DiFrancesco v. U.S. Department of Education

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

IN RE:

GUY M. DIFRANCESCO Chapter: 7

Case Number: 5:19-bk-00201-RNO

Debtor(s)

GUY M. DIFRANCESCO Adversary Number: 5:19-ap-00008-RNO

Plaintiff(s)

v. Document No.: 1

U.S. DEPARTMENT OF EDUCATION Nature of

and EDUCATIONAL CREDIT Proceeding: Adversary Complaint

MANAGEMENT CORPORATION

Defendant(s)

OPINION1

Debtor filed an Adversary Complaint seeking to discharge his student loans alleging they

posed an undue hardship. The United States Department of Education and the Educational Credit

Management Corporation timely filed answers. For the reasons stated below, I will enter

judgment for Defendants.

I. JURISDICTION

This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This

is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

II. FACTS AND PROCEDURAL HISTORY

Guy M. DiFrancesco (“Debtor”) is a healthy, forty-year-old male currently living with his

seventy-six-year-old mother, Barbara DiFranceso, at her home in Larksville, Pennsylvania.

1 Drafted with the assistance of Timothy R. Powell, Esq., Law Clerk.

Debtor began pursuing a bachelor’s degree in political science in 1998 at Luzerne County

Community College, which degree he eventually obtained from Bloomsburg University of

Pennsylvania in 2005. Subsequently, Debtor enrolled at East Stroudsburg University where he

obtained his master’s degree in American politics in 2008. Later that same year, Debtor enrolled

at both Marywood University, where he pursued a PhD in human development, and King’s

College, where he pursued a teaching degree. However, Debtor dropped out of both programs

prior to completion when he chose to provide 24/7 care to his mother who suffered a debilitating

stroke in 2010. From 1998 to 2010, Debtor received multiple student loans (“Loans”) from the

United States Department of Education and the Pennsylvania Higher Education Assistance

Agency (“PHEAA”).2 As of the date of this Opinion, Debtor has failed to make a single payment

on any of his Loans3 which now collectively total more than $200,000.4

On January 17, 2019, Debtor, acting pro se, filed his voluntary Chapter 7 Bankruptcy

Petition. He obtained a general Chapter 7 discharge on May 6, 2019. Discharge Order, 5:19-bk-

00201-RNO, ECF No. 33. The discharge order provides some examples of debts that are not

discharged. One example is, “debts for most student loans.”

On January 24, 2019, Debtor commenced this Adversary Proceeding by filing a

Complaint (“Complaint”) against the United States Department of Education seeking a discharge

of his Loans. Following a nunc pro tunc motion to extend time to file an answer, which I

granted, the United States Department of Education filed its answer on March 8, 2019.

2 Some of Debtor’s student loans were originally provided by Wachovia Education Finance. United States

Department of Education Stipulation of Facts at ⁋ 12, ECF No. 27. However, these loans were guaranteed by

PHEAA and also reinsured by the United States Department of Education. Id. at ⁋ 13. After Debtor defaulted on

these loans, the right and title to the loans ultimately landed in the hands of the United States Department of

Education. Id. at ⁋⁋ 14-17.

3 Trial Tr. at 35, ECF No. 35.

4 Compl. at 3, ECF No. 1; Trial Tr. at 16, ECF No. 35; United States Department of Education Trial Ex. 11

at 7.

Additionally, PHEAA timely filed its answer on February 25, 2019. Nonetheless, PHEAA does

not appear on the case caption because, on March 21, 2019, the Educational Credit Management

Corporation (“ECMC”) filed a Motion to Intervene (“Motion”) on the grounds that PHEAA had

assigned its right, title, and interest in Debtor’s Loans to ECMC.5 I granted the Motion on March

22, 2019. Subsequently, ECMC filed its answer on April 5, 2019.

A Trial was ultimately held on October 4, 2019 (“Trial”). Both Debtor and ECMC timely

filed post-trial briefs.6 The Complaint is now ripe for decision.

III. DISCUSSION

Debtor’s Complaint requests I discharge his student loans arguing that repaying them

places an undue hardship on him.7 Both ECMC and the United States Department of Education

argue that, at the very least, Debtor cannot satisfy the third prong of the Third Circuit’s undue

hardship test which governs whether a Debtor can discharge his student loans pursuant to 11

U.S.C. § 523(a)(8).8

Section 523(a)(8) provides:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or

1328(b) of this title does not discharge an individual debtor from

any debt--

* * *

(8) unless excepting such debt from discharge under

this paragraph would impose an undue hardship on

the debtor and the debtor's dependents, for--

(A)(i) an educational benefit

overpayment or loan made, insured,

or guaranteed by a governmental

5 PHEAA assigned Debtor’s Loans to ECMC on or about March 2, 2019. Additionally, PHEAA was not

present at the Trial.

