The opinion of the court was delivered by: John T. Elfvin S.U.S.D.J.
Plaintiff, Maureen R. Davis ("Davis"), has twice previously been granted orders in Bankruptcy Court, one resulting in financial reorganization and the other discharging her from all dischargeable debts. However, because such orders do not operate to discharge certain federally guaranteed student loans, Davis commenced an adversary proceeding seeking a determination by the Bankruptcy Court of the dischargeability of the subject student loans, owed to or guaranteed by the defendant, Educational Credit Management Corporation ("ECMC").*fn2 The basis for the action is 11 U.S.C. §523(a)(8) which specifically provides that educational loans will not be discharged unless failing to discharge the obligation will impose an undue hardship on the debtor and the debtor's dependents. A trial was conducted in Bankruptcy Court on this issue and on January 17, 2006 a Decision and Order was issued ("the Bankruptcy Order") which granted judgment to Davis, although declaring only a partial discharge of her educational loans pursuant to §523(a)(8). (Dkt. #1, part 24).*fn3 Presently before the Court is ECMC's appeal of that Bankruptcy Order, urging that the Bankruptcy Court erred in failing to consider that student loan debt is presumptively non-dischargeable and also that the court erred in its Brunner*fn4 undue hardship analysis and its application.
Jurisdiction is conferred upon the District Courts to hear appeals from decisions of the bankruptcy courts pursuant to 28 U.S.C. §158. This Court reviews the Bankruptcy Court's legal conclusions de novo and its findings of fact and factual conclusions for clear error. In re Manville Forest Prod. Corp., 896 F.2d 1384, 1388 (2d Cir. 1990) (citing Fed. R. Bankr. P. 8013). Further, "whether non-discharge under §523(a)(8)(B) would create an 'undue hardship' requires a conclusion of law by the bankruptcy court and therefore is subject to de novo review by the district court on appeal." Wheeler v. Student Loan Marketing Ass'n, 1994 WL 55764, *2 (W.D.N.Y. 1994)(other citation omitted). The Court "may affirm, modify, or reverse [the Bankruptcy Order] or decree or remand with instructions for further proceedings." Fed. R. Bankr. P. 8013.
In cases brought pursuant to §523(a)(8), the burden is on the debtor to prove, by a fair preponderance of the evidence, that failure to discharge the loans would constitute an undue hardship. Wheeler, supra at *3(citing In re Garneau, 122 B.R. 178, 179 (Bankr. W.D.N.Y. 1990)). In Brunner, the United States Court of Appeals for the Second Circuitadopted the District Court's findings and thereby established a three-prong test to determine if a debtor is eligible for an undue hardship discharge of student loan debt. 831 F.2d 395 (2d Cir. 1987) (per curiam). Under Brunner, Davis must prove the following:
(1) that she cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependents if forced to repay the loans;
(2) that additional circumstances exist indicating that this current state of affairs is likely to persist for a significant portion of the repayment period; and
(3) that she has made good faith efforts to repay the loans. 831 F.2d at 396. In order to satisfy this burden, Davis must establishall three prongs of this Brunner test by a preponderance of the evidence. Wheeler, supra at *3; Garneau, supra at 180 (citing In re Harris, 103 B.R. 79 (Bankr. W.D.N.Y. 1989)). "Equitable concerns or other extraneous factors not contemplated by the Brunner framework may not be imported into the court's analysis to support a finding of dischargeability." In re Faish, 72 F.3d 298, 306 (3d Cir. 1995)(adopting and applying Brunner).
"The first part of this test has been applied frequently as the minimum necessary to establish 'undue hardship'." Brunner at 396 (citations omitted). "If one of the requirements of the Brunner test is not met, the bankruptcy court's inquiry must end there, with a finding of no dischargeability." In re Faish, supra at 306 (citing Matter of Roberson, 999 F.2d 1132, 1135 (7th Circuit 1993)(also adopting and applying the Brunner test)*fn5 ); see e.g. In re N. M., 325 B.R. 507 (Bankr. W.D.N.Y. 2005) (because the debtor failed to satisfy the first prong of the test in Brunner the court ruled that it did not need to consider either of the other two requirements).
ECMC argues that the Bankruptcy Court's Order was erroneous in that it failed to consider that student loan debt is presumptively non-dischargeable and that it improperly considered Brunner in the following ways:
(1) when determining standard of living, the Bankruptcy Court improperly examined only individual income in finding a "minimal" standard of living and when properly considering total household income, it incorrectly accepted a "modest" standard of living as satisfaction of this requirement;
(2) the evidence did not support a finding that Davis established that she has additional circumstances which make it likely that her dire state of financial affairs will persist and neither did it consider household income in considering this element;
(3) the evidence did not support a finding that Davis demonstrated that she made the requisite good faith effort to pay back the loans (i.e., lack of payment history, failure to maximize income and minimize ...