In the
United States Court of Appeals
For the Seventh Circuit

No. 01-3074

Jon P. Goulet,

Plaintiff-Appellant,

v.

Educational Credit Management Corp.,

Defendant-Appellee.

Appeal from the United States District Court
for the Western District of Wisconsin.
No. 01 C 288--John C. Shabaz, Judge.

Argued January 25, 2002--Decided March 27, 2002



  Before Manion, Kanne, and Williams, Circuit
Judges.

  Manion, Circuit Judge. Jon P. Goulet
filed for Chapter 7 bankruptcy and,
pursuant to an adversary proceeding,
sought to discharge his government-
guaranteed educational loans owed to the
defendant, Educational Credit Management
Corporation ("ECMC"), a not-for-
profitorganization that administers
guaranteed student loans. After a hearing
on the merits, the bankruptcy court
concluded that the student loans would
impose an "undue hardship" on Goulet
under 11 U.S.C. sec. 523(a)(8), and
therefore entered an order discharging
the loans. ECMC appealed to the district
court, which reversed the decision of the
bankruptcy court. In re Goulet, 264 B.R.
527 (W.D. Wis. 2001). Goulet appeals, and
we affirm the decision of the district
court that the loans are not
dischargeable under Section 523(a)(8).

I.

  The bankruptcy court made the following
findings of fact. The debtor, Jon P.
Goulet, is 55 years old, lives with his
mother in Eau Claire, Wisconsin, and
helps her around the house since his
father recently died. Goulet has an 11-
year-old son, of whom he does not have
custody. He owes $228 per month in child
support. At the time of the bankruptcy
court proceedings, Goulet’s mother was
paying one-half of the monthly payment on
his behalf and he was in arrears on the
child support obligation. Goulet’s mother
generally supports him from her own
income, including her Social Security
payment, and does not charge him any rent
or lodging expenses. He does not receive
any form of public assistance.

  After graduating high school in
Wisconsin in 1963, Goulet attended the
University of Wisconsin-Eau Claire
periodically from 1963 through 1968. In
1969, he transferred to Regis University
in Denver, Colorado (at that time known
as Loretta Heights) and, in 1972, he
earned his bachelor’s degree in history,
graduating with a 3.45 GPA. Between 1972
and 1983, he worked at various jobs in
Denver, including bartending and
restaurant management. In 1984, he moved
back to Eau Claire and became a life
insurance agent. For the next few years,
he made a steady, comfortable living and
his income ranged from approximately
$20,000 to $30,000.

  Then, Goulet’s fortunes took a turn for
the worse. In 1989, he had his insurance
license revoked due to a charge of
insurance fraud. He was also arrested for
felony possession of cocaine, with intent
to deliver./1 After attending out-
patient counseling, he worked as a
bouncer and bartender from 1988 through
1990. From 1991 to 1995, Goulet went back
to school, attending the University of
Wisconsin-Stout and completing all the
required courses for a master’s in
psychology with a 3.7 GPA. However, he
did not obtain his degree because he
failed to complete a statistical analysis
for his thesis. Goulet also testified
that he did not complete his master’s
degree work because a counseling job
requires 3,000 hours of post-degree
experience and certification, which he
believed he would be unable to achieve in
light of his felony conviction.

  After quitting the master’s degree
program, Goulet applied for and was
rejected from some counseling positions.
Since then, he has held various bartender
positions and managed a restaurant for a
short time. As recently as the district
court proceeding, he was employed as a
real estate agent for Edina Realty, but
had yet to make a sale or obtain a
listing./2 His income for the year 2000
was $1,490.00 and his monthly expenses,
excluding his child support obligation,
are approximately $492.00 (or $5,904.00
annually).

  While attending graduate school at UW-
Stout, Goulet obtained 21 student loans
totaling, with accrued interest,
approximately $76,000.00./3 The debt is
accruing at a 9% interest rate. In
September 1994, when his first payment
was due, Goulet requested and received a
forbearance agreement on the loans. He
also timely requested and received
additional forbearance agreements when
subsequent payments became due, the last
in May 2000. At that time, ECMC stopped
granting forbearances and Goulet
subsequently filed his petition for
bankruptcy, seeking relief from the debt.
Goulet never made a single payment on his
student loans.

