endorsed the Credit Agreement, along with an

indeterminate number of other such loan agreements, to The National Collegiate Student Loan

Trust 2009-1 (“NCSLT 2009-1”). Via a Bill of Sale and Assignment dated April 30, 2013, the

first anniversary of the Plaintiff Debtor’s petition date and eight months after his discharge order

was entered, U.S. Bank, in its capacity as trustee for NCSLT 2009-1, conveyed, transferred, and

assigned its rights in the Credit Agreement, along with an indeterminate number of other such

loan agreements to Galaxy.

Almost two years after the Debtor received his bankruptcy discharge, the Defendant

commenced a state court collection action against the Debtor on May 15, 2014, in the Summit

County (Ohio) Court of Common Pleas, CV 2014 05 2429 (the “State Court Case”). The Debtor

initially appeared pro se in the State Court Case and filed his own answer. However, he failed to

respond to the Defendant’s motion for summary judgment and judgment was entered in favor of

Galaxy against the Debtor in the principal amount of $22,102.43 plus accrued interest of

$9,385.24 through November 19, 2014, plus interest thereafter at 7.95 percent per annum (Ex. 1)

(the “State Court Judgment”). Neither the State Court Case nor the State Court Judgment

addressed the Debtor’s earlier bankruptcy case or bankruptcy discharge. The State Court

Judgment made no findings that the Debtor’s debt to Galaxy constituted an educational loan or

repayment obligation and did not purport to consider whether the debt was nondischargeable

notwithstanding the Debtor’s bankruptcy discharge.

Prior to Galaxy’s State Court Case against the Debtor, the Debtor had never heard of

Galaxy. Indeed, he had never received any previous communication or faced any previous

attempts at collection from Galaxy’s predecessors in interest, Union Federal Savings Bank,

NCSLT 2009-1, or U.S. Bank. He was unaware of the purported educational loan for the spring

2008 semester at the University of Akron until Galaxy served him with a summons and

complaint in the State Court Case. He had never received any communication from the

University of Akron about Union Federal Savings Bank’s purported loan or his attendance or

nonattendance as a student during the spring 2008 semester at any time from 2008 onward,

including any statements or bills for tuition.

The Debtor’s sworn testimony at trial, which was neither contradicted nor impeached, is

the sole evidence concerning the Debtor’s enrollment at the University of Akron and his

educational debt purportedly owed on account of tuition and other charges incurred during the

2008 winter term. As a result, the preponderance of evidence compels the finding that he

withdrew from the University of Akron prior to the start of the spring 2008 semester was not a

student there in or after 2008.

The Debtor’s Financial Circumstances as of the Time of Trial.

In the weeks prior to trial in this adversary proceeding, the Plaintiff’s net pay received on

a weekly basis from his employer, Akron Rubber Development Laboratory, Inc., was as follows:

Pay Period (first day) Net Pay

4/11/16 $489.24

4/18/16 $647.70

4/25/16 $596.75

5/2/16 $567.60

5/9/16 $651.86

5/16/16 $591.91

5/23/16 $587.04

5/30/16 $587.05

6/6/16 $596.76

6/13/16 $577.33

6/20/16 $632.13

(Ex. 5.) He had no 401(k) withholding. He made Roth IRA contributions of between

approximately $23 and $30 per week. Id. His base pay rate was $19/hr. He consistently worked

approximately 40 hours per week, putting him on track to achieve gross pay in the range of

$38,000 to $40,000 per year in 2016. Id. This is somewhat above the figure in his statement of

financial affairs in the Main Case, which stated gross income of $32,400 in 2011.

Seven months of the Plaintiff’s credit card statements from Capital One, the most recent

being his statement for November 23 to December 22, 2015, consistently show a balance over

$700 and a struggle to make any headway making payments of $60 or $80 per month. The credit

limit on the card is $750 and the interest rate is 24.90%. (Ex. 6.) The transactions on this card

are not numerous, and the most common and highest dollar value was with Acme, a local

grocery store. Id.

The Plaintiff’s bank account statements for July 2015, and September through December

2015, from Huntington National Bank are the final items of documentary evidence introduced

into the record. (Ex. 7.) The Huntington statements show direct deposit of the Plaintiff’s net pay

into this account, and for most of this period, the net payments received are lower than those

from April to June 2016 set forth above. The Plaintiff’s weekly net pay in the period covered by

these bank account statements only exceeded $475 once. The Plaintiff’s net pay received on

December 10, 2015, was $676.14. Id.

For the statement period ending July 28, 2015, the Plaintiff had a closing balance of

$6.14 in his checking account and $0.23 in his savings account. For the statement period ending

December 28, 2015, the Plaintiff had a closing balance of $223.46 in his checking account and

$5.01 in his savings account. There were no suspiciously large transfers in and out of the

account within the timeframe of the statements. This evidence suggests that the Debtor was

living paycheck to paycheck.

The Debtor used the debit card connected to this account for the bulk of his personal

spending in September, October, November, and December 2015. During this period, he

withdrew approximately $200 in cash at an ATM per month, almost always on or shortly after a

payday. The Court highlights the following transactions as likely completely discretionary:

Date Amount Vendor

9/14/15 $89.60 Toys’R’Us

9/21/15 $67.23 Toys’R’Us

10/19/15 $103.48 Toys’R’Us 1

11/23/15 $176.13 Journeys

11/27/15 $161.15 Toys’R’Us

12/7/15 $44.43 Toys’R’Us

TOTAL $642.02, or $160.51/mo.

It is not clear from the record how the Plaintiff pays the $250 per month listed on his

Schedule J in the Main Case as his cost of housing, or the $300 per month in childcare expenses

likewise listed there. None of the debits appear to be a rent or mortgage payment. The cash

withdrawals would be insufficient to cover rent and childcare expenses identified in the range of

those reported in the Debtor’s bankruptcy petition in Schedule J as being incurred in early to

mid-2012. The Debtor did not testify about this discrepancy, or change in circumstances, at trial.

