Griffith v. Cleveland State University Student Loans

RE BANER IS. CLERK, U.S. BANKRUPTCY COURT

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The following constitutes the ruling of the court and has the force and effect therein described.

Signed June 30, 2021 Ded / ee

United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

In re: §

§

Robin Griffith, § Case No. 17-31905-hdh7

§

Debtor. §

□

§

Robin Griffith, §

§

Plaintiff, §

§

v. § Adv. No. 17-03051-hdh

§

Cleveland State University Student §

Loans, et al., §

§

Defendants. §

FINDINGS OF FACT AND CONCLUSIONS OF LAW.

In this action, Robin Griffith (the “Debtor”) is seeking a discharge of her student loan

obligations pursuant to section 523(a)(8) of the Bankruptcy Code. To obtain such a discharge, she

must show that repayment of her student loans would impose an undue hardship on her. This case

largely comes down to personal decisions the Debtor has made and the impact of those decisions

on her finances. While the Court understands the Debtor’s decisions and finds some of them

admirable, on the whole, they are not compatible with obtaining a discharge of student loan

obligations. The Court has sympathy for the Debtor’s situation, but based on these Findings of

Fact and Conclusions of Law, the Court determines that the Debtor has not met her burden of

showing undue hardship under the controlling standard in the Fifth Circuit for interpreting and

applying 11 U.S.C. § 523(a)(8).

Jurisdiction and Venue

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

This adversary proceeding involves a core matter under 28 U.S.C. § 157(b)(2)(A) and (I), as the

adversary proceeding involves a determination as to the dischargeability of a particular debt.

Venue for this adversary proceeding is proper pursuant to 28 U.S.C. § 1409(a).

Procedural History

On May 26, 2017, the Debtor filed her Complaint to Determine Dischargeability of Debt

[Docket No. 1] (the “Original Complaint”) seeking a determination that repayment of her student

loans would impose an undue hardship and they may therefore be discharged under 11 U.S.C.

§ 523(a)(8). The Original Complaint named six defendants: (1) Cleveland State University

Student Loans (“CSU”), (2) the United States Department of Education (the “DOE”), (3) Great

Lakes Higher Education Corporation (“Great Lakes”), (4) FedLoan Servicing, (5) the Missouri

Department of Higher Education, and (6) Washington University (“WU”).

In late July 2017, the Educational Credit Management Corporation (“ECMC”) filed

motions to substitute in this adversary proceeding as a defendant in the place of the Missouri

Department of Higher Education1 and Great Lakes.2 Both of these substitution motions were

granted by agreed order.3

On August 22, 2017, the Debtor filed the Amended Complaint to Determine

Dischargeability of Debt [Docket No. 31] (the “Amended Complaint”). The Amended Complaint

seeks the same relief as the Original Complaint but (i) named the original defendants, (ii) revised

FedLoan Servicing to “Pennsylvania Higher Ed. Assistance Agency (aka: FedLoan Servicing)”

(referred to herein as “PHEAA”), and (iii) added two additional defendants: (1) the Ohio

Department of Higher Education and (2) ECMC.

PHEAA subsequently filed a motion to dismiss,4 which was granted after PHEAA made

the admission that it does not hold the debt at issue and is not asserting a claim against the Debtor.5

In light of the substitutions and the order dismissing the Amended Complaint against PHEAA, the

defendants remaining in this lawsuit are CSU, the DOE, ECMC, and WU (the “Remaining

Defendants”).6

1 Motion of Educational Credit Management Corporation, Under B.R. 7025, for Substitution as Defendant in the

Place of Named Defendant Missouri Department of Higher Education [Docket No. 5].

2 Motion of Educational Credit Management Corporation, Under B.R. 7025, for Substitution as a Defendant in the

Place of Named Defendant Great Lakes Higher Education Corporation [Docket No. 8].

3 Agreed Order Granting the Unopposed Motion of Educational Credit Management Corporation, Under B.R. 7025,

for Substitution as Defendant in the Place of Named Defendant Missouri Department of Higher Education [Docket

No. 21]; Agreed Order Granting the Motion of Educational Credit Management Corporation, Under B.R. 7025, for

Substitution as Defendant in the Place of Named Defendant Great Lakes Higher Education Corporation [Docket No.