  Goulet testified that he has suffered
from a drug and alcohol problem for
approximately 30 years. He has never
sought in-patient treatment, but he has
had some out-patient counseling, notably
through Alcoholics Anonymous. The
bankruptcy court heard the testimony of
Mr. John Siebold, the manager of the club
at the Eau Claire Golf and Country Club
where Goulet had been a bartender.
Siebold testified that he had never
observed any indication that Goulet had
an alcohol or drug abuse problem, but the
court discounted this testimony,
concluding that "we know as lawyers many
of our colleagues go home and they’re
drinking every night." The bankruptcy
court then concluded that Goulet was "a
smart guy and [has] great capabilities. .
. . [and] also [has] a significant
problem in that [he has] an addiction."
The bankruptcy court also investigated
whether Goulet would have the ability to
make payments in the future. During the
hearing, it heard the testimony of Mr.
Jim Theisen, an owner of a successful
real estate business, who testified that
first-year real estate agents made
$17,000 to $40,000 and second-year agents
made $25,000 to $60,000. The court,
however, discounted Mr. Theisen’s
testimony, noting that "although we know
you can make good money in the real
estate business . . . . there are many
people I know who wash out in that
industry."

  After considering the foregoing facts
and circumstances, the bankruptcy court,
applying our circuit’s test for "undue
hardship," determined that Goulet did not
have the money to make payments, that his
inability to pay would persist for the
significant future, and that he had made
a good faith effort to repay the debt.
The court thereby discharged Goulet’s
student loans. ECMC appealed the
bankruptcy court’s decision and the
federal district court reversed. Goulet
appeals.

II.

  We must decide whether Goulet
established that he would suffer "undue
hardship" if his student loans were not
discharged. Student loans are not
dischargeable in bankruptcy unless they
will constitute an "undue hardship" on
the debtor. See 11 U.S.C. sec.
523(a)(8)./4 The Bankruptcy Code does
not define "undue hardship," but this
circuit has adopted the Second Circuit’s
three-pronged Brunner test, see Brunner
v. New York State Higher Educ. Serv.
Corp., 831 F.2d 395, 396 (2d Cir. 1987),
for evaluating such a claim. In the
Matter of Roberson, 999 F.2d 1132, 1135
(7th Cir. 1993). Under this test, the
debtor must demonstrate (1) that he
cannot maintain, based on current income
and expenses, a minimal standard of
living for himself and his dependents if
forced to repay the loans; (2) that
additional circumstances exist indicating
that the 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.
Roberson, 999 F.2d at 1135 (adopting test
from Brunner, 831 F.2d at 396). The
debtor has the burden of establishing
each element of the test by a
preponderance of the evidence. Grogan v.
Garner, 498 U.S. 279, 291 (1991)
("standard of proof for the
dischargeability exceptions in 11 U.S.C.
sec. 523(a) is the ordinary
preponderance-of-the-evidence standard").
If the debtor fails to establish any one
of the elements, the test has not been
met and the court need not continue with
the inquiry. Roberson, 999 F.2d at 1135.
See also In re Brightful, 267 F.3d 324,
327-28 (3d Cir. 2001).

  We now turn to the inquiry of "whether
[Goulet’s] circumstances meet that test,
a question of law subject to de novo
review." Roberson, 999 F.2d at 1137. In
doing so, we are mindful that the trier
of fact was the bankruptcy court, and
therefore "we are in as good a position
as the district court to review the
findings of the bankruptcy court, so we
review the bankruptcy court’s findings by
the standards the district court should
employ, to determine whether the district
court erred in its review." Brightful,
267 F.3d at 327 (citation omitted). See
also In re Platter, 140 F.3d 676, 678
(7th Cir. 1998). We "accept the
bankruptcy court’s findings of fact, with
the exception of those that are clearly
erroneous, and place the burden on [the
debtor] to establish that his
circumstances warrant discharge of his
loans." Roberson, 999 F.2d at 1137
(internal citation omitted). See also
Fed. R. Bankr. P. 8013 ("[f]indings of
fact, whether based on oral or
documentary evidence, shall not be set
aside unless clearly erroneous, and due
regard shall be given to the opportunity
of the bankruptcy court to judge the
credibility of the witnesses.").