The Debtor did not file amended schedules when the case was reopened. Given the significant

length of time between the Debtor’s initial case, which was filed in April 2012 and when the case

was reopened in July 2015, the Debtor’s schedules may understandably no longer be accurate.

However, the Court is perplexed by the lack of evidence showing the Debtor’s rent or mortgage

expense in 2015.

Galaxy elicited testimony from the Debtor at trial regarding his restaurant spending as

evidence of discretionary income. The Court does not find this to be particularly probative. The

two that appear most frequently are Taco Bell and Burger King, and even these only appear a

1 A second charge of $103.48 at Toys’R’Us one day later, on October 20, 2015, was reversed as a duplicate and is

excluded here.

handful of times per month. The Court does not find that further occasional trips to Arby’s or

EuroGyro or orders from Romeo’s Pizza are evidence of a Debtor exceeding a minimal standard

of living. The Debtor is a single father with a dependent. Sometimes a single parent simply does

not have time to cook every meal from scratch.

Nevertheless, based on the Debtor’s pattern of discretionary expenses, which were not

simply one-time purchases, e.g., around the winter holidays, but were regularly distributed over

the timeframe covered by the bank statements introduced into evidence, the Court finds that the

Debtor had sufficient income to make at least partial payments on an outstanding student loan.

The Debtor did not meet his burden to prove otherwise.

CONCLUSIONS OF LAW

Section 523(a)(8) of the Bankruptcy Code provides that, “unless excepting such debt

from discharge under this paragraph would impose an undue hardship on the debtor and the

debtor's dependents,” a debt is not dischargeable if it is:

(A) (i) an educational benefit overpayment or loan made, insured, or

guaranteed by a governmental unit, or made under any program funded in

whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit,

scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in

section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who

is an individual;

11 U.S.C. § 523(a)(8). The statute is written in the disjunctive; a debt is nondischargeable if it

falls within any of the four categories. 4 Collier on Bankruptcy ¶ 523.14[2] (2020) (noting that

two distinct categories are contained within section 523(a)(8)(A)(i)).

Because of the thin trial record, even considering the exhibits attached to the pleadings

from the State Court Case that are, in turn, the Defendant’s trial exhibits here, the burden of

proof does the bulk of the work on both sides in this adversary proceeding. On no issue

presented did any party bearing the burden of proof carry it. As a result, the Court ultimately

concludes that the debt is dischargeable because it cannot be shown to be an educational loan,

notwithstanding the Credit Agreement Certification. However, the Court also concludes that the

Plaintiff has not shown that excepting the loan from discharge would impose an undue hardship

on him.

I. The State Court Judgment Has No Claim Preclusive or Res Judicata Effect on the

Claim Asserted in This Action.

The Court must consider the possible res judicata issue arising from the State Court

Judgment, because the parties disagree on the extent to which the State Court Judgment

establishes the underlying facts and precludes further factfinding in this Court. The Court

accepts that the docket of the State Court Case accurately reflects the chronology of events in the

Summit County Court of Common Pleas, and that the documents admitted into evidence are

accurate copies of the documents filed with the state court. However, the entire State Court Case

took place after this Court entered the Debtor’s discharge. The State Court Case was

commenced in 2014. The Debtor received his discharge from this Court in 2012.

Galaxy’s motion for summary judgment in the State Court Case did not mention the

Debtor’s bankruptcy, nor did the State Court Judgment. Even assuming that the state court could

be said to have implicitly considered and ruled upon the dischargeability of the debt, or ruled that

the bankruptcy discharge was an affirmative defense that the Debtor failed to raise it in the state

court, the State Court’s conclusions regarding the applicability or scope of the discharge would

not bind this Court. The Bankruptcy Code’s discharge provision governing the effect of the

discharge injunction “was designed to effectuate the discharge and make it unnecessary to assert

it as an affirmative defense in a subsequent state court action.” Hamilton v. Herr (In re

Hamilton), 540 F.3d 367, 372 (6th Cir. 2008) (citing 4 Collier on Bankruptcy ¶ 524.LH [1]

(“Collier”), at 524-57 (Sept. 2005) Lawrence P. King ed., 15th ed. rev.).

“The bankruptcy court is not the sole forum that can hear complaints to determine the

dischargeability of claims” and “it is undisputed that the state courts have concurrent jurisdiction

to hear such claims.” In re Milburn, 218 B.R. 862, 864 (Bankr. W.D. Ky. 1998); see 28 U.S.C.

§ 1334(b). However, a bankruptcy discharge “voids any judgment at any time obtained, to the

extent that such judgment is a determination of the personal liability of the debtor with respect to

any debt discharged under section 727, 944, 1141, 1228, or 1328 of this title, whether or not

discharge of such debt is waived.” 11 U.S.C. § 524(a)(1). Further, a bankruptcy discharge acts

as an injunction against the commencement or continuation of an action to collect a discharged

debt as a personal liability of the debtor. 11 U.S.C. § 524(a)(2). Therefore, “all judgments

purporting to establish personal liability of a debtor on a discharged debt, including judgments

obtained after bankruptcy, are void to that extent. They are not voidable, they are void ab initio

as a matter of federal statute.” Pavelich v. McCormick, Barstow, Sheppard, Wayte & Carruth

LLP (In re Pavelich), 229 B.R. 777, 782 (B.A.P. 9th Cir. 1999). Pavelich also held:

If the state court construes the discharge correctly, its judgment will be enforced

and not be vulnerable to being upset by means outside the normal appellate

channels. If, however, the state court construes the discharge incorrectly, then its

judgment may be void to the extent it offends the discharge and subject to

collateral attack in federal court.

Id. at 783. “The concern of the drafters of § 524 was that a creditor whose debt was discharged

would bring suit in a local court after the granting of the discharge, and if the debtor failed to

plead the discharge affirmatively, the defense was deemed waived and an enforceable judgment

could then be taken against him or her.” Hamilton at 372 (quotation omitted). To avoid such

abuses:

[S]ection 524(a) declares that any judgment on a discharged debt in any forum

other than the bankruptcy court is null and void as it affects the personal liability

of the debtor....