29].

4 Defendant Pennsylvania Higher Education Assistance Agency’s Motion to Dismiss Amended Complaint [Docket

No. 36].

5 See Order Granting Motion to Dismiss Defendant Pennsylvania Higher Education Assistance Agency as Defendant

in this Adversary Proceeding [Docket No. 52].

6 The Ohio Department of Higher Education is not listed as a Remaining Defendant because the allegation in the

Amended Complaint is that the loans that were held by the Ohio Department of Higher Education and serviced by

Great Lakes have been transferred to ECMC.

After extensive discovery and several delays in this adversary proceeding, the Remaining

Defendants began filing motions for summary judgment in June 2019,7 which the Court denied in

February 2020.8 Shortly thereafter, the Debtor filed two motions for summary judgment: (1) the

Plaintiff’s Motion for Summary Judgment of Perkins Loans [Docket No. 175] seeking cancellation

of certain “Perkins Loans” owed to CSU and WU pursuant to 34 C.F.R. 674.56(a)(1), and (2) the

Plaintiff’s Motion for Summary Judgment of Private Student Loans [Docket No. 176] seeking the

discharge of certain private student loans held by WU. As the Court explained in its order denying

these motions, the relief requested went beyond the scope of the Amended Complaint.9

On May 20, 2021, the parties filed a Joint Pretrial Order [Docket No. 226] in which they

were able to stipulate to most of the facts relevant to this action.10

The Court held trial in this matter on June 9 and 10, 2021 and took the matter under brief

advisement. The following are the Court’s Findings of Fact and Conclusions of Law, issued

pursuant to Rule 52 of the Federal Rules of Civil Procedure, as made applicable in adversary

proceedings by Federal Rule of Bankruptcy Procedure 7052.11

Relevant Factual Background

Beginning in the fall of 2000, the Debtor attended Mineral Area College, where she

obtained an associate’s degree in psychology in May 2002. She subsequently attended

Washington University in St. Louis, where she received a bachelor’s degree in psychology in May

7 The United States of America’s Motion for Summary Judgment [Docket No. 111]; The Washington University’s

Motion for Summary Judgment [Docket No. 114]; Motion of Defendant Educational Credit Management Corporation

for Summary Judgment [Docket No. 117]; Cleveland State University’s Motion for Summary Judgment and Brief in

Support [Docket No. 143].

8 Order Denying Defendants’ Motions for Summary Judgment [Docket No. 173].

9 Order Denying Plaintiff’s Motions for Summary Judgment [Docket No. 182].

10 The Debtor was representing herself until late 2019 when Stephen Cochell began representing her pro bono. Since

then, Mr. Cochell has been helpful to this process, and the Court appreciates his involvement.

11 Any Finding of Fact more properly construed as a Conclusion of Law shall be considered as such, and vice versa.

2005. From the fall of 2006 to the conclusion of the spring semester in 2011, the Debtor attended

Cleveland State University. While at CSU, the Debtor obtained a master’s degree in clinical

psychology and began coursework for a doctoral degree.

To fund her education, the Debtor borrowed funds from several different lenders, and those

loans are currently held by the Remaining Defendants. As of the date of filing of the Amended

Complaint, the Debtor estimated that she owes the Remaining Defendants approximately $218,000

in principal, interest, and fees.

While in school, the Debtor was able to work full time as a psychometrist, testing patients

for neurological disorders. She held this position from 2008 until July 2014, when she moved

from Cleveland to Dallas to live with her partner (referred to herein by his initials, “D.G.”). After

she moved to Texas, the Debtor found employment at Baylor University Medical Center as a

psychometrist.

In late 2014, the Debtor experienced two important events: first, D.G. proposed to her;

second, shortly after the proposal, D.G. was diagnosed with Parkinson’s disease. Prior to his

diagnosis, D.G. was a practicing attorney, but he is now unable to maintain employment and

receives disability income from the Social Security Administration.

