Administrative law and procedure - student loan discharges under Chapter 13 bankruptcy and ripeness for adjudication - Educational Credit Management Corp. v. Coleman (In re Coleman).In a volatile economy, people increasingly rely upon student loans to pay for higher education, and, accordingly, questions related to the discharge of those loans under Chapter 13 decisions become more pertinent. (1) Under current bankruptcy laws, student loans are not dischargeable under Chapter 13 unless the debtor can show that repayment would result in an undue hardship. (2) The Constitution requires that issues for adjudication in federal courts be "ripe," that is, there is an actual controversy between the two parties. (3) In Educational Credit Management Corp. v. Coleman (In re Coleman), (4) the United States Court of Appeals for the Ninth Circuit considered whether a court may make an undue hardship determination for student loan discharge under a Chapter 13 bankruptcy substantially in advance of payment plan completion. (5) The Ninth Circuit held that the undue hardship determination was ripe for adjudication prior to completion of the Chapter 13 payment plan because the facts of the case were sufficiently developed, or "fit," and the debtor would suffer a hardship if the case was not adjudicated. (6)
On June 16, 2004, Coleman sought relief under Chapter 13 of the Bankruptcy Code, and the bankruptcy court subsequently approved a fiveyear repayment plan. (7) Less than one year after the plan was confirmed, Coleman sought an undue hardship determination for the more than $100,000 in student loans she owed. (8) She presented evidence that she had paid $1,000 on the debt, but believed she could not make further payments because she was unemployed. (9) Coleman struggled to find regular work after earning a bachelor's degree and completing part of a master's degree. (10) Despite working intermittently as a teacher, Coleman's sole source of income was unemployment benefits at the time she filed for discharge. (11)
Educational Credit Management Corporation ("ECMC") sought to have Coleman's complaint dismissed on two grounds: (1) Coleman lacked subject matter jurisdiction and (2) the issue of the undue hardship determination was not ripe for adjudication. (12) The bankruptcy court denied ECMC's motion. (13) The district court affirmed the ruling and ultimately certified the matter for interlocutory appeal on a controlling question of law. (14) On appeal, the Ninth Circuit considered whether an undue hardship determination can be made prior to a payment plan nearing completion in a Chapter 13 bankruptcy petition. (15)
Lawmakers created bankruptcy laws to provide individuals with a financial "fresh start" when problems occurred outside of their control. (16) Chapter 13 allows income-earning debtors to create a plan for repayment of debt, and was designed as an alternative to Chapter 7, which liquidates the assets of the debtor. (17) Changes to bankruptcy laws over the years have resulted in stricter requirements for discharge of student loans under both Chapter 7 and Chapter 13, as an attempt to deter students from filing bankruptcy immediately upon graduation. (18) Despite this stringent statutory language, individuals may be entitled to a discharge of student loan debt if they can demonstrate that repayment of the loan would result in an undue hardship. (19) A court must consider whether an undue hardship determination can be made before a payment plan is completed under Chapter 13. (20) The statutory language does not directly address whether an undue hardship determination can be made in advance of payment plan completion, but it does indicate that debts will not be discharged unless the Chapter 13 debtor completes the payments under the plan. (21) As a result, the federal circuit courts are split over the appropriate timing for an undue hardship determination in a Chapter 13 bankruptcy. (22)
Courts use the three-part test developed in Brunner v. New York State Higher Education Services Corp. (23) to determine undue hardship in both Chapter 7 and Chapter 13 bankruptcy cases. (24) Though the Brunner three-part test was initially intended for Chapter 7 bankruptcy cases, courts have recently begun to apply it to Chapter 13 cases, resulting in significant timing issues. (25) Brunner established three elements for determining undue hardship: (1) the debtor is unable to maintain a "minimal" standard of living, (2) the debtor's current financial situation is going to continue over the period of loan repayment and, (3) the debtor has made a good faith effort to repay the loans. (26) This test provides the court with a framework to determine whether the debtor is likely to experience undue hardship if his or her student loans are not discharged as part of the bankruptcy decision. (27) The Second Circuit in Brunner emphasized the importance of considering good faith in reviewing the debtor's situation, reflecting congressional intent to make discharge of student loans more difficult. (28) Application of the Brunner test in a Chapter 13 decision can be very challenging in large part because it was created for Chapter 7 cases where resolution of debts is done in one decision and all factors are considered at the point of discharge. (29) The proper application of the Brunner test, as well as an inquiry into the ripeness of the undue hardship determination, will depend significantly on the facts presented in each case. (30) Although the Brunner test is implicated in an undue hardship determination, the bankruptcy code, case law and Federal Rules of Bankruptcy Procedure give no timing requirement as to when the test should be applied in a Chapter 13 proceeding. (31) Consequently, the circuit courts are split over when to apply the Brunner test in a Chapter 13 bankruptcy, leaving debtors uncertain as to whether their claim is ripe for adjudication. (32)
Courts determine ripeness for adjudication by considering both constitutional and prudential concerns. (33) Constitutional ripeness sets a baseline by requiring that a controversy exist between the parties that needs immediate resolution by the courts. (34) In Abbott Laboratories v. Gardner, (35) the United States Supreme Court created a two-prong prudential ripeness test that is used for judicial review of administrative agency actions. (36) Under this two-prong test, a court must analyze: (1) whether the issues are fit for judicial determination, and (2) whether failure to adjudicate would result in undue hardship to the parties. (37) For example, the Ninth Circuit applied the Abbott test to a Chapter 7 bankruptcy case and determined the issues were ripe for adjudication. (38) Despite this application of the test to a Chapter 7 bankruptcy case, the Ninth Circuit has ruled that the test is not appropriate for determining ripeness in a contract case involving private parties. (39) In Principal Life Insurance Co. v. Robinson, (40) the Ninth Circuit reasoned that "the appropriate standard for determining ripeness of private party contract disputes is the traditional ripeness standard," which includes only the constitutional ripeness standard. (41) While few courts have acknowledged application of the prudential ripeness test to bankruptcy cases, courts have consistently inquired as to whether the facts are sufficiently developed to minimize speculation and whether a delay in adjudication would cause hardship to the parties. (42) Most courts utilize a combination of constitutional and prudential ripeness concerns when analyzing bankruptcy cases. (43)