Accordingly, if a creditor brings a collection suit after discharge, and obtains a

judgment against the debtor, the judgment is rendered null and void by section

524(a). The purpose of the provision is to make it absolutely unnecessary for the

debtor to do anything at all in the collection action.

Hamilton at 372-73 (citing Collier at 524–61).

Therefore, the State Court Judgment has no issue-preclusive effect as to any fact relevant

to dischargeability, because for issue preclusion (traditionally known as collateral estoppel) to

apply, there must be a “valid and final judgment” on the issue a party argues is precluded from

relitigation. See Hicks v. De La Cruz, 52 Ohio St.2d 71, 369 N.E.2d 776 (1977). This Court

must determine whether the Debtor’s debt to Galaxy, if any, is or would be dischargeable. Only

if it is not would the State Court Judgment then be deemed valid and enforceable.

Galaxy is not spared this conclusion by the meagre stipulation entered into by the parties

prior to trial. The parties identified the State Court Case, as well as the procedural fact that the

State Court Judgment was entered following an unopposed motion by summary judgment. They

agreed as to the principal amount of that judgment, its date, the amount of the prejudgment

interest, and the rate at which postjudgment interest would accrue. This is not a stipulation that

the debt is nondischargeable, or even a stipulation of any facts relevant to nondischargeability,

such as whether the debt arose from an educational loan or any other element present in Section

523(a)(8).

II. Galaxy Has Failed to Show By a Preponderance of Evidence That Its Claim Is

Nondischargeable Pursuant to 11 U.S.C. § 523(a)(8).

As discussed above, the Credit Agreement Certification executed by the Plaintiff-Debtor

and the Defendant’s purported predecessor in interest cannot operate as a stipulation of

nondischargeability. Therefore, the Court must consider whether the evidence presented at trial

supports a finding that Galaxy’s claim against the Debtor is nondischargeable pursuant to

11 U.S.C. § 523(a)(8) as a “student loan” debt. Because Galaxy introduced no witnesses or

declarations of its own to establish the necessary elements of nondischargeability, relying solely

on the Credit Agreement Certification and the State Court Judgment, as well as the Debtor’s

testimony, the Court concludes that a preponderance of the record evidence does not support a

finding that Defendant Galaxy is entitled to a nondischargeable judgment.

A. The Creditor Has Failed to Establish a Nondischargeable Claim Pursuant to

11 U.S.C. § 523(a)(8)(A)(i).

11 U.S.C. § 523(a)(8)(A)(i) excludes from discharge two separate types of claims. The

statute excludes from discharge any debt for “an educational benefit overpayment or loan made,

insured, or guaranteed by a governmental unit,” or any debt “made under any program funded in

whole or in part by a governmental unit or nonprofit institution.” 11 U.S.C. § 523(a)(8)(A)(i).

To be within either category under this clause, a debt must be either “an educational benefit

overpayment or loan.” Such educational benefit overpayment or loan must then be shown to be

either “made, insured, or guaranteed by a governmental unit,” or “made under any program

funded in whole or in part by a governmental unit or nonprofit institution.”

Galaxy does not contend that its claim was made, insured, or guarantied by a

governmental unit. Instead it argues that the Debtor’s debt to Galaxy falls into the latter

category, asserting that the loan was made pursuant to a program funded in whole or in part by a

nonprofit institution, The Education Resources Institute (TERI). Galaxy’s argument appears to

mimic those made in a handful of other cases that are the subject of reported judicial opinions

Galaxy cites in which a nonprofit institution guarantied a private bank loan made for educational

purposes.

An intuitive interpretation of the statute suggests that neither Galaxy’s claim in this case

nor the claims of the creditors in the opinions cited by Galaxy would be nondischargeable merely

because a nonprofit institution had guarantied the loan. The only reference to guaranties in

Section 523(a)(8)(A)(i) is the first exception to discharge, which includes loans “guaranteed by a

governmental unit.” There is no parallel language in the second exception for loans made under

any program funded by a nonprofit institution. Since guaranties are expressly included in the

first definition, statutory construction principles hold that their exclusion from the second

definition was intentional. See BFP v. Resolution Trust Corp., 511 U.S. 531, 537, 114 S. Ct.

1757, 128 L.Ed.2d 556 (1994) (“It is generally presumed that Congress acts intentionally and

purposely when it includes particular language in one section of a statute but omits it in

another.”). This would suggest that a nonprofit would have to do more, or something different,

than serve as a guarantor in order to be deemed to have funded a loan program in whole or in

part.

Unfortunately for the Debtor, that intuitive interpretation of Section 523(a)(8)(A)(i) has

been rejected by numerous judicial opinions holding that loan guaranties by a nonprofit is

sufficient to cause a student loan program to be a “program funded … by a nonprofit institution.”

Andrews University v. Merchant (In re Merchant), 958 F.2d 738, 740 (6th Cir. 1992) (nonprofit

university’s guarantee of a loan program constituted nonprofit institution funding the loan

program); The Education Resources Institute, Inc. (“TERI”) v. Taratuska (In re Taratuska),

2008 WL 4826279 (D. Mass. August 25, 2008) (nonprofit Defendant TERI paid reimbursed

lender upon default on loan default, demonstrating that a nonprofit funded the program); O’Brien

v. First Marblehead Education Resources, Inc., fka The Education Resources Institute, Inc.

(“TERI”) (In re O’Brien), 419 F.3d 104 (2d Cir. 2005).

The statutory interpretation central to these cases, as well as to Galaxy’s argument in this

case, is summarized by the Second Circuit in O’Brien.

Brien's core argument is that TERI merely guaranteed, rather than funded, O'Brien's

loan, and that as such O'Brien's debt on the loan is dischargeable. O'Brien highlights

the fact that the first clause of § 523(a)(8)—a clause that both parties agree is

inapplicable to the current case—covers loans “made, insured or guaranteed by a

governmental unit.” O'Brien contrasts that language with the terms of the second

clause of the section, pointing out that where the first clause uses the term

“guaranteed,” the second uses only the term “funded.” On this basis, O'Brien

concludes “that Congress excluded the term ‘guaranteed’ from the second clause

of § 523(a)(8) for a reason. [W]here the legislature has carefully employed a term

in one place and excluded it in another, it should not be implied where excluded.”