In July 2019, the Debtor moved to Virginia to be closer to her adult son who could provide

emotional support for the Debtor and also provide physical assistance with the care of D.G. This

voluntary move both decreased the Debtor’s income and increased the Debtor’s expenses. The

Debtor’s expenses increased partially because the cost of living appears to be generally higher in

the area she moved to in Virginia. The Debtor’s income decreased because the Debtor has had

difficulty finding an acceptable job that would pay as much as the job she left in Dallas to make

the move to Virginia.

Shortly after moving to Virginia, the Debtor found a job as a psychometrist with George

Washington Medical Faculty Associates with an annual salary of $54,000. However, the Debtor

only held this job for about a month. In the spring of 2020, the Debtor once again found

employment, but was terminated during the onboarding process due to the sudden onset of the

COVID-19 pandemic. Since then, the Debtor has not been able to find full-time employment as a

psychometrist. The Debtor does receive unemployment benefits and has attempted to supplement

her income in several ways. She recently obtained her real estate license in Virginia and began

working for Keller Williams, a realty company. However, the Debtor has only received income

from two sales in the fifteen months since she took on this new role. The Debtor has also been

able to find part-time contract work as a psychometrist.

As of the time of trial, the Debtor stated that she is not currently willing to relocate D.G.

to a nursing home. She testified that there is nothing to indicate that she cannot be employed in

the future, but she also testified that she does not believe she can return to work full-time at present,

as she needs to care for D.G.

Legal Analysis

Bankruptcy Code section 523(a)(8) prevents the discharge of student loan debt “unless

excepting such debt from discharge . . . would impose an undue hardship on the debtor and the

debtor’s dependents.” The Debtor’s student loans identified in the Amended Complaint each

constitute “an educational . . . 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” as

provided by 11 U.S.C. § 523(a)(8)(A)(i).12 In order to discharge such a debt, debtors must show

that the debt, if excepted from discharge, would impose an “undue hardship” on the debtor and the

debtor’s dependents.

“Undue hardship” is not defined by the Bankruptcy Code. However, this Court is bound

by Fifth Circuit precedent requiring a debtor seeking an “undue hardship” discharge of student

loans under section 523(a)(8) to show:

(1) that the debtor cannot maintain, based on current income and expenses, a

“minimal” standard of living for himself and his 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.

United States Dep’t of Educ. v. Gerhardt (In re Gerhardt), 348 F.3d 89, 91 (5th Cir. 2003) (citing

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

three-prong test is commonly referred to as the Brunner test and is the controlling law in this

Circuit, as construed in Gerhardt. Thomas v. Dep’t of Educ. (In re Thomas), 931 F.3d 449 (5th

Cir. 2019). At trial, the debtor has the burden of proof to show that all three prongs of the Brunner

test have been met. Kettler v. Great Lakes Higher Educ. Serving Corp. (In re Kettler), 256 B.R.

719, 723 (Bankr. S.D. Tex. 2000).

Prong 1: Ability to Maintain a Minimal Standard of Living

The first prong of the Brunner test requires a showing that the debtor cannot maintain,

based on current income and expenses, a “minimal” standard of living for herself and her

12 On page 3 of the Amended Complaint, the Debtor summarizes her student loans into categories of (1) Direct Stafford

Unsubsidized, (2) Direct Stafford Subsidized, (3) FFEL Stafford Subsidized, (4) FFEL Stafford Unsubsidized, and

(5) Federal Perkins (the “Student Loans”). On page 4 of the Amended Complaint, the Debtor stipulates that the

Student Loans are nondischargeable unless their exception to discharge would constitute an undue hardship to the

Debtor.

dependents if forced to repay the loans. Tight finances are not sufficient. The debtor must

establish that she cannot afford reasonably necessary living expenses if she is forced to repay her

student loans. Salyer v. Sallie Mae Servicing Corp. (In re Salyer), 348 B.R. 66, 71 (Bankr. M.D.

La. 2006). For the purposes of this analysis, a reasonably necessary living expense is one that the

debtor cannot cut from her budget while maintaining a minimal standard of living. Id. The

Bankruptcy Code does not, however, require that the debtor live in abject poverty before a student

loan may be discharged. Little v. United States Dep’t of Educ. (In re Little), 607 B.R. 853, 859

(Bankr. N.D. Tex. 2019).