In Coleman, the Ninth Circuit considered whether a debtor could seek an undue hardship determination substantially in advance of Chapter 13 payment plan completion. (44) The court first applied the undue hardship standard established in Brunner for the discharge of student loans in bankruptcy cases. (45) Then, the court addressed the question of timing by examining constitutional and prudential ripeness issues within the context of bankruptcy. (46) In light of the specific and defined debt in question, the court held that a substantial controversy existed between Coleman and ECMC. (47) Despite Coleman's potential failure to complete her payment plan, the court found that the dispute was constitutionally ripe. (48)
In determining prudential ripeness, the Ninth Circuit applied the Abbott two-prong test, directly contradicting its prior determination that the test was not applicable to private contract cases. (49) In addressing the issue of "fitness," the court reasoned that delaying a decision would not serve to produce or encourage more facts that would aid in a adjudication of the matter. (50) Despite inherent speculation as to the debtor's future financial situation, the court held that this uncertainty does not render the case unfit for an undue hardship determination. (51) Given Coleman's already strained financial situation, the court determined that a delay in the discharge decision would meet the hardship prong of the Abbott test. (52) The Ninth Circuit reasoned that a debtor should not be penalized for choosing Chapter 13 over Chapter 7 by having to wait five years without any guarantee of an undue hardship determination. (53) According to the court, a debtor who is denied an undue hardship determination because the issue is not ripe "may be forced to rely on public benefits-or may turn to credit as a means of meeting their basic needs." (54) Utilizing the two prongs of the Abbott test, the Ninth Circuit concluded that the issues presented were fit because they required no further development and that Coleman would suffer hardship if a determination was delayed until her Chapter 13 plan was completed. (55) The court, therefore, held that the undue hardship determination was ripe for adjudication substantially in advance of payment plan completion. (56)
The Ninth Circuit correctly found that an undue hardship determination for dischargeability of student loans may be proper in advance of Chapter 13 payment plan completion. (57) In line with congressional intent, the court looked to ensure that debtors are provided with a financial "fresh start" regardless of whether they chose Chapter 7 or Chapter 13. (58) By recognizing that bankruptcy proceedings are fact-intensive, the court's fitness analysis serves as an effective guide for future cases because it focuses on ensuring a sufficient passage of time before evaluating whether a debtor has made a good faith effort to repay student loans. (59)
However, the court erred by not fully considering whether the undue hardship factors established by the Brunner court could be fully developed at the "snapshot" date selected by the debtor. (60) Although the court correctly considered whether the debtor showed good faith in repayment of her loans, the court failed to determine whether the facts were sufficiently developed to support the other two Brunner factors. (61) The Fourth Circuit in Ekenasi stated that only under "exceptional circumstances" may the Brunner elements be met in advance of Chapter 13 plan completion, thereby recognizing congressional intent not to discharge student loans unless an undue hardship actually exists. (62) The Ninth Circuit should have considered whether there were sufficient facts available at the "snapshot" date to fully consider all the Brunner elements, as this will sufficiently address whether the debtor will be able to repay the loan in the future. (63) Without thorough consideration of the Brunner elements, the court's analysis falls short and results in an incorrect declaration that the undue hardship determination was ripe for adjudication. (64)
The Ninth Circuit also erred in applying the Abbott two-prong test, as opposed to a constitutional ripeness standard, in assessing whether the undue hardship determination was ripe for adjudication. (65) Courts initially applied the Abbott test for prudential ripeness to ensure there was no judicial involvement in cases concerning administrative agencies before a final administrative decision. (66) Indeed, the very reasoning underlying the Abbott opinion reflected the judicial concern regarding entanglement with abstract administrative policies. (67) In principal, the Ninth Circuit limited the scope of Abbott by holding constitutional ripeness, not the Abbott test for prudential ripeness, was the appropriate standard to apply in private contract disputes in which controversies were typically immediate and required judicial involvement. (68) By utilizing the Abbott test in this case, the Ninth Circuit erroneously broadened the test's application beyond that envisioned by the Supreme Court. (69) In doing so, the court created an unnecessary layer of analysis when an actual controversy exists and the case is constitutionally ripe. (70)
In Coleman, the Ninth Circuit Court of Appeals considered whether an undue hardship determination for student loan discharge could be made substantially in advance of Chapter 13 payment plan completion. The court correctly determined that there may be circumstances where discharge of student loans can be determined in advance of payment plan completion. The court, however, failed to fully consider all of the Brunner elements in its determination that the case was ripe for adjudication, resulting in a clash with congressional intent to provide for the discharge of student loans only where true undue hardship exists. By applying the Abbott test for prudential ripeness, the court erroneously broadened the test beyond the scope intended by the Supreme Court. Consequently, the Ninth Circuit created an extraneous layer of analysis in determining whether a bankruptcy case is ripe for adjudication.
(1) See Feather D. Baron, Comment, The Nondischargeability of Student Loans in Bankruptcy: How the Prevailing "Undue Hardship" Test Creates Hardship of its Own, 42 U.S.F. L. Rev. 265, 265-66 (2007) (providing statistics on student loan debt and the impact on graduates).