Appellant Br. at 15 (internal quotations omitted). O'Brien's argument has an initial

appeal to it but cannot carry the day.

Section 523(a)(8) does not require that TERI fund O'Brien's loan in order for that

section to be applicable. Rather, § 523(a)(8) requires only that O'Brien's loan was

“made under any program funded in whole or in part by” TERI. While it may be

true that TERI merely guaranteed, without funding, O'Brien's particular loan, it is

an entirely different question whether TERI funded the loan program under which

O'Brien's loan was made. The district court found that TERI had indeed funded the

Law Access Loan Program, In re O'Brien, 318 B.R. at 263; we agree.

In re O'Brien, 419 F.3d 104, 106 (2d Cir. 2005)

As previously discussed, it is Galaxy’s burden to establish that its claim is

nondischargeable. Therefore, Galaxy bears the burden of proving these elements by a

preponderance of the evidence. As previously observed, Galaxy offered little evidence about the

nature and origin of its claim other than the existence of its State Court Judgment and documents

introduced as evidence in the State Court Case, including the Credit Agreement and bills of

lading purporting to establish Galaxy’s rights as a successor to the original lender.

Galaxy has two primary obstacles at this stage of the litigation with the trial record

closed. First, it must show that the trial evidence established the existence of an educational loan

within the meaning of Section 523(a)(8). The only evidence introduced at trial concerning the

transaction at issue was the testimony of the Debtor, Mr. Palmer. Palmer testified that although

he had intended to attend the University of Akron in the 2008 winter term, he did not actually do

so. He testified, without contradiction or impeachment, that he withdrew from the university and

never attended classes in 2008. According to his testimony, he never received any proceeds of

the loan personally, nor did he receive any statement of account from the University of Akron for

the semester in question. While he had arranged for a loan to cover his anticipated educational

expenses, he did not incur any such expenses for the semester in question, the one identified

specifically in the Credit Agreement, nor did he receive any loan proceeds directly, let alone

misuse them for unpermitted purposes. This testimony is probative evidence that no loan was

consummated, even though one had been intended, as evidenced by the documents introduced at

trial.

Possible factual counters to this story could be imagined, but none were ever discussed at

trial, let alone established persuasively with evidence. Perhaps Debtor Palmer withdrew from

the University of Akron too late to avoid the accrual of a tuition obligation. However, Galaxy

did not show that with testimony or records from the University of Akron or from its predecessor

in interest, Union Federal Savings Bank. Similarly, Galaxy offered no evidence suggesting that

Palmer received the loan proceeds directly for personal use in violation of his covenant to use

them for educational purposes. Moreover, Galaxy did not explain in any way why its

predecessor in interest did not or could not have obtained a refund from the University of Akron

when Palmer chose not to attend, even though the Credit Agreement specifically granted the

creditor that power.2 Galaxy also did not offer any evidence to show that the loan proceeds were

2 Credit Agreement paragraph 8 (Exhibit B to Defendant’s Trial Exhibit 2) at 10. The relevant paragraph of the

Credit Agreement provides as follows:

“I hereby authorize you to obtain from the School all amounts which may be owed to me by the

School, including any refund due to overpayment, early termination of enrollment, or otherwise.”

ever advanced. Without such evidence, and in light of Palmer’s testimony, it is possible that

Galaxy, which acquired what purported to be an aging, nonperforming loan and quite possibly a

pool of such loans, may have acquired paper that did not evidence a loan, but merely a mirage of

one.

The preponderance of the evidence establishes that there was in fact no educational

purpose to whatever financial transaction, if any, might have been consummated between Palmer

and Union Federal Savings Bank. Moreover, the evidence suggests -- perhaps more weakly, but

without contradiction -- that no loan and therefore no debt exists at all. Therefore, the Court

finds, based on the trial record, that Galaxy’s claim is not supported by or on account of an

educational loan. This factual determination is fatal to Galaxy’s claim for a nondischargeable

judgment under Section 523(a)(8(A)(i).

Second, even if Galaxy had established the existence of an educational loan, it would

have to show that it was made pursuant to a program funded in whole or in part by a nonprofit

institution. Galaxy offers little evidence of such an arrangement. The only evidence offered are

the boilerplate terms in the Credit Agreement between Palmer and Galaxy’s predecessor in

interest, Union Federal Savings Bank, in which the parties purportedly stipulate to certain facts

and legal conclusions.

“I understand and agree that this loan is an education loan and certify that it will

be used only for costs of attendance at the School. I acknowledge that the

requested loan is subject to the limitations on dischargeability in bankruptcy

contained in Section 523(a)(8) of the United States Bankruptcy Code because

either or both of the following apply: (a) this loan was made pursuant to a

program funded in whole or in part by The Education Resources Institute, Inc.

(“TERI”), a non-profit institution, or (b) this is a qualified education loan as

defined by the Internal Revenue Code. This means that if, in the event of a

bankruptcy, my other debts are discharged, I will probably still have to pay this

loan in full.”

Credit Agreement paragraph 11, Exhibit B to Defendant’s Trial Exhibit 2, at 10.

The Credit Agreement Certification purported to establish that the loan made pursuant to

the Credit Agreement “is subject to the limitation on dischargeability in bankruptcy contained in

Section 523(a)(8),” identifying two of the sub-categories within that statute as applicable.

However, that prepetition stipulation is not binding on this Court. Prepetition, prospective

waivers of discharge or dischargeability of particular debts are unenforceable in bankruptcy

court. See Lichtenstein v. Barbanel, 161 Fed. Appx. 461, 467 (6th Cir. 2005) (collecting cases);

Klingman v. Levinson, 831 F.2d 1292, 1296 n.3 (7th Cir. 1987) (“For public policy reasons, a

debtor may not contract away the right to a discharge in bankruptcy”); Simmons Capital Advisors

v. Bachinski, 393 B.R. 522, 533 (Bankr. S.D. Ohio 2008). Therefore, the stipulation contained in

the Credit Agreement’s boilerplate language is legally insufficient to determine

nondischargeability in a later-filed bankruptcy case.