In the past few years, the Debtor and her partner have maintained a fairly high level of

income.13 The Debtor and her partner had combined gross income of $76,568.11 in 2017,

$79,470.23 in 2018, and $76,653.10 in 2019. The Debtor and her partner had a total household

income of $66,707.10 in 2020 after deducting D.G.’s insurance payment deducted by Medicare.

In 2021, D.G. will be paid $31,254 in Social Security Disability without a deduction for

Medicare. The Debtor continues to receive income from unemployment benefits and her part-time

contract work as a psychometrist. She is also working as a realtor and has received government

stimulus during 2021.

The Debtor’s expenses over the past few years have also been high. The Debtor’s high

expenses, however, appear to be the result of decisions the Debtor has made rather than necessity.

When the Debtor moved from Cleveland to Dallas, for instance, she kept her apartment in

Cleveland for almost two years rather than trying to terminate the lease early and avoid

unnecessary expense. The Debtor also chose to provide financial support to her adult child at one

point. In 2017, the Debtor purchased a 2015 Cadillac SRX. While the Court understands the

13 To put the Debtor’s income in perspective, the federal poverty level for a household of two is currently $17,420.

Debtor had need for a larger vehicle and used this single vehicle to replace two others, the Debtor

spent more on the vehicle and an expensive maintenance plan than was necessary. The Debtor

also spends more on discretionary expenses such as entertainment than is necessary.14

The Debtor’s current budget still includes expenses that are well above what would be

necessary to maintain a minimal standard of living. Plaintiff’s Exhibit 36 is a budget showing

annualized expenses of $81,453.60. This includes monthly expenses of $2,540 for rent, $620 for

a car payment, $179.80 for a car maintenance plan, $85 for tolls, $275 for phones, and $550 for

vitamins. Without belaboring the point, the Court finds, based on the evidence presented, that

expenses such as these could be drastically reduced while still maintaining a minimal standard of

living.

Based on the stipulations and evidence presented at trial regarding the Debtor’s income,

expenses, and the payments options for her Student Loans, the Court finds the Debtor could

maintain a minimal standard of living if forced to repay the Student Loans and therefore does not

satisfy the first prong of the Brunner test for undue hardship.

Prong 2: Additional Circumstances

The second prong of the Brunner test requires a showing that additional circumstances

exist indicating that the debtor’s state of affairs is likely to persist for a significant portion of the

repayment period of the student loans. The “additional circumstances” that adversely affect a

debtor’s future earning potential must have either been not present at the time the debtor applied

for the loans or were present but have since been exacerbated. In re Gerhardt, 348 F.3d at 92. In

this Circuit, the second prong of the Brunner test is especially difficult to meet. See id. (“This

second aspect of the [Brunner] test is meant to be a ‘demanding requirement.’”) (quoting Brightful

14 See, e.g., Joint Pretrial Order at ¶¶ 46, 47, 50, 51, 54, 55, 58, and 59.

v. Pa. Higher Educ. Assistance Agency (In re Brightful), 267 F.3d 324, 328 (3d Cir. 2001)). The

Fifth Circuit has indicated that a showing that the debtor is currently in financial straits is not

enough—the circumstances must be outside the debtor’s control and result in a “total incapacity”

to pay debts now and into the future. Id.

The Debtor is well-educated and highly qualified for positions as a psychometrist, and she

has been able to quickly find employment in the past. While she is having difficulty finding

employment at the moment, this appears to be due to the COVID-19 pandemic and not likely to

persist for a significant portion of the repayment period of her Student Loans. The Debtor has no

health issues that affect her ability to obtain employment or repay her student loan debt. The

Debtor has an adult son, but neither she nor her partner have any minor children living with them.

While the Debtor has expressed some uncertainty as to her ability to obtain full-time

employment while caring for her partner, this is based partly on the Debtor’s preference for caring

for her partner herself rather than utilizing the services of a nursing home. While the Court

understands the Debtor’s desire to care for her partner personally, this is not outside the debtor’s

control and does not result in a “total incapacity” to pay debts now and into the future. The Court

finds that the Debtor does not satisfy the second prong of the Brunner test for undue hardship.