(2) 11 U.S.C. [section] 523(a)(8) (2006). Section 523 enumerates exceptions to discharge under Chapter 7 and Chapter 13; pertinent portions read as follows:
(a) A discharge under section 727, 1141, 1228(a), 1228(b) or 1328(b) of this title does not discharge an individual debtor from any debt ... unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for (A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual....
Id.; see also Bender v. Educ. Credit Mgmt. Corp. (In re Bender), 368 F.3d 846, 847 (8th Cir. 2004) (discussing statutory requirements for an undue hardship determination); Ekenasi v. Educ. Res. Inst. (In re Ekenasi), 325 F.3d 541, 545 (4th Cir. 2003) (summarizing requirements for Chapter 13 bankruptcy discharge, but recognizing general non-dischargeability of student loans).
(3) U.S. Const. art. III, [section] 2, cl. 1; see also Valley Forge Christian Coll. v. Ams. United for the Separation of Church & State, Inc., 454 U.S. 464, 471 (1982) (analyzing Article III powers). "Article III of the Constitution limits the 'judicial power' of the United States to the resolution of 'cases' and 'controversies.'" Id. In Valley Forge, the court discussed the need for the parties to have "standing" in order for a federal court to hear the case; standing is a combination of constitutional and prudential considerations. Id. The Court stated that "at an irreducible minimum, Art. III requires the party who invokes the court's authority to 'show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant.'" Id. at 472 (quoting Gladstone, Realtors v. Vill. of Bellwood, 441 U.S. 91, 99 (1979)); see also Nat'l Park Hospitality Ass'n v. Dep't of the Interior, 538 U.S. 803, 808-09 (2003) (articulating standards for ripeness determinations). "To establish an Article III case or controversy, a litigant must establish that he has 'standing.'" Id. at 815. The plaintiff must establish that the harm is "fairly traceable" to unlawful activity by the defendant and a remedy can be ordered by the court. Id. (quoting Allen v. Wright, 468 U.S. 737, 751 (1984)); see also United States v. Braren, 338 F.3d 971, 975 (9th Cir. 2003) (describing the test for determining constitutional and prudential ripeness); Krasnoff v. Marshack (In re Gen. Carriers Corp.), 258 B.R. 181, 186 (B.A.P. 9th Cir. 2001) (defining ripeness). The ripeness doctrine does not allow appellate adjudication "where the controversy presented is theoretical or abstract and does not have a concrete impact on the parties." Id. at 186 (citing 18 Unnamed "John Smith" Prisoners v. Meese, 871 F.2d 881, 883 (9th Cir. 1989)).
(4) 560 F.3d 1000 (9th Cir. 2009) (Coleman II).
(5) Id. at 1002-03 (stating issue before the court).
(6) Id. at 1009-12 (holding no reason existed to delay determination of student loan discharge).
(7) Id. at 1003 (stating facts of case).
(8) Id. (explaining precipitating facts that led to litigation).
(9) Coleman II, 560 F.3d at 1003; Coleman v. Educ. Credit Mgmt. Corp. (Coleman I), 333 B.R. 841, 843 (Bankr. N.D. Cal. 2005) (providing factual history), aff'd, 560 F.3d 1000 (9th Cir. 2009). Coleman's original five-year plan was approved on August 26, 2004, and she sought discharge of her student loan debt on June 23, 2005. Id
(10) Coleman I, 333. B.R. at 843.
(11) Id.; Coleman II, 560 F.3d at 1003. While employed as a teacher, her monthly income was between $1800 and $4000. Coleman I, 333 B.R. at 843.
(12) Coleman II, 560 F.3d at 1003.
(14) Id. (outlining procedural history).
(15) See id. at 1004 (stating issue before the court is one of "timing"). The court asked, "may Coleman obtain this undue hardship determination substantially in advance of the time she completes payments under her Chapter 13 plan?" Id. ECMC contended that Coleman's claim was not ripe based on the statute, whereas Coleman argued to the contrary. Id.
(16) See Williams v. U.S. Fid. & Guar. Co., 236 U.S. 549, 554-55 (1915) ("It is the purpose of the bankrupt act to convert the assets of the bankrupt into cash for distribution among creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes."); Kielisch v. Educ. Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 322 (4th Cir. 2001) (discussing purpose of federal bankruptcy laws). "[O]ne main purpose of the Bankruptcy Act is to let the honest debtor begin his financial life anew." Id. (quoting Bruning v. United States, 376 U.S. 358, 361 (1964)); see also Rafael I. Pardo & Michelle R. Lacey, The Real Student-Loan Scandal: Undue Hardship Discharge Litigation, 83 Am. Bankr. L.J. 179, 185 (2009) (stating two purposes of bankruptcy code are giving debtor fresh start and resolving creditor claims); Seth J. Gerson, Note, Separate Classification of Student Loans in Chapter 13, 73 Wash. U. L.Q. 269, 269 (1995) (discussing purpose of Bankruptcy Act). Bankruptcy courts should consider two competing interests: protecting creditors and providing the debtor a new financial beginning. See id. at 272. Congress balanced these two competing interests by creating some exceptions to the discharge allowances, including student loan debt. See id. at 273-75.
(17) Compare 11 U.S.C. [section] 726 (2006) (describing the distribution of the debtor's property under Chapter 7 bankruptcy), and 11 U.S.C. [section] 727 (2006) (outlining circumstances when debt would not be discharged in Chapter 7 bankruptcy), with 11 U.S.C. [section] 1322 (2006) (describing the components of the payment plan under Chapter 13). Congress intended Chapter 13 to be a more favorable option for debtors than Chapter 7. See Baron, supra note 1, at 280 (describing congressional intent in creating bankruptcy laws). For instance, Chapter 13 allows discharge for more types of debts and allows the debtor to retain assets while financing debt through payment plans. Id.