Moreover, this boilerplate language does not establish that a loan was funded, or that

TERI funded in any way and to any extent a loan program pursuant to which the loan at issue

was (to be) made. No evidence regarding TERI’s status as a nonprofit institution or its role in

this loan or loan program was offered. No evidence of the loan program was introduced.

Galaxy’s argument seems to be, by analogy to the legal opinions he cites in support, that

TERI guarantied the loan to Palmer. Such were the facts in both Taratuska and O’Brien. Those

opinions, both appellate in nature (one by a U.S. District Court, one by a U.S. Court of Appeals)

referenced specific facts shown at trial before the bankruptcy court, including TERI’s guaranty

of the educational loan, its satisfaction of the guaranty, and its subrogated right to the student

borrower’s promissory note. However, at trial in this adversary proceeding, Galaxy produced no

written guaranty by TERI, even though TERI is referred to in the boilerplate terms and

provisions of the Credit Agreement. Galaxy introduced no evidence that TERI repaid the loan to

Union Federal Savings Bank or any of its assignees, such as Galaxy. Galaxy offered no

explanation as to why TERI had not met its obligation under the alleged or suggested guaranty.

The Court is struck by the fact that in several of the cases that Galaxy cites for authority,

including Taratuska and O’Brien, TERI was the creditor in question and a party to the

nondischargeability lawsuit, either as plaintiff or defendant. Those opinions held that the fact

that a private bank wrote the loan did not bar a nondischargeability finding under Section

523(a)(8)(a)(i) because the program was funded by TERI as evidenced by TERI having repaid

the loan pursuant to its guaranty and subrogating itself as creditor under the loan. The absence of

TERI in this lawsuit, and the implication that TERI did not repay the loan upon the alleged

default as would be required if it had guarantied the loan, creates doubts about (i) whether TERI

funded the loan program, and (ii) whether an educational loan ever existed.

If loan proceeds were, in fact, advanced and the loan was guarantied by TERI, the Court

has been offered no explanation of why TERI was never called upon to fund the guaranty despite

the facts that Palmer never made a payment on the loan and more than six years passed between

the date of the Credit Agreement and the commencement of the State Court Case. This lack of

action on the guaranty would make sense in a scenario where, notwithstanding the signed Credit

Agreement, the loan proceeds were never advanced. Assuming the fact pattern Galaxy alleges

(but never supports directly with evidence)—that the loan proceeds were advanced and

guarantied by TERI—the lack of action on the guaranty would have no rational explanation. If

this proceeding and record were before the Court on summary judgment, the Court would find

this a genuine issue of disputed material fact. This adversary proceeding, however, went all the

way to trial and the Defendant creditor is left with a burden of proof it did not meet. The

circumstances of this case would be very different if TERI were the creditor party, having

satisfied the guaranty and stepped into the shoes of the lender.

Galaxy strenuously argues the law, which appears to be on its side, but neglects the

evidence sufficient to establish the factual predicate necessary to benefit from its legal argument.

The facts recited in legal opinions from other cases does not constitute evidence sufficient to

make similar findings in this case.

B. The Creditor Has Failed to Show That Its Claim Is for the Repayment of Funds

Received as an Educational Benefit, Scholarship, or Stipend Pursuant to

11 U.S.C. § 523(a)(8)(A)(ii).

The third category of debts made nondischargeable by 11 U.S.C. § 523(a)(8) is defined

by section 523(a)(8)(A)(ii), “an obligation to repay funds received as an educational benefit,

scholarship, or stipend.”

Galaxy argues that its claim falls within this category, although it does not elaborate how

so. It is readily apparent that the claim is not one for the repayment of a “scholarship” or a

“stipend.” Therefore, the Court presumes that Galaxy argues that its claim based on a purported

loan is for the repayment of an “educational benefit.” However, the repayment of funds received

as an educational benefit is included in a list that includes scholarships and stipends, but does not

include loans, even though the immediately preceding Section 523(a)(8)(A)(i) does expressly

cover loans. These items appear to concern repayment obligations, however arising, that are

owed to an educational institution that acted, to borrow a commercial lending phrase, as a seller-

financer. Where a university or school provides a student a grant and the grant must be repaid,

perhaps because the student violated a condition of the grant, that repayment obligation is not

dischargeable pursuant to Section 523(a)(8)(A)(ii). Section 523(a)(8)(A)(ii) does not apply to

third-party loans or financing.

The Court reaches this conclusion by relying on an established rule of statutory and

contract construction.

Noscitur a sociis represents the idea that “a word is known by the company it

keeps.” Gustafson v. Alloyd Co., 513 U.S. 561, 575, 115 S.Ct. 1061, 131 L.Ed.2d

1 (1995). Applying this principle, “educational benefit” in § 523(a)(8)(A)(ii)

should be given a meaning similar to “scholarships” and “stipends” because it is

“grouped in a list” and thus “should be given related meaning.” Id.

Dewine v. Dudley (In re Dudley), 614 B.R. 277 (S.D. Ohio 2020). “The better view is that the

term should be read narrowly to refer to a debt arising from an educational relationship other

than a loan.” 4 Collier on Bankruptcy ¶ 523.14[2] (2020) (citing Institute of Imaginal Studies v.

Christoff (In re Christoff), 527 B.R. 624 (B.A.P. 9th Cir. 2015) (“While § 523(a)(8)(A)(i) and

(B) indeed make “loans” nondischargeable in bankruptcy, absent undue hardship,

§ 523(a)(8)(A)(ii) applies to a different type of debt …”); Dufrane v. Navient Solutions, Inc. (In

re Dufrane), 566 B.R. 28 (Bankr. C.D. Cal. 2017); In re Campbell, 547 B.R. 49 (Bankr.