  In examining the first Brunner prong,
Goulet’s financial condition, both
parties agree that Goulet cannot
maintain, based on his current income and
expenses, a minimal standard of living
for himself. At the time of the
bankruptcy hearing, Goulet’s yearly
expenses, without factoring in his
student loan debt, were approximately
$5,904.00. This amount easily exceeds his
most recent annual income of $1,490.00.
Therefore, he has clearly established the
first prong of the Brunner test.

  Turning to the second prong, we look at
whether additional circumstances exist
indicating that Goulet’s state of affairs
is likely to persist for a significant
portion of the repayment period. We
stated in Roberson that this second prong
"imputes to the meaning of ’undue
hardship’ a requirement that the debtor
show his dire financial condition is
likely to exist for a significant portion
of the repayment period. . . .
Accordingly, the dischargeability of
student loans should be based upon the
certainty of hopelessness, not simply a
present inability to fulfill financial
commitment." Roberson, 999 F.2d at 1135-
36 (citation omitted) (emphasis added).
This requires evidence "of additional,
exceptional circumstances, strongly
suggestive of continuing inability to
repay over an extended period of time . .
. ." Id. at 1136. In Roberson, the debtor
was approximately 35 years old and had a
school loan debt of approximately
$10,000.00. He also had child support
obligations and two drunk driving
convictions. Under these circumstances,
the court concluded that the debtor had
not established the second prong, noting
that "[w]hile any precise prediction of
his future earnings and expenses is
necessarily speculative, Mr. Roberson has
not indicated his road to recovery is
obstructed by the type of barrier that
would lead us to believe he will lack the
ability to repay for several years." Id.
at 1137. The court listed examples of
such barriers: psychiatric problems, lack
of usable job skills and severely limited
education. Id.

  Here, Goulet contends that his age, the
enormous amount of his debt, his alcohol
and substance abuse problems and his
felony conviction create substantial
barriers to his ability to repay his
student loans. He argues that
amortization of a $76,000.00 debt over 20
years (when he would be almost 76 years
old), accruing interest at 9% per year,
would require him to pay over $600 per
month, and that this would be impossible
to do without imposing an undue hardship
upon him. The bankruptcy court accepted
this argument and determined that
Goulet’s inability to pay would persist,
stating that "the evidence is absolutely
clear, based on his past history, that it
will persist; because during the whole
decade of the 90’s we see that he hasn’t
had the capacity to make these payments."
In contrast, the district court
determined that "[v]irtually any job
would permit him to make payments on the
loan while satisfying his personal needs.
. . . common sense requires the
conclusion that he could obtain some job
which would permit loan payments."
Goulet, 264 B.R. at 530.

  We do not believe that the bankruptcy
court clearly erred in its factual
findings, but rather conclude that it
erred, as a matter of law, in holding
that Goulet’s circumstances rise to the
level of those "additional, exceptional
circumstances" necessary to satisfy the
second prong of the Brunner "undue
hardship" test. Goulet’s contention that
his alcoholism and felony conviction make
it impossible for him to find work is
unpersuasive. By his own admission, these
circumstances predated his attendance at
UW-Stout and his acceptance of the
responsibility of these student loans. By
returning to graduate school at the age
of 45 and voluntarily assuming the debt,
Goulet must have believed that he had
future earnings potential. See Roberson,
999 F.2d at 1137 (noting that "government
is not twisting the arms of potential
students. The decision of whether or not
to borrow for a college education lies
with the individual . . . ."). He has
serious problems, but we are reluctant to
label these pre-loan problems
"additional, exceptional circumstances"
so as to constitute "undue hardship" for
purposes of Section 523(a)(8).
Additionally, while Goulet’s testimony
demonstrates that he has substance abuse
issues, we note that the record is devoid
of any evidence demonstrating that his
problems are insurmountable, or that they
impair his ability to work. See
Brightful, 267 F.3d at 330 (no record
basis for conclusion that debtor’s
emotional problems, including two suicide
attempts, constitute "additional
circumstances" under second prong of
test). Presumably he has some source of
revenue to maintain his claimed drug
dependency. As the bankruptcy court
noted, Goulet is an intelligent man. The
record does not reveal that he lacks
usable job skills or that he is hindered
by a limited education. In fact, because
of the loans, he received an excellent
education. The natural conclusion, when
considering his exemplary educational
record and nearly-completed graduate
work, is that Goulet can apply himself
when he desires to do so. The record does
not demonstrate that he lacks the
capacity to work, only that he does not
seem anxious to do so. Moreover, even if
Goulet’s prospects in the mental health
field or the insurance industry are
foreclosed, there is no evidence that
Goulet is unemployable in other areas.
Rather, the record indicates that Goulet
has simply failed to diligently pursue
employment such that he would be able to
alleviate his financial burdens. See
Brightful, 267 F.3d at 329 n.4 (record
indicates that debtor had not diligently
pursued employment). Under these
circumstances, we conclude that Goulet’s
condition has not reached the "certainty
of hopelessness" that would lead us to
find that his condition is likely to
persist for a significant portion of the
repayment period.

