                                                                                                                           Opinions of the United
2009 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


5-22-2009

Jessica Coco v. NJ Higher Ed Student
Precedential or Non-Precedential: Non-Precedential

Docket No. 08-2965




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                                                                      NOT PRECEDENTIAL

                          UNITED STATES COURT OF APPEALS
                               FOR THE THIRD CIRCUIT
                                    ___________

                                        No. 08-2965
                                        ___________

                           IN RE: JESSICA ANNA COCO, Debtor

                                   JESSICA ANNA COCO,
                                                   Appellant

                                              v.

      NEW JERSEY HIGHER EDUCATION STUDENT ASSISTANCE AUTHORITY
                   ____________________________________

                       On Appeal from the United States District Court
                                  for the District of New Jersey
                                 (D.C. Civil No. 2:07-cv-2725)
                       District Judge: Honorable Katharine S. Hayden
                        ____________________________________

                       Submitted Pursuant to Third Circuit LAR 34.1(a)
                                       May 20, 2009

                 Before: MCKEE, HARDIMAN and COWEN, Circuit Judges

                                (Opinion filed: May 22, 2009)

                                          _________

                                           OPINION
                                          _________

PER CURIAM

       Appellant Jessica Coco filed for Chapter 7 bankruptcy and, pursuant to an adversary

proceeding, sought to discharge her student loans owed to Appellee New Jersey Higher


                                               1
Education Student Assistance Authority (“NJHESAA”). After a hearing, the Bankruptcy Court

granted summary judgment in favor of NJHESAA, holding that Coco failed to demonstrate that

repaying these student loans would impose an “undue hardship” on her, as required by 11 U.S.C.

§ 523(a)(8). Coco appealed this decision to the District Court, which affirmed. For the reasons

that follow, we will vacate the judgment of the District Court and remand with instructions that

the Bankruptcy Court vacate the grant of summary judgment.

                                                 I.

       Coco attended New York University from 1989 to 1992, earning a bachelor of arts degree

in history and English literature and an associate’s degree in general studies. She financed her

education through student loans, with the loans at issue in this case totaling approximately

$25,000. She avers that, beginning in 1992 and for several years thereafter, she suffered

complications from a severe bout of mononucleosis, including liver damage, non-cancerous

leukemia (an abnormally high white blood cell count), hemophilia, significant weight loss,

chronic fatigue, and mental fogginess. She states that she ultimately developed Chronic Fatigue

Syndrome and a weakened immune system, the latter of which has rendered her susceptible to

urinary, kidney, vaginal, stomach, bowel, sinus, and toe infections, as well as frequent bouts of

pneumonia, bronchitis, strep throat, and asthma. In 2005, Coco purportedly was diagnosed with

osteomyelitis of the mandibular bone, a chronic bone infection in her jaw that is potentially life

threatening and has required multiple surgeries.1 She indicates that she now also suffers from




       1
       Much of this medical information is taken from a letter purportedly written by Dr.
Raphael Sepson, who according to Coco served as her primary care physician from 1992
to 2005.

                                                 2
Chronic Obstructive Pulmonary Disease, fibromyalgia, arthritis, and metal poisoning.

           According to Coco, her chronic medical problems have made it difficult for her to earn a

living. Additionally, she states that, from 1994 to 2006, she served as sole caregiver to her

elderly, disabled mother, who passed away in 2006. From 1993 to 1997, Coco’s reported

average yearly income was approximately $1200. She maintains that, during that time, the

burdens of her medical conditions and caring for her mother permitted her to work only for very

short periods of time. After obtaining a deferment on her student loans on at least one occasion,

Coco defaulted in 1997, at which time NJHESAA, the guarantor, repurchased the loans from the

lender, Sallie Mae, Inc.

       From 1998 to 2005, Coco’s reported average yearly income was approximately $10,700.

Despite these increased earnings, Coco continued to face financial difficulty, as it appears that

her earnings were offset by basic living expenses and high medical costs. In October 2005, Coco

filed for Chapter 7 bankruptcy and, pursuant to an adversary hearing, sought to discharge her

student loans owed to NJHESAA.2 At that time, she owed in excess of $70,000, a sum that

included the principal, interest, and default penalties. After a hearing in February 2007, the

Bankruptcy Court orally granted summary judgment in favor of NJHESAA, holding that Coco

failed to demonstrate that repaying these student loans would impose an “undue hardship” on

her, as required by 11 U.S.C. § 523(a)(8). The court’s ruling turned on Coco’s “utter failure” to

demonstrate that she had made a good faith effort to repay her loans.