E.D.N.Y. 2016); In re Decena, 549 B.R. 11 (Bankr. E.D.N.Y.), vacated on other grounds, 562

B.R. 202 (E.D.N,.Y. 2016)) (emphasis in original). See also Wiley v. Wells Fargo Bank, 579

B.R. 1, 8-9 (Bankr. D. Me. 2017).

Galaxy cites two cases in this portion of its brief in support of its position: Roy v. Sallie

Mae (In re Roy), 2010 WL 1523996 (Bankr. D.N.J. Apr. 15, 2010) and Skipworth v. Citibank

Student Loan Corp. (In re Skipworth), 2010 WL 1417964 (Bankr. N.D. Ala. Apr. 1, 2010). In

Roy, the bankruptcy court held that the debtor’s obligation to repay the loan proceeds received to

enable her daughter to attend a tutoring program at a for-profit educational institution were

nondischargeable under Section 523(a)(8)(ii) because “the loan at issue here … provided an

educational benefit to your child in the form of tutoring.” Id. at *1. In Skipworth, the

bankruptcy court held that “the affidavits submitted by the debtor in support of his motion for

default judgment fail to establish that the loan obligation … is not an obligation to repay funds

received as an ‘educational benefit.’” Id. at *2.

The Court does not find the reasoning of Skipworth persuasive, while Roy is clearly

distinguishable.

In Roy, the debtor apparently owed Sylvan Learning Center for the cost of a tutoring

program. The opinion barely describes the facts of the case and the nature of the debt. Perhaps

it was merely an account payable owed to Sylvan, in which case the Court is skeptical that

Section 523(a)(8)(A)(ii) would apply. A debt on an open account would not appear to be similar

to the repayment of a scholarship or stipend, or other “educational benefit,” resulting from a

reversal of a grant. However, Sylvan clearly appears to be the provider of educational services,

not a third-party lender like Galaxy or its predecessors in interest, and therefore Section

523(a)(8)(A)(ii) could potentially be applicable, unlike in this case.

In Skipworth, in addition to ignoring the need to interpret “educational benefit” consistent

with “scholarship” and “stipend,” the bankruptcy court reversed the burden of proof by finding

that the debtor had failed to show, in support of his default motion, that the debt in question was

not on account of the obligation to repay an “educational benefit.” The debtor bears the burden

of proving undue hardship, but is not obligated to go down the list of all four categories of

nondischargeable debts identified in Section 523(a)(8) and prove that the loan in question falls

outside each of them so as not to qualify for nondischargeability in the first instance. When the

dischargeability of the debt has been put in issue, the creditor bears the burden of proving that

the debt in question falls within at least one of the four categories in Section 523(a)(8). See Roth,

490 B.R. at 916. Moreover, Skipworth concerns a third-party loan from Citibank Student Loan

Corporation. Skipworth offered no persuasive reasoning as to why Section 523(a)(8)(A)(ii)

applied to this loan other than the loan proceeds were or might have been used for educational

expenses. Citibank did not provide an educational benefit to the debtor student and therefore, in

this Court’s view, Section 523(a)(8)(A)(ii) would not apply.

Therefore, the Court concludes that any debt of the Debtor to Galaxy is not “an obligation

to repay funds received as an educational benefit, scholarship, or stipend” within the meaning of

11 U.S.C. § 523(a)(8)(A)(ii).

C. The Creditor Has Failed To Establish That Its Claim Arises From a “Qualified

Education Loan” So As To Be Nondischargeable Pursuant to 11 U.S.C.

§ 523(a)(8)(B).

The fourth and final category of debts made nondischargeable, absent undue hardship, by

Section 523(a)(8) is “any other educational loan that is a qualified education loan, as defined in

section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an

individual.” 11 U.S.C. § 523(a)(8)(B).

With this provision, which was added to the Bankruptcy Code by the Bankruptcy Abuse

Prevention and Consumer Protection Act of 2005 (BAPCPA), Pub. L. 109-8, 119 Stat. 23,

enacted April 20, 2005, and effective October 17, 2005, Congress for the first time made certain

privately-originated educational loans nondischargeable in addition to educational loans backed

by the governmental units or nonprofit institutions. Provided the loan constitutes a “qualified

education loan” as defined by the Internal Revenue Code, 26 U.S.C. § 1, et. seq., a private bank’s

student loan claim became nondischargeable in bankruptcy even though it is not guarantied or

insured by a governmental unit or made under a program funded by a governmental unit or

nonprofit institution.

“Qualified education loan” is defined by Section 221(d)(1) of the Internal Revenue Code,

which provides, as follows:

(1) Qualified education loan.—The term “qualified education loan” means any

indebtedness incurred by the taxpayer solely to pay qualified higher education

expenses—

(A) which are incurred on behalf of the taxpayer, the taxpayer's

spouse, or any dependent of the taxpayer as of the time the

indebtedness was incurred,

(B) which are paid or incurred within a reasonable period of time

before or after the indebtedness is incurred, and

(C) which are attributable to education furnished during a period

during which the recipient was an eligible student.

I.R.C. § 221(d)(1).

Galaxy cites Decena in support of its argument that its claim evidenced by the Credit

Agreement falls within this category:

In short, section 523(a)(8)(B) excepts from discharge loans for attending an

“eligible educational institution,” recognition of which is dictated by the Federal

School Codes List for the years 2004–05, which identify “[a]ll postsecondary

schools that are currently eligible for Title IV aid.”

Decena, 549 B.R. at 21.

The court’s opinion in Decena focused on whether the institution in question was an

“eligible educational institution” within the meaning of I.R.C. § 25A(f)(2), which is a necessary

component of “qualified higher educational expenses,” as defined by I.R.C. § 221(d)(2) and

required by I.R.C. § 221(d)(1). Decena does not address all the elements of a qualified education

loan pursuant to I.R.C. § 221(d)(1).

