Kidd v. Student Loan Xpress, Inc. (In re Kidd)

Citation: 472 B.R. 857Docket: Bankruptcy No. 09-74412-CRM; Adversary No. 09-6507

Court: United States Bankruptcy Court, N.D. Georgia; April 4, 2012; Us Bankruptcy; United States Bankruptcy Court

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Defendants’ Motion for Summary Judgment has been granted, establishing that the student debt owed by Plaintiff Christina Fawn Kidd is non-dischargeable under 11 U.S.C. 523(a)(8), as she failed to prove that excluding this debt from discharge would cause her undue hardship. The Court held a hearing on March 27, 2012, with attorneys Paul Vranicar for Defendants and Peter Lown for Plaintiff present. This order formalizes the ruling.

The procedural context reveals that Plaintiff initiated this adversary proceeding to challenge her debt's dischargeability, which later led to the consolidation of nine related proceedings. Defendants previously received summary judgment against six other plaintiffs and were also granted partial summary judgment on two legal issues, confirming the debt as student loan debt under 523(a)(8)(A)(i) and limiting Plaintiff's defense to undue hardship.

Plaintiff did not respond to Defendants’ Statement of Material Facts, resulting in their facts being deemed admitted per Local Rule 7056-1(a)(2). The Court's jurisdiction is established under 28 U.S.C. 157(b) and 1334(b), with the matter classified as a core proceeding.

Key facts include that Plaintiff incurred debt for training at Silver State Helicopters and financed this through the Career Xpress Loan Program, which involved various entities, including a nonprofit guarantor. After attending Silver State for five months and achieving only 18.8 flight hours, the school closed, leaving Plaintiff short of the certification requirements. Subsequently, she joined a lawsuit against Defendants in Cobb County regarding claims related to the school’s operation and closure, which was resolved through a Confidential Settlement Agreement that released all related claims and assigned causes of action to SLX.

The Confidential Settlement Agreement includes a covenant prohibiting the Plaintiff from initiating or participating in any legal action against the Defendants. In return, the Defendants agreed to reduce the Plaintiff's debt. The Defendants argue that the Plaintiff’s deposition testimony indicates she cannot demonstrate that discharging her debt would cause undue hardship. The Plaintiff is currently unemployed, lives with her mother, and has one child. She receives child support and financial aid from family members, as well as food assistance. Since giving birth in 2010, she has experienced postpartum depression, anxiety, and sleep issues, and is undergoing treatment with medication. The Plaintiff holds an associate's degree and obtained a real estate license in 2005, which has since expired without any sales or listings. Her recent job was as an exotic dancer until March 2010; she is not actively seeking employment despite having submitted a few resumes. The Plaintiff has minimal monthly expenses, with no credit card debt, car payments, or rent obligations. However, she spent over $750 on various non-essential items in late 2011. Approximately 70% of her total unsecured debt is student loans, which she has never paid. 

Additionally, the legal standards for summary judgment under Federal Rules of Civil Procedure emphasize that a party may be granted judgment if there are no genuine disputes of material fact. The moving party must prove their entitlement to summary judgment, and the opposing party must present specific facts to challenge this.

In cases where the nonmoving party has the burden of proof at trial, the moving party can meet this burden by showing a lack of evidence supporting the nonmoving party's claims. The court evaluates whether a genuine issue of material fact exists by viewing evidence in favor of the nonmoving party. The moving party still retains the responsibility to prove no genuine issue exists. Under the Bankruptcy Code, student loans are generally non-dischargeable; however, they can be discharged if repaying the loans would impose an undue hardship on the debtor and their dependents. The debtor must prove by a preponderance of the evidence that repayment would cause undue hardship, following the three-prong test established in Brunner v. New York State Higher Education Services Corp.: 1) inability to maintain a minimal standard of living if forced to repay, 2) additional circumstances indicating this situation is likely to persist, and 3) good faith efforts to repay the loan. If the debtor fails to prove any single prong, the inquiry concludes, and the loan will not be discharged. In the current motion for summary judgment, the defendants must demonstrate that undisputed facts prevent the plaintiff from satisfying just one prong of the Brunner test. The court concludes that the defendants are entitled to judgment as a matter of law, as the plaintiff's testimony does not definitively support that there are no factual issues regarding her ability to meet the first two prongs of the Brunner test concerning maintaining a minimal standard of living and the likelihood of her situation persisting.