(18) U.S.C. [section] 523(a)(8)(A) (2006) (describing requirements for discharge of student loans under Chapter 13 and Chapter 7); see also Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner) (Brunner I), 46 B.R. 752, 754 (S.D.N.Y. 1985) (describing legislative history for student loan exception). The language Congress adopted was based on the notion that a loan assisting a person in earning greater income should not be discharged before the person has a chance to earn the income needed to pay back the loan. See id; see also Kielisch, 258 F.3d at 320 (describing history of section 523(a)(8) of the Bankruptcy Code). Originally, student loans were dischargeable only in Chapter 13 bankruptcies. Id. In 1990, Congress amended the law to ensure student loan debt could not be discharged without a determination of undue hardship under either Chapter 7 or Chapter 13. Id.; see also Baron, supra note 1, at 280 (discussing 1990 changes to Chapter 13 student loan discharge).
(19) See Brunner v. N.Y. State higher Educ. Servs. Corp. (Brunner II), 831 F.2d 395, 396 (2d Cir. 1987) (discussing three-part test for determining "undue hardship"). The Second Circuit has adopted a three-part test for determining undue hardship in student loan discharge cases. Id. A debtor must show the following:
(1) that the debtor 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 this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.
Id.; Brunner I, 46 B.R. at 756; see also Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1173 (9th Cir. 2003) (applying Brunner elements to prove undue hardship for student loan discharge). See generally Pardo & Lacey, supra note 16, at 190 (highlighting challenges resulting from Congress not defining undue hardship); Adam Schlusselberg, Case Comment, In re Davis, 53 N.Y.L. Sch. L. Rev. 639, 645-47 (2008-2009) (articulating concerns with Brunner test's lack of consideration for individual circumstances). The Brunner elements often lead courts through a mechanical analysis in which they rely on purely numerical information to determine the debtor's minimal standard of living, resulting in little consideration of the actual circumstances. Id.
(20) Compare Ekenasi v. Educ. Res. Inst. (In re Ekenasi), 325 F.3d 541, 547 (4th Cir. 2003) (stating text of statute does not preclude an advance determination of undue hardship), and Strahm v. Great Lakes Higher Educ. Corp. (In re Strahm), 327 B.R. 319, 321 (stating Bankruptcy Code does not provide a specific time for filing complaint), and United Student Aid Fund Inc. v. Taylor (In re Taylor), 223 B.R. 747, 751-52 (B.A.P. 9th Cir. 1998) (finding complaint may be filed at any time), abrogated on other grounds by Educ. Credit Mgmt. Corp. v. Blair (In re Blair), 291 B.R. 514, 520 (B.A.P. 9th Cir. 2003), with Pair v. U.S. Dep't of Educ. (In re Pair), 269 B.R. 719, 721 (Bankr. N.D. Ala. 2001) (rejecting debtor's argument that complaint can be brought at beginning of case due to statute), and Raisor v. Educ. Loan Servicing Ctr. (In re Raisor), 180 B.R. 163, 167 (Bankr. E.D. Tex. 1995) ("The lack of a time limitation should not be interpreted as meaning that any proceeding filed pursuant to Bankruptcy Rule 4007(b) is ripe for adjudication.").
(21) 11 U.S.C. [section] 1328(a) (2006) (outlining process for discharge of debts following payment plan completion); see also Bender v. Educ. Credit Mgmt. Corp. (In re Bender), 368 F.3d 846, 848 (8th Cir. 2004) (holding undue hardship determination should be made at time of discharge, not when proceeding commenced); Super. Ct. of Cal. v. Heincy (In re Heincy), 858 F.2d 548, 550 (9th Cir. 1988) (stating dischargeability cannot be determined until payment plan successfully completed). But see Ekenasi, 325 F.3d at 547 (holding text of statute does not prohibit advance undue hardship determination); Taylor, 223 B.R. at 751-52 (concluding early determination of undue hardship does not conflict with statutory right); Goranson v. Pa. Higher Educ. Assistance Agency (In re Goranson), 183 B.R. 52, 56 (Bankr. W.D.N.Y. 1995) (stating debtors choose the "snapshot" date for applying Brunner elements).
(22) Compare Bender, 368 F.3d at 847 (determining student loan discharge part of general Chapter 13 discharge upon repayment plan completion), and Rubarts v. First Gibraltar Bank (In re Rubarts), 896 F.2d 107, 109 (5th Cir. 1990) (stating undue hardship determination not ripe until after payment plan completion), and Heincy, 858 F.2d at 550 (stating dischargeability not ripe until payments made under plan), with Ekenasi, 325 F.3d at 547 (determining no reason to preclude undue hardship determination in advance of plan completion).
(23) 831 F.2d 395 (2d Cir. 1987).
(24) Compare Craig v. Educ. Credit. Mgmt. Corp. (In re Craig), 579 F.3d 1040, 1044 (9th Cir. 2009) (applying Brunner test to Chapter 7 debtor), and Spence v. Educ. Credit Mgmt. Corp. (In re Spence), 541 F.3d 538, 544-45 (4th Cir. 2008) (analyzing three-part Brunner test in Chapter 7 case) with Ekenasi, 325 F.3d at 547 (describing timing issues with Brunner three-part test in Chapter 13 decisions), andRaisor, 180 B.R. at 166 (utilizing the Brunner test to establish undue hardship in Chapter 13).