In this case, no one disputes that the University of Akron is an “eligible educational

institution” within the meaning of I.R.C. § 25A(f)(2). The issue in this case is whether the

Plaintiff was an “eligible student,” as required by I.R.C. § 221(d)(1)(C). “The term ‘eligible

student’ has the meaning given such term by section 25A(b)(3).” That provision, in turn, defines

an “eligible student” as follows:

with respect to any academic period, a student who—

(A) meets the requirements of section 484(a)(1) of the Higher

Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in effect on the

date of the enactment of this section, and

(B) is carrying at least ½ the normal full-time work load for the

course of study the student is pursuing.

I.R.C. § 25A(b)(3).

The “academic period” identified in the Credit Agreement is “01/2008 to 05/2008.” The

Debtor either never enrolled at the University of Akron during that academic period or

successfully withdrew before incurring higher education expenses for that semester, and

therefore fails to meet the definition of an “eligible student” with respect to the Credit

Agreement. Therefore, Galaxy’s claim evidenced by the Credit Agreement did not arise from a

“qualified education loan,” as defined by the Internal Revenue Code. Therefore, that claim is not

nondischargeable pursuant to 11 U.S.C. § 523(a)(8)(B).

III. The Debtor Failed to Prove Undue Hardship by a Preponderance of the Evidence.

The Court’s conclusions of law in Part II are dispositive of this adversary proceeding.

The Court has held that the Defendant failed to carry its burden of proving, by a preponderance

of the evidence, that its claim falls within any of the four categories of nondischargeable student

loan debts defined in 11 U.S.C. § 523(a)(8). However, the issue of whether repaying the debt

would constitute an undue hardship on the Debtor was also fully tried, and the Court finds it

prudent to set forth its findings on this issue as well. The Debtor has failed to show that

repayment of the alleged debt would be an undue hardship.

The term “undue hardship” is not defined in Section 523(a)(8) or elsewhere in the

Bankruptcy Code. In Oyler v. Educational Credit Management Corporation (In re Oyler), 397

F.3d 382 (6th Cir. 2005), the Sixth Circuit adopted the three-part “Brunner test,” eponymous

from Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987)

(per curiam), the seminal decision issued long before BAPCPA and nondischargeable private

student loans, and issued at a time when public student loans were nondischargeable only for a

period of five years. The test requires the debtor to establish (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. Oyler, 397 F.3d at

385 (quoting Brunner, 831 F.2d at 396).

In addition, Oyler adopted restrictive language from other circuits not present in the

Second Circuit’s brief per curiam decision in Brunner. Under Oyler, establishing the second

prong of the Brunner test (i.e., circumstances likely to persist) requires that the additional

circumstances “be indicative of a ‘certainty of hopelessness, not merely a present inability to

fulfill financial commitment.’” Oyler, 397 F.3d at 386 (quoting In re Roberson, 999 F.2d 1132,

1136 (7th Cir. 1993)); accord Brightful v. Pennsylvania Higher Education Assistance Agency (In

re Brightful), 267 F.3d 324, 328 (3d Cir. 2001); Brunner v. New York State Higher Education

Services Corp. (In re Brunner), 46 B.R. 752, 755 (S.D.N.Y. 1985). “Such factors may include

illness, disability, a lack of useable job skills, or the existence of a large number of dependents.”

Oyler, 397 F.3d at 386.

The applicability of Brunner, as well as the stringency of the requirements for meeting its

various elements where it remains applicable, has come into question from appellate courts other

circuits. See, e.g., Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th

Cir. 2013) (“The statutory language is that a discharge is possible when payment would cause an

‘undue hardship.’ It is important not to allow judicial glosses, such as the language in Roberson

and Brunner, to supersede the statute itself.”); Long v. Educational Credit Management

Corporation (In re Long), 322 F.3d 549 (8th Cir. 2003) (“… requiring our bankruptcy courts to

adhere to the strict parameters of a particular test would diminish the inherent discretion

contained in § 523(a)(8)(B).”); Roth v. Educational Credit Management Corporation (In re

Roth), 490 B.R. 908 (B.A.P. 9th Cir. 2013) (after bankruptcy court held that debtor met the first

two Brunner3 prongs but failed to meet the third prong because she failed to enter into an

income-based repayment program, even though the payment would have been zero and likely

would have been for 25 years, bankruptcy appellate panel reversed and held that “when

absolutely no payment is forecast, the law should not impose negative consequences for failing

to sign up for the program … Congress could not have intended such a lengthy, empty

commitment as a requirement for a determination of undue hardship.”); Bronsdon v. Educational

Credit Management Corporation (In re Bronsdon), 435 B.R. 791 (B.A.P. 8th Cir. 2010)

(agreeing with Hicks v. Educational Credit Management Corporation, 331 B.R. 18 (Bankr. D.

Mass. 2005) that requiring evidence of “unique” or “extraordinary” circumstances amounting to

a “certainty of hopelessness” is “overkill,” and that “the ‘good faith’ requirement of Brunner is

‘without textual foundation.’”). In Roth, one judge on the panel wrote separately to make an

even more pointed critique of Brunner, beyond what was necessary to the bankruptcy appellate

panel’s holding in that case:

Congress has never defined the circumstances constituting the sort of undue

hardship justifying the discharge of an educational debt under § 523(a)(8),

apparently preferring that bankruptcy courts craft a working definition. While it

3 The Ninth Circuit adopted the Brunner test in United Student Aid Funds v. Pena (In re Pena), 155 F.3d 1108 (9th

Cir. 1998).

might have been appropriate and helpful when adopted, respectfully, the Brunner

test for determining undue hardship is truly a relic of times long gone.

Brunner was decided by the Second Circuit in 1987 to implement the original

student loan hardship discharge exception included in a still-new Bankruptcy

Code. … That early version of § 523(a)(8) provided that a debtor's student loan

debt could not be discharged unless either it first became due five years before the

date of the bankruptcy filing or excepting such debt from discharge would impose

an undue hardship on the debtor and the debtor's dependents. Importantly, in

those days, without regard to the debtor's current finances, if a student loan had

not been collected within the five years after it became due, Congress directed

that it would be discharged in the student's bankruptcy case.

Roth, 490 B.R. at 920–21 (Pappas, J., concurring).