  Finally, we turn to the third prong of
the Brunner test and examine whether
Goulet has made a good faith effort to
repay the outstanding loans. This factor
recognizes that "[w]ith the receipt of a
government-guaranteed education, the
student assumes an obligation to make a
good faith effort to repay those loans,
as measured by his or her efforts to
obtain employment, maximize income, and
minimize expenses." Roberson, 999 F.2d at
1136. In concluding that Goulet had
established this element, the bankruptcy
court reasoned that he always sought, in
a timely manner, to defer his loan
payments and never let the loans lapse
into default. In contrast, the district
court concluded that there was little
evidence that Goulet had made a good
faith effort to make actual payments on
his loans. The court determined that,
while there was some evidence that Goulet
had made an effort to minimize his
expenses (apparently by staying at his
mother’s home and letting her pay for
everything), there was little evidence of
significant efforts to obtain employment
or any effort to apply available income
to the student debt. Goulet, 264 B.R. at
531. While it is hard to see good faith
in paying nothing when obtaining payment
deferrals, we need not resolve this
question, given our conclusion that
Goulet has not established that his
financial condition is likely to persist
as required by the second prong of the
Brunner test./5 Roberson, 999 F.2d at
1138.

  While we are not totally unsympathetic
to Goulet’s plight, we have noted, "if
the leveraged investment of an education
does not generate the return the borrower
anticipated, the student, not the
taxpayers, must accept the consequences
of the decision to borrow." Roberson, 999
F.2d at 1137 (emphasis added). See also
Brightful, 267 F.3d at 331 (noting that
debtor’s "hardship is real, but . . . it
is not undue"). We are hopeful that
Goulet will make real efforts to better
his situation for his sake, his mother’s,
and that of his son. If his chosen study
of mental health counseling does not
prove fruitful, he will have to search
elsewhere for gainful employment.

III.

  In sum, we conclude that Goulet has not
demonstrated that the repayment of his
student loans would constitute an "undue
hardship" under 11 U.S.C. sec. 523(a)(8)
and we therefore AFFIRM the district
court’s decision that the debt was non-
dischargeable.

FOOTNOTES

/1 The record does not clearly establish when this
conviction took place. Goulet testified that he
was arrested in April of 1998, but the bankruptcy
court found that he was arrested in 1980. In the
context of other testimony, it appears to us that
the accurate date is 1988, but while the actual
date may be unclear, the fact of the conviction
is not disputed. Goulet also testified that he
had another felony conviction when he was 19
years old, but the record does not reveal the
nature or disposition of this conviction.

/2 Goulet’s counsel reported at oral argument that,
as of the time he drafted the appellate brief,
Goulet was unemployed.

/3 Goulet’s counsel reported at oral argument that
the amount owing had now exceeded
$80,000.00.

/4 This section prohibits the discharge of an indi-
vidual debtor from any debt "for 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
for an obligation to repay funds received as an
educational benefit, scholarship or stipend,
unless excepting such debt from discharge under
this paragraph will impose an undue hardship on
the debtor and the debtor’s dependents." 11
U.S.C. sec. 523(a)(8) (emphasis added).

/5 For the same reason, we need not reach Goulet’s
contention that there is no statutory basis for
the third prong of the Brunner test. He argues
that, since the statute merely asks whether the
loans will impose an undue hardship on the debt-
or, we should not consider the debtor’s past
behavior.