(25) Compare Ekenasi, 325 F.3d at 547 (describing the challenges of applying the Brunner test to Chapter 13) and Strahm, 327 B.R. at 324 (relying on Ekenasi in finding "[W]e can envision exceptional circumstances where the Brunner factors could be predicted with sufficient certainty in advance of the conclusion of a Chapter 13 proceeding."), with Raisor, 180 B.R. at 166-67 (concluding application of Brunner test too speculative prior to payment plan completion) and Pair, 269 B.R. at 720 (relying on Raisor in concluding impossible to apply Brunner test until near payment plan completion). In Ekenasi, the court emphasized the difficulty a debtor would have in proving that student loans would be an "undue burden on him during a significant portion of the repayment period." Ekenasi, 325 F.3d at 547. Regardless, the court stated that an undue hardship determination could be made prior to plan completion at a "snapshot" date determined by the debtor. See id. at 546-48. The court in Raisor would not analyze all three parts of the Brunner test, as it reasoned that making a decision in advance of payment plan completion was too early and did not demonstrate "good faith." Raisor, 180 B.R. at 166-67. There is no consensus by the federal circuit courts on when to apply the three part Brunner test--in advance of payment plan completion, at payment plan completion or near payment plan completion-resulting in difficulty determine undue hardship under Chapter 13. See Baron, supra note 1, at 291 ("Based on the differing interpretations of Brunner's appropriate time of application, the Brunner test presents an incomplete definition of undue hardship.").
(26) Brunner, 831 F.2d at 396 (adopting three-part test employed by the district court).
(27) See id. (describing undue hardship as more than current inability to pay). Like many courts at the time, the Second Circuit in Brunner sought a definition of "undue hardship." Id.; see also Ekenasi, 325 F.3d at 546-47 (discussing use of Brunner test in Chapter 13 determination of undue hardship); Goranson v. Pa. Higher Educ. Assistance Agency (In re Goranson), 183 B.R. 52, 54 (Bankr. W.D.N.Y. 1995) (requiring application of Brunner test to determine undue hardship).
(28) Brunner, 831 F.2d at 396 (affirming factors established by lower court in light of congressional intent).
(29) Compare 11 U.S.C. [section] 727(b) (2006) ("[A] discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter...."), with 11 U.S.C. [section] 1328(a) (2006) ("[A]s soon as practicable after completion by the debtor of all payments under the plan ... the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title...."). Chapter 7 cases have a quick resolve, but a Chapter 13 case requires the court to speculate as to whether the debtor can maintain a minimal standard of living after the payment plan is completed. See Ekenasi, 325 F.3d at 547 (examining challenges of applying Brunner to Chapter 13 bankruptcy); see also Goranson, 183 B.R. at 54 ("It is unclear, therefore, exactly how the Second Circuit would intend that its Brunner test should be applied in a Chapter 13 case.").
(30) See Ekenasi, 325 F.3d at 548-49 (denying debtor discharge because he did not establish undue hardship). In Ekenasi, the court concluded that although discharge determination does not hinge on plan completion, the debtor had not established undue hardship under the Brunner test. Id. The court considered circumstances surrounding the debtor's financial life, including contractual yearly increases in his salary during the payment plan. Id.; see also Bender v. Educ. Credit Mgmt. Corp. (In re Bender), 368 F.3d 846, 848 (8th Cir. 2004) (recognizing need to consider "totality of circumstances" in undue hardship determination). The court stated "the financial benefit of his higher education may well be more than sufficient to cover the financial obligation associated with it." Id. But see Soler v. United States ex rel. U.S. Dep't of Health & Human Servs. (In re Soler), 250 B.R. 694, 697 (Bankr. D. Minn. 2000) (indicating ever-changing circumstances require discharge determination closer to time of plan completion).
(31) See Ekenasi, 325 F.3d at 547 (finding no reason to preclude undue hardship determination in advance of plan completion); United Student Aid Funds Inc. v. Taylor (In re Taylor), 223 B.R. 747, 751 (B.A.P. 9th Cir. 1998), abrogated on other grounds by Educ. Credit Mgmt. Corp. v. Blair (In re Blair), 291 B.R. 514, 520 (B.A.P. 9th Cir. 2003) (determining undue hardship issue was ripe because no statutory conflict existed); Strahm v. Great Lakes Higher Educ. Corp. (In re Strahm), 327 B.R. 319, 321-22 (Bankr. S.D. Ohio 2005) (determining ripeness based on "timing" or prudential concerns); see also Baron, supra note 1, at 292-93 (recommending timing provisions be added to the Brunner test to prevent unfair decisions).
(32) Compare Ekenasi, 325 F.3d at 547 (holding undue hardship determination possible in advance of plan completion), and Taylor, 223 B.R. at 751 (stating undue hardship determination permissible at any time), and Strahm, 327 B.R. at 321 (stating debtor not barred from seeking undue hardship determination in advance of payment plan completion), with Pair v. U.S. Dep't. of Educ. (In re Pair), 269 B.R. 719, 721 (Bankr. N.D. Ala. 2001) (holding undue hardship determination not ripe until six months before payment plan completion), and Raisor v. Educ. Loan Servicing Ctr. (In re Raisor), 180 B.R. 163, 167 (Bankr. E.D. Tex. 1995) ("The lack of a time limitation should not be interpreted as meaning that any proceeding filed pursuant to Bankruptcy Rule 4007(b) is ripe for adjudication.").
(33) See United States v. Braren, 338 F.3d 971, 975 (9th Cir. 2003) (describing constitutional and prudential ripeness). Determining whether an issue is ripe for adjudication prevents the courts from taking on premature cases and assures that they are not involved in administrative issues. See Nat'l Park Hospitality Ass'n v. Dep't. of the Interior, 538 U.S. 803, 807-08 (2003) (outlining reasons for ripeness determinations).