At the trial level, a bankruptcy court in the Second Circuit recently tried to chart a middle

ground between calling Brunner itself a relic of times long gone and justifying the harshness of

its recent application: “The harsh results that often are associated with Brunner are actually the

result of cases interpreting Brunner. Over the past 32 years, many cases have pinned

on Brunner punitive standards that are not contained therein.” Rosenberg v. N.Y. State Higher

Education Services Corp. (In re Rosenberg), 610 B.R. 454 (Bankr. S.D.N.Y. 2020), leave to

appeal granted sub nom. Rosenberg v. Educational Credit Management Corporation, No. 20-

CV-688 (CS), 2020 WL 1048599 (S.D.N.Y. Mar. 4, 2020). Rosenberg noted that the “infamous

and oft-repeated term ‘certainty of hopelessness’” was not in the Second Circuit opinion in

Brunner and seems to have first appeared in Briscoe v. Bank of N.Y. (In re Briscoe), 16 B.R. 128,

131 (Bankr. S.D.N.Y. 1981), six years before the Second Circuit issued Brunner. While

Rosenberg framed its analysis as one sweeping away subsequent judicial glosses, 610 B.R. at

459 (“this Court will apply the Brunner test as it was originally intended”), it also confronted and

bulldozed the problematic application of the second prong of Brunner, requiring consideration of

circumstances “likely to persist for a significant portion of the repayment period of the student

loans,” when the loan has been accelerated and the repayment period has thereby been collapsed

to zero. Rosenberg held that when a debt has been accelerated, “the repayment period has ended

… the loan is due and payable in the full amount. The second prong of the Brunner test is,

therefore, satisfied.” Id. at 461.

Notwithstanding the criticism of Brunner by both trial and appellate courts, both where

Brunner is followed and where it is not, Oyler remains the controlling authority in this circuit,

which adopts the Brunner framework and also approvingly cites the “certainty of hopelessness”

elaboration from the Seventh Circuit in Roberson that even that circuit itself more recently dryly

noted “sounds more restrictive than the statutory ‘undue hardship.’” Krieger, 713 F.3d at 885.

A. Minimal Standard of Living for Self and Dependents.

The trial evidence shows that the Debtor is able to maintain a minimal standard of living

for himself and his one dependent. He does not suffer from any debilitating long-term illness or

disability and was gainfully employed at the time of trial. While it remains unclear how the

Debtor procured his rent and childcare, and to what extent that lack of clarity is connected to his

cash withdrawals as shown on his bank statements in the facts found above, it is clear that is able

to meet his and his daughter’s basic material needs and have a small amount of discretionary

income for somewhat regular purchases at Toys’R’Us and Journeys that are not limited to the

December holidays. Moreover, it is the Debtor’s burden to prove that he is unable to maintain a

minimal standard of living while repaying the debt in question and he failed to meet that burden.

B. Likelihood of the Circumstances Persisting for a Significant Portion of the

Repayment Period.

Because the preponderance of the evidence shows that the Debtor fails the first prong of

the Brunner/Oyler test, the second prong cannot be properly applied, because the second prong

calls on the Court to consider the likely persistence of the adverse circumstances found in the

first prong. Since the Court has not found those to exist, it cannot consider their likely

persistence.

Because the Debtor’s failure to satisfy the first prong terminates the Court’s analysis of

the second prong at the outset, the Court does not need to wade into the issue raised by

Rosenberg of whether the repayment period in this case should be considered to be zero—a

potentially perilous analysis considering that Galaxy clearly intended to accelerate the balance

due under the Credit Agreement, but any act on its part to do so may have been void by

application of the discharge injunction. No evidence was introduced to establish that any holder

of the Credit Agreement and its underlying claim prior to the Debtor’s April 30, 2012 bankruptcy

filing accelerated the debt. Section I of the Credit Agreement requires a creditor to give notice of

such acceleration, and the Debtor testified at trial that he heard nothing from any creditor holding

the Credit Agreement between the time he signed it in December 2007 and his bankruptcy filing.

If Galaxy itself attempted to accelerate the balance prior to filing the State Court Case, no

evidence of that is in the record. The record contains no demand letter or notice of acceleration

from Galaxy to the Debtor, and the Debtor did not testify to any such correspondence.

C. Good Faith Efforts to Repay.

Applying this factor is also problematic given the facts of this case. The Debtor did not

make any efforts to repay the debt, good faith or otherwise, because he had no reason to believe

the debt existed after he withdrew from the University of Akron and neither the University nor

Union Federal Savings Bank contacted him about any balance owed.

The Court concludes that because the Debtor was completely unaware of Galaxy’s

purported claim, it cannot find that the Debtor failed to make a good faith effort to repay it. In a

different set of circumstances, involving a debtor who was able to establish the first and second

elements of the Brunner test, such a rule would provide an unfair advantage to a creditor who

failed to come forward to make themselves known and attempt to collect prior to a debtor’s

bankruptcy filing. However, because the Brunner test applies in this Circuit pursuant to the

precedent announced in Oyler, the Debtor’s failure to establish the first prong of the test -- that

he cannot maintain a minimum standard of living for himself and his dependents if forced to

make payments on Galaxy’s claim -- is fatal to his claim of undue hardship under 11 U.S.C. §

523(a)(8).

CONCLUSION

For the reasons stated in this Memorandum, Creditor Galaxy International Purchasing,

LLC, failed to meet its burden to show that its claim arose from an educational loan or other debt

that qualifies for nondischargeability under Section 523(a)(8). The Plaintiff Debtor is, therefore,

entitled to a judgment that Galaxy’s claim has been discharged.

However, the Court also concludes, as a secondary matter, that if Galaxy’s claim were

nondischargeable under Section 523(a)(8), the Plaintiff Debtor has failed to establish that he

would suffer undue hardship if forced to make payments on Galaxy’s debt.

The Court will enter a separate judgment order consistent with this Memorandum

Decision finding that Galaxy’s claim has been discharged and that the State Court Judgment,

which was issued after the Bankruptcy Court’s discharge order was entered, is void. The Court’s

judgment will not be deemed entered until the separate judgment order has been docketed by the

Clerk.

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