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Bankruptcy debtors are not entitled to discharge student loans simply by showing that they can’t make payments on their current income and maintain a “minimal” standard of living, but instead must also show that their financial prospects are so “hopeless” that they won’t be able to make payments in the foreseeable future. In In Re: Patricia A. Brightful, a unanimous three-judge panel of the 3rd U.S. Circuit Court of Appeals reversed a Bankruptcy Court decision that discharged more than $50,000 in student loans because repayment would cause an “undue hardship.” Writing for the court, U.S. Circuit Judge Marjorie O. Rendell found that the bankruptcy judge misapplied the 3rd Circuit’s three-prong test for student loan discharge announced in the 1995 decision in In re: Faish. Rendell said the Faish test requires proof 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. � Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for student loans. � The debtor has made good faith efforts to repay the loans. In applying the test, Rendell said, the debtor has the burden of establishing each prong by a preponderance of the evidence. “If one of the elements of the test is not proven, the inquiry must end there, and the student loans cannot be discharged,” Rendell wrote. Courts interpreting the test’s second prong, she said, have held that “dischargeability of student loans should be based upon the certainty of hopelessness, not simply a present inability to fulfill financial commitment.” Rendell found that Patricia Brightful failed to meet the strict test simply by showing that she is not likely ever to earn her college degree and suffers from emotional problems. Instead, Rendell found that Brightful’s financial prospects cannot be described as hopeless since she is continuing her long career as a legal secretary at Dechert and her daughter is soon to turn 18. “We realize that our result in this case might appear harsh, especially given the fact that Brightful does not have her college degree and is unlikely ever to attain it, as the Bankruptcy Court found. Therefore, unlike many student loan debtors, she cannot anticipate significantly increased earnings in the future that would flow from her educational investment,” Rendell wrote in an opinion joined by U.S. Circuit Judges Samuel A. Alito and Julio M. Fuentes. “Instead, she must for the foreseeable future rely upon her existing legal secretarial skills to fund her expenses and educational debt. This situation is unfortunate, but it does not excuse Brightful from meeting her student loan obligations.” Rendell said Brightful “struck her bargain, she took her risk, and unfortunately, things did not work out as planned. Brightful’s hardship is real, but under the Faish test, it is not ‘undue,’ and therefore we cannot discharge her obligation to repay her student loans.” At the time of the bankruptcy proceedings, Brightful was a 46-year-old single mother of a 14-year-old daughter. Due to an eviction, they had moved in with Brightful’s sister in a crowded three-bedroom home. The Bankruptcy Court noted that Brightful has no college degree, but has completed the equivalent of two years of college education. Most recently, she attended the New School for Social Research in New York City, but she has also attended the Community College of Philadelphia, Temple University and Pierce Junior College. During the late 1980s and early 1990s, Brightful was employed full-time as a legal secretary at Dechert. Since the early 1990s, she has worked part-time at Dechert. At the time of the hearing, Brightful was earning $18 an hour at Dechert, but was only working nine to 30 hours per month, and estimated that she would earn approximately $8,500 in 1999. The year before, she had earned $20,000. The Bankruptcy Court noted that Brightful had filed sexual discrimination and sexual harassment charges against Dechert in 1998. Despite describing her as “very intelligent” and “physically healthy,” the court also found that Brightful had “glaring psychiatric problems” and that she was “emotionally unstable,” noting that she had made two suicide attempts, one in the last year. The bankruptcy judge found it was unlikely that Brightful would ever attain her college degree, and that she lacked useful vocational training. The judge also found that Brightful’s pursuit of sexual discrimination charges against Dechert had both scarred her future prospects with that firm and accounted for the sharp reduction in her income in 1999 as compared to 1998. Now the 3rd Circuit has ruled that the bankruptcy court’s finding that Brightful lacks useful vocational training was “clearly erroneous.” “It is undisputed that Brightful has worked for over a decade in both a full-time and part-time capacity as a legal secretary at Dechert. As part of this employment, she is trained to operate office equipment and computer software,” Rendell wrote. “Brightful has never suggested that she lacked the skills to perform the duties of a legal secretary — indeed, such a suggestion would contradict the fact that she currently holds that position, albeit in a part-time capacity.” Rendell also rejected the Bankruptcy Court’s conclusions that Brightful’s pursuit of sexual discrimination charges against Dechert had scarred her future prospects with the firm and led to a sharp reduction in her income. “There is simply no basis in the record for the Bankruptcy Court’s conclusion that Brightful was the victim of retaliation for bringing charges against Dechert. Indeed, such a conclusion would seem to be contradicted by Brightful’s continued employment at Dechert at a higher rate of pay ($18 per hour) than she received prior to filing her charges,” Rendell wrote. “In any event, the Bankruptcy Court’s conclusions on this matter were purely speculative, and accordingly, we reject them,” Rendell wrote. Rendell also disagreed with the bankruptcy judge’s assessment of the effects of Brightful’s emotional and psychiatric problems. “What is missing from the Bankruptcy Court’s analysis, however, is any discussion of the nature of Brightful’s emotional and psychiatric problems, or how these problems prevent her from being gainfully employed. The Bankruptcy Court seems to have merely assumed that Brightful’s emotional and psychiatric problems would automatically preclude her from holding full-time employment,” Rendell wrote. “Yet Brightful’s testimony, while perhaps supporting the general conclusion that she has emotional and psychiatric problems, is notable for its lack of detail. It contains no explanation of the precise nature of her problems, and no explanation of how her condition would impair her ability to work as a legal secretary.” Brightful was represented in the appeal by attorney Henry J. Sommer of Miller Frank. Attorney Jason L. Swartley, in-house counsel with the Pennsylvania Higher Education Assistance Agency, argued the appeal for PHEAA and was joined on the brief by in-house attorney Byron F. Walker.

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