(34) Braren, 338 F.3d at 975; see also Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, Inc., 454 U.S. 464, 472 (1982) (describing need for standing). Requiring the parties to have an actual injury, to be addressed by the courts, assures that "the legal questions presented to [it] will be resolved, not in the rarified atmosphere of a debating society, but in a concrete factual context." Id.
(35) 3 87 U.S. 136 (1967) abrogated on other grounds by Califano v. Sanders, 430 U.S. 99, 105 (1977) (departing from Abbott's reasoning that Administrative Procedure Act is independent grant of subject-matter jurisdiction).
(36) See id. at 148-49 (describing two-prong test for prudential ripeness). In creating the two-prong test, the Supreme Court reasoned that courts should not be entangled in issues that are truly disagreements over administrative policies. See id.; see also Nat'l Park, 538 U.S. at 807-08 (analyzing case based on the Abbott two-prong test for prudential ripeness); Krasnoff v. Marshank (In re Gen. Carriers Corp.), 258 B.R. 181, 186 (B.A.P. 9th Cir. 2001) (applying fitness and hardship factors in determining ripeness for bankruptcy case); Official Creditors' Comm. v. Metzger (In re Dominelli), 788 F.2d 584, 585 (9th Cir. 1986) (quoting Pac. Gas & Elec. Co. v. State Energy Res. Conservation & Dev. Comm'n, 461 U.S. 190, 201 (1983)) (noting prudential ripeness for bankruptcy case based on fitness and hardship).
(37) Abbott, 387 U.S. at 149 (laying out standard for ripeness). Determining whether a case is fit for adjudication requires a detailed analysis of whether the issue presented is a legal question and is a "final agency action." Id. The Supreme Court has expanded the fitness requirement to include an analysis of whether the facts are developed enough to deal with the legal issues in the case. See Nat'l Park, 538 U.S. at 812 (citing Duke Power Co. v. Carolina Envtl. Study Group, Inc., 438 U.S. 59, 82 (1978)); see also Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 894 (1990) (stating issue not "ripe" until there is concrete action applying to complainant). In analyzing the facts before it, the Abbott court stated, "[t]his is also a case in which the impact of the regulations upon the petitioners is sufficiently direct and immediate as to render the issue appropriate for judicial review." Abbott, 387 U.S. at 152.
(38) See Dominelli, 788 F.2d at 585 (applying Abbott standard to determine ripeness). The court assumed finality in the decision by the bankruptcy court, so the issues were fit for adjudication. Id. at 585-86. The court held that the case was ripe for adjudication because the attorney and the estate would suffer hardship if the issues were not resolved. Id. at 586. The court's reasoning does not follow the exact two-prong test outlined in Abbott, but rather concludes that there is prudential ripeness based upon the hardship that would result if the case was not adjudicated. Id. at 585-86. Consequently, the court provided little analysis of the "fitness" prong, and focused its holding mainly on the "hardship" prong. Id.
(39) See Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 668 (9th Cir. 2005) (determining district court erred by applying incorrect ripeness standard). The district court found constitutional ripeness because "substantial controversy" existed between the parties. Id. at 669. Even so, the court determined that it lacked subject matter jurisdiction because the parties could only prove a financial hardship if the court did not proceed, thereby, not establishing prudential ripeness under the Abbott two-prong test. Id. at 670. The district court also noted that judicial resources should not be used on controversies that parties invite. Id. at 669. The appeals court stated that the Abbott two-prong test should be used in cases involving administrative agencies. Id. at 670. The appeals court reasoned that the actions of administrative agencies affect the general public, whereas actions in a private contract only affect the parties involved. Id. at 67071.
(40) 394 F.3d 665 (9th Cir. 2005).
(41) Id. at 671. The Ninth Circuit determined the only remedy for the parties was to bring an action for declaratory judgment before the court. Id.
(42) See Bender v. Educ. Credit Mgmt. Corp. (In re Bender), 368 F.3d 846, 847-48 (8th Cir. 2004) (analyzing the constitutional basis for ripeness). In Bender, the Court of Appeals for the Eighth Circuit analyzed the constitutionality of the issues presented, as well as considered the avoidance of judicial resources, in determining whether the case was ripe for adjudication. Id. at 848. As a matter of administrative convenience, the court held that an undue hardship petition could commence prior to the date of discharge, but the actual proceedings should occur relatively close to the date of discharge. Id. In reaching this holding, the court reasoned that the deferral of a decision does not prejudice the debtor and allows the court to make a decision based on actual facts versus speculation. Id.; see also, e.g., Strahm v. Great Lakes Higher Educ. Corp (In re Strahm), 327 B.R. 319, 321-22 (Bankr. S.D. Ohio 2005) (determining ripeness based on "timing" or prudential concerns); Pair v. U.S. Dep't. of Educ. (In re Pair), 269 B.R. 719, 721 (Bankr. N.D. Ala. 2001) (holding undue hardship determination not ripe until financial circumstances are clearer); Soler v. United States ex rel. U.S. Dep't of Health & Human Servs. (In re Soler), 250 B.R. 694, 696-97 (Bankr. D. Minn. 2000) (analyzing ripeness based on remote and speculative nature of discharge determination); Raisor v. Educ. Loan Servs. Center, Inc. (In re Raisor), 180 B.R. 163, 166-67 (Bankr. E.D. Tex. 1995) (determining issue not ripe due to speculation and limited judicial resources). In cases that found the undue hardship determination as ripe, the courts provided little analysis on constitutional or prudential ripeness, and focused more on the statutory language. Compare Ekenasi v. Educ. Res. Inst. (In re Ekenasi), 325 F.3d 541, 547 (4th Cir. 2003), with Taylor v. United Student Aid Funds, Inc. (In re Taylor), 223 B.R. 747, 751 (B.A.P. 9th Cir. 1998), abrogated on other grounds by Educ. Credit Mgmt. Corp. v. Blair (In re Blair), 291 B.R. 514, 520 (B.A.P. 9th Cir. 2003).