6 The United States Department of Education filed a pre-trial brief. See United States Department of

Education Pre-Trial Br., ECF No. 30.

7 Debtor is not contesting the validity of the Loans, the amounts claimed due and owing, or that ECMC is

PHEAA’s assignee. ECMC Post-Trial Br. at 3, ECF No. 34.

8 Unless otherwise noted, all future statutory references are to the Bankruptcy Code, 11 U.S.C.§ 101, et seq.,

as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119

Stat. 37 (“Bankruptcy Code”).

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;

* * *

“Section 523(a)(8) protects four categories of educational loans from discharge: (1) loans

made, insured, or guaranteed by a governmental unit; (2) loans made under any program partially

or fully funded by a government unit or nonprofit institution; (3) loans received as an educational

benefit, scholarship, or stipend; and (4) any ‘qualified educational loan’ as that term is defined in

the Internal Revenue Code.” In re Rumer, 469 B.R. 553, 561 (Bankr. M.D. Pa. 2012) (citation

omitted). If a debt falls within the scope § 523(a)(8), the debt is nondischargeable unless the

debtor establishes that excepting the debt from discharge would “impose an ‘undue hardship’ on

the debtor or the debtor’s dependents.” Id. at 560. A creditor has the initial burden to establish

that the debt falls within § 523(a)(8).9 Id. at 561 (citations omitted). If the creditor meets that

burden, the debtor then bears the burden of proving an undue hardship. In re Faish, 72 F.3d 298,

301 (3d Cir. 1995) (citations omitted).

In 1995, the Third Circuit adopted the Brunner “undue hardship” standard to determine

whether student loan debt can be discharged pursuant to § 523(a)(8). In re Faish, 72 F.3d at 307.

According to the Brunner test, student loan debt may be discharged pursuant to § 523(a)(8) only

if three conditions are met:

9 In our case, no party disputes whether the Loans fall within the purview of § 523(a)(8).

1. 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. 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. The debtor has made good faith efforts to repay the loans.

Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987); see

also In re Faish, 72 F.3d at 304-05. All three prongs of the test must be established by a

preponderance of the evidence for a discharge to be obtained. In re Faish, 72 F.3d at 306. This

standard is high and difficult to meet. In re Armstrong, 394 B.R. 43, 51 (Bankr. M.D. Pa. 2008).

If any one of the three prongs are not met, the student loan(s) cannot be discharged. In re Faish,

72 F.3d at 306 (citation omitted). “Moreover, this test must be strictly construed: equitable

concerns or other extraneous factors not contemplated by the test may not be imported into the

analysis of ‘undue hardship.’” In re Brightful, 267 F.3d 324, 328 (3d Cir. 2001) (citing In re

Faish, 72 F.3d at 306). Because Debtor cannot satisfy the third prong of the Brunner test, I will

begin and end my inquiry there.

As stated above, the third prong of the Brunner test requires the debtor to establish that

he made a good faith effort to repay his loans from the date on which the first loan payment

became due to the date on which the debtor filed for bankruptcy. Pelliccia v. U.S. Dep't of Educ.,

67 F. App'x 88, 90 (3d Cir. 2003) (non-precedential opinion). In determining good faith in this

context, a court must consider “(1) whether the debtor incurred substantial expenses beyond

those required to pay for basic necessities and (2) whether the debtor made efforts to restructure

his loan before filing his petition in bankruptcy.” Id. at 91.

First, it is clear that Debtor went to commendable lengths to minimize his expenses.

Debtor testified that he has had no income from 2010 to present and that he pays all of his and

his mother’s expenses with her social security benefits of a little more than $15,000 a year. Trial

Tr. at 17-19, ECF No. 35. To name a few, these expenses include food, little to no entertainment,

heating, water, telephone, and roughly $4,000 a year on county/municipal and school property

taxes. Id. at 18-19; ECMC Trial Ex. 3 at 11. Additionally, to keep his expenses down, Debtor

does not own his own car or his own home, and he attempts to perform all repairs on his

mother’s car and her house. Trial Tr. at 18-19, ECF No. 35. Furthermore, based upon his

schedules, his testimony, and his answers to interrogatories, Debtor appears to live modestly

without incurring substantial expenses beyond those required to pay for basic necessities.

Therefore, this weighs in favor of a finding that Debtor made a good faith effort to repay his

Loans.