       In June 2007, the Bankruptcy Court issued a written order reflecting its grant of summary



       2
        Coco also had student loans owed to New York University. Those loans are not at
issue here.

                                                  3
judgment. Coco appealed this ruling to the District of New Jersey, which affirmed in May 2008.

She now appeals the District Court’s judgment to this Court.

                                                   II.

        We have jurisdiction over this appeal pursuant to 28 U.S.C. § 158(d). The Bankruptcy

Court had original jurisdiction over this case; therefore, “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 v. Pa. Higher Educ. Assistance Agency (In re Brightful), 267 F.3d

324, 327 (3d Cir. 2001) (internal quotations and citation omitted). Accordingly, we exercise

plenary review over the Bankruptcy Court’s application of the three-pronged undue hardship test

to the facts of this case. Id.

                                                  III.

        Pursuant to 11 U.S.C. § 523(a)(8), student loan debt cannot be discharged in bankruptcy

unless repaying this debt would impose an “undue hardship” on the debtor. We, along with the

majority of our sister courts, assess whether a debtor faces undue hardship by employing the

three-pronged test set forth in Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d

Cir. 1987). See Pa. Higher Educ. Assistance Agency v. Faish (In re Faish), 72 F.3d 298, 306 (3d

Cir. 1995) (adopting Brunner test). Under this test, the debtor must establish:

        (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 additional circumstances exist indicating 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.

Brunner, 831 F.2d at 396. To prevail, the debtor must establish each prong by a preponderance

of the evidence. Brightful, 267 F.3d at 327-28. “Equitable concerns or other extraneous factors


                                                   4
not contemplated by the Brunner framework may not be imported into the court’s analysis to

support a finding of dischargeability.” Faish, 72 F.3d at 306.

       The application of the good faith prong “is to be guided by the understanding that undue

hardship encompasses a notion that the debtor may not willfully or negligently cause h[er] own

default, but rather h[er] condition must result from factors beyond h[er] reasonable control.” Id.

at 305 (internal quotations and citation omitted). Although we have not had occasion to apply

the good faith prong, other courts have done so by examining the debtor’s efforts to “‘obtain

employment, maximize income, and minimize expenses.’” Educ. Credit Mgmt. Corp. v.

Frushour (In re Frushour), 433 F.3d 393, 402 (4th Cir. 2005) (quoting O’Hearn v. Educ. Credit

Mgmt. Corp. (In re O’Hearn), 339 F.3d 559, 564 (7th Cir. 2003)). Courts have also considered

the debtor’s efforts to cooperate with the lender, giving weight to a debtor’s attempts to seek out

a feasible repayment plan. See, e.g., Frushour, 433 F.3d at 402; Educ. Credit Mgmt. Corp. v.

Polleys, 356 F.3d 1302, 1312 (10th Cir. 2004).

       In granting NJHESAA’s motion for summary judgment, the Bankruptcy Court focused on

Coco’s “utter failure” to satisfy the good faith prong.3 The court placed “extraordinary

significance” on the fact that she had made only one payment – $100 – toward her loan balance.

The court also emphasized the fact that Coco had “made no effort to enter into any kind of



       3
        The Bankruptcy Court only briefly addressed the first two prongs of the undue
hardship test. The court seemed to conclude that Coco could satisfy the first prong. As
for the second prong, the court stated that Coco’s evidence “doesn’t do much to meet [this
prong].” The District Court interpreted this to mean that Coco “barely” met the second
prong. Although this interpretation might be debatable, it does not appear that the
Bankruptcy Court’s grant of summary judgment rested on a failure to satisfy the second
prong.

                                                 5
repayment program,” noting specifically that she had refused to enroll in the Income Contingent

Repayment Plan (“ICRP”).4 The District Court emphasized these same points in affirming the

Bankruptcy Court’s ruling.

       Summary judgment is appropriate only if “there is no genuine issue as to any material fact

and . . . the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); see Fed. R.

Bankr. P. 7056 (stating that Fed. R. Civ. P. 56 applies in adversary proceedings before a

bankruptcy court). The court reviewing a summary judgment motion “must view the evidence in

the light most favorable to the non-movant, drawing all reasonable inferences in favor of the non-

moving party.” Burtch v. Ganz (In re Mushroom Transp. Co.), 382 F.3d 325, 335 (3d Cir. 2004)

(internal quotations and citation omitted). Of course, a party opposing summary judgment “must

present more than just ‘bare assertions, conclusory allegations or suspicions’ to show the

existence of a genuine issue.” Podobnik v. U.S. Postal Serv., 409 F.3d 584, 594 (3d Cir. 2005)

(citation omitted). In this case, viewing the proffered evidence in the light most favorable to

Coco, we conclude that she has sufficiently demonstrated a good faith effort to repay her student

loans to survive summary judgment.