(43) See, e.g., Bender, 368 F.3d at 847-48 (analyzing ripeness based on constitutionality); Strahm, 327 B.R. at 321-22 (determining ripeness based on "timing" or prudential concerns); pair, 269 B.R. at 721 (holding undue hardship determination is not ripe because issues are not clear); Soler, 250 B.R. at 697 (holding issues not ripe because they are "remote in time" and "speculative"); Raisor, 180 B.R. at 166-67 (finding not ripe because all relevant facts are unable to be presented).
(44) Educ. Credit. Mgmt. Corp. v. Coleman (In re Coleman) (Coleman II), 560 F.3d 1000, 1002-03 (9th Cir. 2009) (describing issues before the court).
(45) Id. at 1004 (citing Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1172 (9th Cir. 2003)) (employing Brunner factors for undue hardship determination). The court dismissed ECMC's argument that a debtor's good faith effort to repay the loan cannot be made until near plan completion. Id. at 1010. The court recognized that there may be situations where a debtor files for bankruptcy relief immediately upon graduation, which would result in no evidence of good faith repayment. Id. Coleman provided some evidence of good faith, as she had been trying to repay her loans since 1999. Id.
(46) Id. at 1004-11 (analyzing constitutional and prudential ripeness concerns).
(47) Id. at 1005 (discussing constitutional ripeness). The court states that constitutional ripeness requires issues that are "definite and concrete, not hypothetical or abstract." Id. (quoting Thomas v. Anchorage Equal Rights Comm'n, 220 F.3d 1134, 1139 (9th Cir. 2000)).
(48) Id. Although the discharge of Coleman's loans was contingent upon her completion of the payment plan, the court felt that this contingency did not make the controversy "impermissibly speculative." Id.
(49) Coleman II, 560 F.3d at 1006 (indicating Abbott test is appropriate for determining prudential ripeness). But see Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 670-71 (9th Cir. 2005) (holding Abbott test not applicable in private contract disputes). The Ninth Circuit reviewed and rejected its reasoning in Principal, which stated that the Abbott test was not appropriate for private contract cases disputes. Coleman II, 560 F.3d at 1006-07. The court, however, recognized the tension resulting from application of the Abbott test to bankruptcy cases because Chapter 13 cases lend themselves more readily to the reasoning of Principal. Id. at 1007 n.16. The court stated that Abbott's "fitness prong" is difficult to apply in bankruptcy cases because it was intended for purely legal questions, not the fact-specific scenarios that may require speculation by bankruptcy courts. Id. Despite this concern, the court concluded that Abbott's two-prong fitness and hardship test for determining prudential ripeness was appropriate in the context of the facts at issue. Id. at 1007.
(50) See Coleman II, 560 F.3d at 1009 (evaluating fitness prong).
(51) See id. (concluding further factual development would not aid the court's consideration).
(52) Id. at 1010 (analyzing hardship under prudential ripeness). The court stated, "[b]ecause debtors must commit all of their disposable income to payments under a Chapter 13 plan ... five years repayment is a considerable burden to bear without any guarantee that the debt will ultimately be discharged." Id.
(53) See id. at 1010-11 (discussing Chapter 13 and Chapter 7 bankruptcies in relation to student loan discharge). Chapter 13 bankruptcy allows the attorney to be paid as part of the payment plan, whereas Chapter 7 requires payment up-front. Id. at 1010. The court speculated that this cost burden is one that Coleman could not bear and was the reason she chose Chapter 13 over Chapter 7. Id. at 1011. Without the option under Chapter 13 to discharge student loans, a debtor is not provided with a financial fresh start, which is the purpose of the bankruptcy laws. Id.
(54) Id. (identifying additional financial challenges for debtors due to the rigid application of "undue hardship").
(55) Id. at 1009-11 (concluding two prongs of Abbott test were met and case was prudentially ripe).
(56) Coleman II, 560 F.3d at 1012 (stating holding).
(57) See id. at 1008-09 (holding undue hardship determination can be made in advance of Chapter 13 plan completion); Ekenasi v. Educ. Res. Inst. (In re Ekenasi), 325 F.3d 541, 547 (4th Cir. 2003) (stating debtors are not precluded from seeking undue hardship determination in advance of plan completion); see also Baron, supra note 1, at 295 (arguing discharge in advance of plan completion encourages Chapter 13 use and provides fresh start).
(58) See Coleman II, 560 F.3d at 1011 (stating purpose of bankruptcy law is to give debtors financial "fresh start"). The court expressed concern for debtors who pursue undue hardship determinations pro se, because the process is complex and without knowledgeable counsel, the debtor may be unable to successfully establish the required elements. Id.; see also Goranson v. Pa. Higher Educ. Assistance Agency (In re Goranson), 183 B.R. 52, 55 (Bankr. W.D.N.Y. 1995) (stating Chapter 13 debtors would be penalized, unlike Chapter 7 debtors). The Goranson court discussed the intersection between Chapter 13 and Chapter 7 when making a student loan discharge determination. Id. The court reasoned that a person's ability to make payments under a Chapter 13 plan is not necessarily indicative of that person's ability to continue to pay student loans upon plan completion. Id. Without providing the Chapter 13 debtor with discharge at payment plan completion, there is no fresh start which is the intent of bankruptcy laws. Id. A major concern in withholding an undue hardship determination until payment plan completion is that debtors will be discouraged from choosing Chapter 13 over Chapter 7, which is not what Congress intended. See Baron, supra note 1, at 279-81.
