Appeal from the United States Bankruptcy Court for the District of Arizona Honorable Eileen W. Hollowell, Bankruptcy Judge, Presiding Bk. No. 10-06491-EWH Adv. No. 10-01141-EWH
U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT
Argued and Submitted on February 24, 2012 at Phoenix, Arizona
Before: DUNN, JURY and PAPPAS, Bankruptcy Judges.
Victoria and August Ristow (collectively, the "Ristows") sought discharge of the student loan debt owed to Educational Credit Management Corporation ("ECMC") as an undue hardship under § 523(a)(8).*fn2 The bankruptcy court granted partial discharge of the student loan debt. ECMC appeals, contending that the bankruptcy court erred in finding that the Ristows met all three prongs of the test for undue hardship set forth in Brunner v. N.Y. State Higher Educ. Srvcs. (In re Brunner), 46 B.R. 752 (S.D.N.Y. 1985), aff'd, 831 F.2d 395 (2d Cir. 1987). We REVERSE.
A. The Ristows' employment circumstances The Ristows are in their early sixties with no dependents. August is an interim Lutheran minister who works with parishes that are "in between" more permanent ministers. His pay varies by the size of the parish he serves; he earns less at smaller parishes. August currently works at a large parish in Las Vegas, Nevada, where he expects to work until mid to late 2012. He stays in Las Vegas whenever he works at the parish; the parish provides his housing and pays certain expenses.
Several years ago, August worked as a furniture repairman and restorer, but he stopped such work due to back problems. Aside from his work at the parish, he has no other source of income.
Victoria has a master's degree in education and an MBA.
However, she is unemployed. For thirty years, she worked as
a disability case manager in state-funded vocational
programs, providing re-employment assistance to people
disabilities or work-related injuries. She also worked as
4 international business development consultant.
Because of cutbacks in funding for state vocational 6 rehabilitation programs, Victoria decided to obtain an MBA from 7 the Thunderbird School of Global Management ("Thunderbird") in 8 hopes of developing another career with higher income. She 9 believed that her experience in international business 10 development, as well as Thunderbird's prestigious reputation, 11 would help her transition into a career in international 12 business. Victoria further reasoned that she could use her MBA 13 in other endeavors if she was unable to obtain employment in 14 international business.
15 Victoria attended Thunderbird from 2006 to 2008, completing 16 the MBA program with a 3.4 GPA. She funded her education with 17 student loans from various lenders. Victoria also continued to 18 work as a disability case manager while attending Thunderbird.
19 However, she was laid off shortly before graduating from 20 Thunderbird.
21 After graduation, for nearly three years, she tried to find 22 employment in business development, business management and case 23 management. As part of her job-hunting efforts, she joined 24 networking groups, used a private career placement service, and 25 conducted online and phone searches. She managed to obtain a few 26 interviews, but no job offers. Subsequently, she continued to 27 search for employment, though not with the "same intensity," believing that her MBA had lost some of its value over time.*fn3 While searching for jobs, Victoria found short-term employment as a consultant in capital investment; for a contingent finder's fee, she introduced venture capitalists to small start-up companies. She was unable to develop this endeavor into permanent employment due to the poor economy.
Victoria also managed to find some employment as an independent contractor in case management, which supplied her one to four cases a year. She supplemented the family income with unemployment benefits.
Like August, Victoria has health problems. Because of a car accident, she needs double-knee replacement surgery, left foot metatarsal fusion surgery and thumb surgery. She has not undergone the double-knee replacement surgery, because she needs to lose weight before doing so. Victoria also has no funds with which to pay for the surgeries. Due to her health, she believes that she only may work jobs that are sedentary or involve light exertion and do not involve high levels of stress or long hours. B. The Ristows' chapter 7 bankruptcy filing The Ristows filed their chapter 7 bankruptcy petition on March 10, 2010. At the time of the bankruptcy filing, the Ristows had $4,675 in monthly net income and $7,011 in monthly expenses.*fn4 Their monthly net income decreased to $3,614, however, when Victoria's unemployment benefits expired sometime post-petition.*fn5 Their monthly expenses also decreased to $3,704, after the Ristows surrendered timeshares and a recreational vehicle post-petition and lowered the monthly mortgage payments on their home through a loan modification.
Among their expenses, the Ristows pay approximately $1,210 per month for their home mortgage and $415 per month for utilities. They also pay $50 per month for laundry, $120 per month for medical expenses and $140 per month for miscellaneous expenses.*fn6
The Ristows also make monthly payments of $516 on a 2007 Honda Civic Hybrid and $392 on a 2005 Honda Element. They report $300 per month in transportation expenses and $96 per month for car insurance.
As of the bankruptcy petition date, the Honda Civic had 53,618 miles on it and the Honda Element had 74,313 miles on it. The Ristows reaffirmed the debts on the Honda Civic and the Honda Element. Under the reaffirmation agreement for the Honda Civic, they agreed to pay $516.06 per month for 55 months, beginning April 13, 2010. Under the reaffirmation agreement for the ...