Eleventh Circuit Disappoints on Undue Hardship Issue

Posted by NCBRC - May 5, 2017

The standard for appellate review of a bankruptcy court’s decision that repayment of her student loans would constitute an “undue hardship,” in part due to a “certainty of hopelessness” as to future ability to pay, is “clear error” for the factual findings and “de novo” for application of law, and the debtor’s past financial decisions have no bearing on this forward-looking prong of the Brunner test. ECMC v. Acosta-Conniff, No. 16-12884 (11th Cir. April 19, 2017) (unpublished).

The Bankruptcy Court found that repayment of Alexandra Acosta-Conniff’s $112,000 student loan debt would constitute “undue hardship” under section 523(a)(8) and granted Ms. Acosta-Conniff discharge of those loans. On appeal, the district court reversed.

The Eleventh Circuit began by reaffirming its reliance on the test set forth in Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (the “Brunner test”). Under this three-pronged test, the court looks at the debtor’s present ability to pay, the likelihood that she will be able to repay the loan in the future, and whether she has made good faith efforts in the past to repay the loan. The point of disagreement between the bankruptcy court and the district court was whether Ms. Acosta-Conniff had proved the second prong of the test by demonstrating a “certainty of hopelessness” with respect to her future ability to repay the loan.

On appeal the Eleventh Circuit noted that the bankruptcy court’s evidentiary findings with respect to the separate prongs of the Brunner test are findings of fact which should be reviewed on appeal under a “clear error” standard rather than the de novo review that would apply to conclusions of law. Here, the district court failed to distinguish the standard of review it applied to the bankruptcy court’s factual finding that Ms. Acosta-Conniff met the certainty of hopelessness test. Therefore, the Eleventh Circuit reversed and remanded to the district court to clarify the standard of review it applied to the question.

Having concluded the appeal on this basis, the circuit court went on to discuss a troubling aspect of the district court’s opinion. Specifically, the court focused on the district court’s comments that Ms. Acosta-Conniff was to blame for incurring so much debt in pursuit of four graduate and post-graduate degrees in special education, notwithstanding the likelihood that her salary would never justify the expense. This, the circuit court found, was an error of law. The second prong of the Brunner test is a forward-looking test that does not assign blame for the decisions that may have led to the debtor’s financial distress. What the court gave with one hand, however, it took away with the other in a footnote suggesting that evidence of a debtor’s improvident borrowing could be a factor in the third prong of the Brunner test.

In continuing to apply the Brunner test despite changes in the Code and the reality of higher education costs and lending practices, the Eleventh Circuit perpetuated many of the current problems in the student loan miasma. Furthermore, maintaining the “certainty of hopelessness” standard for future inability to repay, and leaving room for moral judgment to factor into application of the good faith aspect of the test bodes ill for debtors buried under student loan debt.

NACBA and NCLC filed an amicus brief in this case arguing that the Brunner test is outdated and should be replaced.

Acosta-Conniff 11th Cir. opinion April 2017



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