Prong 3: A Good Faith Effort to Repay the Loans

The third prong of the Brunner test requires a showing that the debtor has made good faith

efforts to repay the loans. While this inquiry overlaps with the other prongs, “the primary focus

of the third prong is on the debtor’s repayment efforts.” In re Little, 607 B.R. at 861. Accordingly,

courts take note of the debtor’s efforts to put herself in a position that would enable her to repay

her loans, specifically, “efforts to obtain employment, maximize income, and minimize expenses.”

Russ v. Tex. Guaranteed Student Loan Corp., (In re Russ), 365 B.R. 640, 645 (Bankr. N.D. Tex.

2007). Attempts to consolidate loans may also contribute to a good faith finding, but do not, in

and of themselves, constitute a good faith effort to repay the loans. In re Salyer, 348 B.R. at 72.

Debtors are expected to attempt payments according to an approved consolidation or repayment

plans, and courts look primarily for voluntary payments. Wynn v. Educ. Credit Mgmt. Corp. (In re

Wynn), 378 B.R. 140, 150 (Bankr. S.D. Miss. 2007). Where the debtor has failed to make

payments, “[t]he ‘overarching inquiry’ is whether the payment delinquency ‘is the result of factors

beyond [the debtor’s] control.’” In re Little, 607 B.R. at 861; see also McMullin v. United States

Dep’t of Educ. (In re McMullin), 316 B.R. 70, 81 (Bankr. E.D. La. 2004) (stating that the debtor’s

good faith is “interpreted in light of his ability to pay”).

In this case, the Debtor did not demonstrate a good faith effort to repay the loans consistent

with the third prong of the Brunner test. A good faith effort most clearly manifests in actual

payments. Following the Debtor’s deferments and forbearances, she failed to make payments

toward her loan balance, even when she could have done so by lowering her expenses. Aside from

one isolated payment to a single lender in September 2014, the Debtor has shown no evidence of

voluntary payments on her loans. Nor has she demonstrated that her failure to pay resulted from

factors beyond her reasonable control.

The Debtor’s decision to move to Virginia had a detrimental effect on the Debtor’s

employment options, potential income, and cost of living. The Debtor is entitled to make decisions

premised on personal as well as financial considerations, even if those decisions ultimately hinder

her ability to pay off her debt, but the Court has made clear in Brunner and its successors that

knowingly lowering income and/or increasing expenses weighs against a finding of good faith.

Even within the constraints of her new living situation, the Debtor failed to show that she

minimized expenses, and further, that any funds saved through her financial decisions were put

toward her student loans.

The Debtor’s attempts to consolidate her loans were successful in part, but she failed to

make any payments following consolidation. While the Debtor exploring her options for a lower

monthly payment may contribute to a good faith finding, merely pursuing a consolidation or

repayment options does not absolve the Debtor of her responsibility to make actual payments under

that plan. Unlike in a forbearance or deferment, the Debtor agreed in her consolidation and

repayment plan communications to pay a determined amount on her debt. She did not pay

accordingly. The Debtor filed for bankruptcy shortly after these attempts, showing a short-lived

effort, if any, to follow through with the plan.

The Debtor has generally failed to maximize her income and minimize her expenses.

While the Debtor has taken several actions that indicate a desire to minimize payments due, these

actions do not constitute a good faith effort to make payments on the loans. What can be described

in this case as small steps in the right direction unfortunately do not reach the standard set by

Brunner as a good faith effort to pay. The Court therefore finds that the Debtor does not satisfy

the third prong of the Brunner test for undue hardship.

Conclusion

For the reasons stated above, the Court finds the Debtor has not satisfied her burden of

showing that repayment of her Student Loans would impose an undue hardship on her within the

meaning of section 523(a)(8) of the Bankruptcy Code. The Court will enter a separate judgment

denying the relief requested in the Amended Complaint.

### End of Findings and Conclusions ###