(59) See Coleman II, 560 F.3d at 1010 (finding facts of case determine whether debtor made good faith effort). Analyzing good faith efforts to repay student loans is not limited to the time of or near plan completion. Id. In Coleman, the court stated that the facts demonstrated a good faith effort by Coleman because she had been trying to repay her loans since 1999. Id.; see also Ekenasi, 325 F.3d at 549 (holding debtor failed to demonstrate good faith effort to pay back student loans). Courts must consider the specific facts of the case in determining whether the debtor has made a good faith effort to repay student loan debt. Id.
(60) See Coleman II, 560 F.3d at 1004 (considering Brunner elements to show undue hardship); see also sources cited supra note 19 (discussing Brunner test and application thereof).
(61) Coleman II, 560 F.3d at 1004. See Brunner v. N.Y. State Higher Educ. Services Corp. (Brunner II), 831 F.2d 395, 396 (2d Cir. 1987) (establishing undue hardship factors). The undue hardship test requires a three part showing: (1) the debtor can maintain a "minimal" standard of living, (2) the debtor's financial situation is likely to persist, and (3) the debtor has shown good faith in attempting to repay the loan. Id.
(62) See Ekenasi, 325 F.3d at 547 (requiring exceptional circumstances to predict Brunner elements in advance of plan completion); see also Strahm v. Great Lakes Higher Educ. Corp. (In re Strahm), 327 B.R. 319, 323-24 (Bankr. S.D. Ohio 2005) (realizing Brunner factors "do not transfer neatly" to Chapter 13); Pair v. U.S. Dep't of Educ. (In re Pair), 269 B.R. 719, 721 (Bankr. N.D. Ala. 2001) ("[I]t is impossible to address the Brunner factors in a Chapter 13 case until near or at the time the plan is scheduled for completion") (emphasis added); Raisor v. Educ. Loan Servicing Ctr. (In re Raisor), 180 B.R. 163, 167 (Bankr. E.D. Tex. 1995) (realizing Brunner elements could not be analyzed in light of undeveloped facts). The Raisor court stated that seeking a discharge prior to plan completion is not good faith on the part of the debtor. Id. at 167. "[T]he Court can best follow congressional intent of preserving student loans from discharge if the Court can fully and accurately analyze the Debtors' financial condition at the time the discharge is granted." Id.
(63) See Coleman II, 560 F.3d at 1009-10 (discussing likelihood that situation will persist and good faith). The court considered the Brunner factors to be "factual contingencies" that should not prohibit the case from being ripe. Id. at 1009; see also Goranson, 183 B.R. at 56 (discussing debtor's right to chose the "snapshot date" for applying Brunner test to Chapter 13 decision).
(64) See Ekenasi, 325 F.3d at 547 (suggesting debtor will have difficulty showing undue burden during a significant portion of repayment period); see also pair, 269 B.R. at 721 (finding case not ripe until financial circumstances are clearer).
(65) See Coleman II, 560 F. 3d at 1007 (determining Abbott had to be applied to case); see also Valley Forge Christian Coll. v. Ams. United for the Separation of Church & State, Inc., 454 U.S. 464, 471-72 (1982) (articulating requirements of "standing" under Article III).
(66) See Abbott Labs. v. Gardner, 387 U.S. 136, 148-49 (1967) (creating prudential ripeness test to ensure unnecessary judicial entanglement); see also Principal Life Ins. Co. v. Robinson, 394 F.3d 665, 670 (9th Cir. 2005) (discussing Abbott reasoning and determining test not applicable to private contract dispute). Administrative decisions are not considered ripe until a manageable issue has been identified, which results in a real harm to one of the parties. See Nat'l Park Hospitality Ass'n v. Dep't of the Interior, 538 U.S. 803, 808 (2003); see also Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 894 (1990) (stating court intervention in administrative process occurs only when a final action results in a harm); United States v. Braren, 338 F.3d 971, 975 (9th Cir. 2003) (stating agency action has to be final before issue is found ripe).
(67) See Abbott, 387 U.S. at 148; Nat'l Park, 538 U.S. at 807 (citing Abbott, 387 U.S. at 148) (concluding ripeness determination prevents unnecessary judicial entanglement with agency issues); Braren, 338 F.3d at 975 (stating purpose for determining prudential ripeness is to prevent judicial interference with agency decision).
(68) Principal, 394 F.3d at 671 (holding the logic of Abbott does not apply to private party contract cases). The court in principal held that judicial entanglement is appropriate in private contract controversies, unlike abstract administrative policies. Id. Indeed, the court's purpose is to resolve issues like the one presented in Principal, which are concrete and immediate. See id.; see also Valley Forge, 454 U.S. at 472 (reiterating need for the litigant to assert "a claim of injury in fact").
(69) See Coleman II, 560 F.3d at 1007 n.16 (quoting Principal, 394 F.3d at 671) ("Generally there will not be a risk of 'judicial entanglement in administrative agency actions....'"); see also Abbott, 387 U.S. at 148 (discussing ripeness in relation to administrative policies); Principal, 394 F.3d at 671 (assuming no administrative agency involved in private party contract cases).
(70) See Principal, 394 F. 3d at 671 (stating Abbott limited to cases that might result in judicial entanglement or impact on general public). Where there is an actual controversy between parties that can only be resolved through judicial involvement, the case is constitutionally ripe. Id.; see also Coleman II, 560 F.3d at 1005 (determining the case was constitutionally ripe). The court concluded that there was a definite controversy between the parties that was based on defined and specific debt. Id.