Second, and more persuasively, it is also clear that Debtor did not make sufficient efforts

to restructure his Loans for me to find that he satisfied his burden under the third prong of the

Brunner test. Specifically, it is uncontested that Debtor did not make a single payment on his

Loans during the subject time period. Additionally, he did not maximize his earning potential by

seeking employment of any kind; nor did he apply for an income-based repayment plan or

income-contingent repayment plan. Further, the Loans account for almost all of the debt he is

attempting to discharge in bankruptcy. Multiple courts in the Third Circuit have found a lack of

good faith under the third prong of the Brunner test based upon similar actions. See In re Davis,

526 B.R. 136, 141-42 (Bankr. W.D. Pa. 2015); In re Lepre, 466 B.R. 727, 736 (Bankr. W.D. Pa.

2012); In re Jones, 392 B.R. 116, 130-31 (Bankr. E.D. Pa. 2008); In re Sperazza, 366 B.R. 397,

412-14 (Bankr. E.D. Pa. 2007).

Debtor does not dispute that he has not made a single payment on his Loans. United

States Department of Education Stipulation of Facts at ⁋⁋ 10, 18, 23, & 25, ECF No. 27; ECMC

Post-Trial Br. at 3, ECF No. 34. While neither ECMC nor the United States Department of

Education asked him why not, I infer the reason is that Debtor could not do so without his own

stream of income and while living solely off his mother’s social security benefits. Regardless,

this fact alone weighs heavily against me finding that Debtor made good faith efforts to repay his

Loans.

Additionally, I find that Debtor has not maximized his earning potential. Debtor was last

employment in either 2009 or 2010, when he worked for an auto parts company for about a week

before quitting for an unspecified reason.10 Trial Tr. at 11, ECF No. 35. Since taking over as

fulltime caregiver for his mother in 2010, Debtor has not actively sought out or obtained any

form of employment. Id. at 11 & 24-25. When asked why he had not sought specific

employment opportunities that would allow him to work from home or to telecommute, Debtor

testified that he didn’t believe the online opportunities he came across were legitimate and that

he believed it would be too difficult to hold any job while providing 24/7 care to his mother. Id.

at 24-25. In his post-trial brief, Debtor also stated that he “finds no job beneath him,” but that it

would be “impossible” for him to take any job with the weight of his Loans on his back. Debtor

Post-Trial Br. at 4, ECF No. 33.

An additional factor courts take into account under the good faith prong of the Brunner

test is “that the debtor may not willfully or negligently cause his own default, but rather his

condition must result from factors beyond his reasonable control.” In re Faish, 72 F.3d 298, 305

(3d Cir. 1995) (internal quotations and citations omitted). While Debtor’s mother’s stroke and

her need for 24/7 care were clearly beyond Debtor’s reasonable control, his decision to not

actively seek any form of employment since 2010 was well within his reasonable control. Debtor

10 It should be noted that this employment occurred before his mother’s stroke. United States Department of

Education Trial Ex. 11 at 4.

is a healthy, forty-year-old man with no disability who holds a bachelor’s degree, a master’s

degree, and credits towards a PhD. Understanding his mother’s daily care needs from Debtor’s

testimony and the record, this fails to establish that Debtor could not have found any

employment opportunities in the last ten years. It is laudable that Debtor is caring for his mother.

However, it is not a legal basis to discharge the Loans. Additionally, not finding employment due

to the weight of having to repay his Loans is not a valid reason. Debtor has not maximized his

earning potential, and his failure to make any payments on his Loans is due to his own willful

inaction. These facts strongly weigh against a finding that Debtor made a good faith effort to

repay his Loans.

Furthermore, while not dispositive, “[a] debtor’s effort to seek out loan consolidation

options that make the debt repayment obligation less onerous is an important component of the

‘good faith repayment’ inquiry.” In re Kuznicki, 483 B.R. 296, 302 (W.D. Pa. 2012) (citing In re

Fabrizio, 369 B.R. 238, 245 (Bankr. W.D. Pa. 2007)). Such an effort can support a finding that

Debtor takes his loan obligations and their ultimate repayment seriously. Id. Here, Debtor

testified that he inquired into applying for an income-based repayment plan or an income-

contingent repayment plan but that he never submitted an application because he could only avail

himself to such an option once during the life of the loan. Trial Tr. at 20-23, ECF No. 35; see

also ECMC Stipulation of Facts at 4, ECF No. 28. Debtor also testified about being concerned

about his ultimate tax burden at the end of the twenty-five-year repayment period. Trial Tr. at 22-

23, ECF No. 35. Nonetheless, even though Debtor did not apply for an income-driven repayment

plan or an income-contingent repayment plan, I will refrain from factoring this into my

determination because: (1) the record does show that Debtor inquired into doing so; and (2)

Debtor ultimately did not file an application due to his sincere belief that his situation would not

improve and participation in such a plan would be futile. In re Crawley, 460 B.R. 421, 444-45

(Bankr. E.D. Pa. 2011) (“To reach a fair and just result, the court's consideration of the

significance, if any, of the debtor's failure to participate in the ICRP must be tailored based on

the individualized circumstances of the debtor who is before the court.”).

