Bronsdon v. Educational Credit Management Corp. (In re Bronsdon)

Denise Bronsdon (debtor) enrolled in law school and took student loans from Educational Credit Management Corporation (ECMC) (creditor). After graduation, Bronsdon failed the bar exam three times. Bronsdon could not find lasting employment or earn income other than a $946 monthly Social Security payment, and she filed for Chapter 7 bankruptcy. Bronsdon subsequently brought an adversary complaint seeking discharge of her student-loan obligations. At the time of trial in the adversary proceeding, Bronsdon was 64 years old, and her student-loan debt was roughly $82,000. The bankruptcy court discharged Bronsdon’s debt to ECMC under 11 U.S.C. § 523(a)(8), finding under a totality-of-the-circumstances test that Bronsdon would face undue hardship if forced to repay her loans. The bankruptcy court recognized the existence of the Ford Program’s income-contingent repayment plan (ICRP) for student loans but noted that Bronsdon’s financial condition was such that she would not be required to make monthly payments under the ICRP. Additionally, if Bronsdon participated in the ICRP, the forgiveness of her loans under the program would have resulted in a tax liability that could have led to garnishment of her Social Security benefits and ultimately left her in even worse financial shape. The district court vacated the decision and remanded for consideration of the impact of participating in the ICRP on the undue-hardship analysis. On remand, the bankruptcy court found that, to the extent good faith was relevant to the undue-hardship analysis, Bronsdon’s failure to participate in the ICRP did not demonstrate a lack of good faith. The bankruptcy court again ordered discharge, and ECMC appealed. ECMC asserted that instead of applying a totality-of-the-circumstances test for undue hardship, the court should apply the Brunner test, which analyzed the debtor’s current and future inability to maintain a minimal standard of living and whether the debtor had made good-faith efforts to repay the loans.