The ruling favors the Defendants due to the Plaintiff's failure to meet the third prong of the Brunner test, which requires a debtor to demonstrate good faith efforts to repay a loan to claim undue hardship for non-dischargeability. The Court evaluates good faith by examining the debtor's attempts to secure employment, enhance income, and reduce expenses. A debtor cannot willfully or negligently cause their own default; their situation must stem from uncontrollable factors. Payment attempts alone do not determine good faith; rather, the overall financial situation is considered.

In this case, the Plaintiff has not made a good faith effort to repay her loan, as she has not actively sought employment since March 2010, and her self-restricted job search reflects a lack of diligence. Her discretionary spending on non-essential items indicates insufficient efforts to minimize expenses, as she has never made a payment on her loan while incurring these costs. The ratio of her student loan debt to total unsecured debt is approximately 70%, and she has not explored repayment options outside of litigation. After benefiting from a debt reduction through a settlement, she filed for bankruptcy, seeking to avoid all payments.

The Defendants are entitled to judgment as a matter of law regarding the Brunner undue hardship standard due to the Plaintiff’s lack of evidence disputing these facts. The Plaintiff argues that the closure of Silver State before receiving educational benefits should exempt her debt from being classified as student loan debt, but prior rulings established that the debt meets the statutory requirements under 523(a)(8)(A)(i).

There is no legal basis to deviate from the undue hardship exception as outlined in the statute. The Eleventh Circuit mandates the application of the three-pronged Brunner test to assess undue hardship, without exceptions. The prior summary judgment ruling did not limit the Plaintiff's ability to present facts related to the Brunner test, including the impact of her failure to obtain flight certification due to Silver State's premature closure. The court acknowledged this closure as potentially relevant to the Brunner test, which considers the debtor's current income and employment opportunities.

While some courts have factored the closure of an educational institution into the good faith requirement of the Brunner test, it remains only one among several considerations. In the case of In re Bedra, the court indicated that good faith encompasses various conditions but emphasized that the premature closure could not outweigh evidence of the debtor's insufficient efforts to repay the loan.

The Plaintiff argues that the Brunner test should be wholly inapplicable for equitable reasons, but this argument lacks legal support in the circuit. The cases cited by the Plaintiff do not pertain to the Brunner standard's applicability. Furthermore, the Plaintiff's claim of a material dispute regarding the debt amount is deemed irrelevant to the non-dischargeability analysis under Brunner, as the Defendants are not pursuing a monetary judgment, only a determination of non-dischargeability.

The court finds that the undisputed facts, viewed favorably for the non-moving party, indicate that the Plaintiff has not demonstrated a good faith effort to repay the loan, leading to the conclusion that her debt is non-dischargeable under 523(a)(8). Consequently, the Defendants’ Motion for Summary Judgment is granted, with a separate order to be issued in favor of the Defendants.

The Clerk is instructed to serve the Order to the parties listed. According to Local Rule 7056-1(a)(2), a respondent to a motion for summary judgment must submit a concise, numbered statement of material facts that demonstrate genuine issues for trial, responding to each of the movant's numbered facts. Any material fact not specifically disputed in the respondent's filing will be considered admitted. The parties have submitted a Confidential Settlement Agreement under seal, authenticated by Caroline Johnson Tanner's affidavit, counsel for SLX in the related State Court Suit. It is emphasized that under 11 U.S.C. § 523(a)(8), the statute does not permit relief for debtors unless they prove undue hardship, and this cannot be overridden by general equitable principles under 11 U.S.C. § 105(a). Allowing the court to alter the statute's clear requirements would amount to judicial legislation, a power reserved for Congress, as noted in In re Cox, 338 F.3d at 1243.