Finally, when evaluating good faith in this context, courts have analyzed the ratio of a

debtor’s student loan debt to the total debt to be discharged. In re Fabrizio, 369 B.R. at 247

(citations omitted); Goforth v. U.S. Dep't of Educ., 466 B.R. 328, 341 (Bankr. W.D. Pa. 2012); In

re Murphy, 535 B.R. 97, 107 (Bankr. W.D. Pa. 2015). “Where the student loan debt constitutes

the majority of the debt, it is an indication that discharging the student loan debt was the primary

motivating factor in filing for relief under the Bankruptcy Code.” In re Murphy, 535 B.R. at 107

(citation omitted). Debtor’s Schedules reflect that his Loans account for roughly 99% of his total

debt. ECMC Post-Trial Br. at 6-7, ECF No. 34. Additionally, Debtor testified that his main

purpose in filing for bankruptcy was to discharge his Loans. Trial Tr. at 12-13, ECF No. 35; see

also Debtor Post-Trial Br. at 6, ECF No. 33. While not dispositive, such a high ratio and

Debtor’s purpose in filing bankruptcy weigh against me finding that Debtor made a good faith

effort to repay his Loans.

In his closing argument and post-trial brief, Debtor cites In re Hurley as authority to

discharge the Loans. In re Hurley is a Chapter 7 bankruptcy case in the Ninth Circuit where the

debtor filed an adversary proceeding seeking to discharge his student loan debt. 601 B.R. 529,

532 (B.A.P. 9th Cir. 2019). The bankruptcy court granted the defendants’ motion for summary

judgment holding that the debtor could not have been found to have satisfied the good faith

prong of the Brunner test, and the Appellate Panel of the Ninth Circuit affirmed. Id. at 533 &

537. Specifically, the bankruptcy court found that the debtor’s past criminal conduct outweighed

the debtor’s good faith efforts to repay his student loans. Id.

In our case, Debtor argued that if the Hurley court could hold that bad acts outweighed

good faith efforts to repay student loans, then the reverse should hold true as well (i.e., that good

acts could outweigh a lack of good faith in repaying student loans). Debtor Post-Trial Br. at 8,

ECF No. 33; Trial Tr. at 47-49, ECF No. 35. While I admire Debtor’s commitment to care for his

mother and commend him on presenting such a creative legal argument, I have found no caselaw

which supports his assertion. In fact, the Hurley court incorporates the debtor’s bad faith criminal

conduct in its analysis of whether a debtor willfully caused his own default. In re Hurley, 601

B.R. at 535-36. Also, Hurley dealt with a debtor who consistently made payments on his loans,

enrolled in an income-based repayment plan, and actively sought employment. In our case,

Debtor did not satisfy any of these good faith efforts, and I have already found that his failure to

repay the Loans and maximize his income is predicated on his own willful inaction. As noted

above, the Third Circuit has held that equitable concerns and other extraneous factors are not part

of the undue hardship test. In re Brightful, 267 F.3d at 328.

After reviewing the testimony and the evidence of record, I conclude that Debtor has

failed to satisfy his burden on the good faith prong of the Brunner test. See In re Jones, 392 B.R.

116, 130-31 (Bankr. E.D. Pa. 2008) (finding that the debtor failed the good faith prong of the

Brunner test even though he maintained relatively modest expenses); In re Sperazza, 366 B.R.

397, 413 (Bankr. E.D. Pa. 2007) (finding that the debtor failed the good faith prong of the

Brunner test even though he had not incurred any substantial expenses beyond those required to

pay for basic necessities). Since the Brunner test requires all three factors to be independently

proven for the Loans to be discharged, I will deny the relief requested in the Complaint.

IV. CONCLUSION

Debtor has not demonstrated by a preponderance of the evidence that repaying his Loans

imposes an undue hardship upon him pursuant to § 523(a)(8). Debtor’s Complaint is dismissed.

Judgment will be entered consistent with this Opinion.

By the Court,

Gea U. Ogee 5

Robert N. Opel, II, Chief Bankruptcy Judge

(BI)

November 6, 2019

11