       Despite purportedly suffering from several chronic medical conditions and caring for her

elderly, disabled mother until her passing, it appears that Coco has made efforts to obtain stable

employment. Although she has been mostly unsuccessful in this regard, it seems that her

sporadic employment has been due to factors outside her control. She avers that, from 1993 to




       4
         The Bankruptcy Court referred to this plan as the “Ford program,” as the ICRP is
part of the William D. Ford Direct Loan Consolidation Program. See 34 C.F.R.
§ 685.209.

                                                 6
1997, her medical conditions, coupled with the demands of caring for her mother, prevented her

from working regularly. Although she was able to obtain part-time employment in 1998, she

states that she began to suffer from Chronic Fatigue Syndrome and other medical problems

shortly thereafter. She notes that, in 2001, she became too ill to continue to hold this position.

When her health improved moderately in 2004, she obtained a position with the U.S. Census

Bureau, which apparently permitted her to work a flexible, part-time schedule, enabling her to

significantly increase her earnings. According to Coco, when this employer downgraded her

employee status from part-time (20 hours per week) to temporary (10 hours per week) in 2006,

she obtained a second position to supplement her income. Unfortunately, she was able to hold

this second position for only a month, as she could not maintain a consistent work schedule.

        The record suggests that, to compensate for her modest earnings, Coco has striven to

minimize her expenses. It appears that nearly all of her monthly earnings pay for basic living

costs such as rent, food, medical bills, and auto repairs.5 The closest thing to discretionary

spending appears to be the few dollars per month she claims to spend on periodicals and pet

food.

        It appears that Coco has also attempted to cooperate with NJHESAA in the repayment of

her loans. Documents submitted by Coco indicate that she sought and obtained a forbearance on

at least three occasions. Additionally, she avers that she inquired about the possibility of paying

a portion of her monthly balance, a proposal that NJHESAA allegedly refused, instructing her to


        5
        In addition to having cared for her mother, Coco states that she has, at times,
cared for a friend, Chance Bishop, who allegedly suffers from mandibular cancer. It is
unclear from the record as to whether her caring for him has had any meaningful impact
on her financially.

                                                  7
apply for a deferment until she could pay the balance in full.

       The Bankruptcy Court placed too much weight on the fact that Coco has made only one

payment toward her loan balance. Her financial situation seemingly has prevented her from

setting aside funds for the repayment of her loan. It appears that her earnings, even when at their

peak, have been offset by basic living expenses and high medical costs. Indeed, her submitted

balance sheets for the years 2005 and 2006 – two of her highest incoming-generating years –

suggest that her monthly expenses equaled or exceeded her net earnings. Moreover, as noted

above, when she inquired about the possibility of paying only a portion of her monthly balance,

NJHESAA allegedly told her that she either had to pay the balance in full or seek deferment until

she could do so.

       The Bankruptcy Court also placed too much weight on Coco’s refusal to enroll in the

ICRP. Under this repayment plan, she would be obligated to pay a reduced amount for a period

of up to 25 years, after which the unpaid portion of the loan would be discharged. See 34 C.F.R.

§ 685.209. Importantly, and as Coco emphasizes, because any discharged portion of her loan

would be treated as taxable income at the time of the discharge, her participation in the ICRP

could ultimately result in her simply trading a student loan debt for an IRS debt. See Educ.

Credit Mgmt. Corp. v. Mosley (In re Mosley), 494 F.3d 1320, 1327 (11th Cir. 2007). In light of

her purported financial and medical circumstances, which Coco’s proffered evidence suggests

will continue indefinitely, her decision to forgo enrolling in the ICRP seems reasonable. See

Barrett v. Educ. Credit Mgmt. Corp. (In re Barrett), 487 F.3d 353, 365 (6th Cir. 2007); cf.

Frushour, 433 F.3d at 403 (“[Debtor’s] only reasons for refusing [to enroll in the ICRP] . . . were

that it was not suited for her and she wanted a fresh start. It is hard to see why these reasons are


                                                  8
not simply shorthand for her lack of interest in repaying her debt.”).

       This case does not appear to present a situation where a debtor sought to abuse the

student loan system or evade repayment. After Coco’s loans became due, it appears that she

struggled – often below the poverty line – for more than a decade before applying for bankruptcy.

Cf. Brunner, 831 F.2d at 397 (declining to find undue hardship where the debtor sought to

discharge her student loans within a month after the first payment became due). During that

time, it appears she attempted to obtain regular employment and negotiate a feasible repayment

plan, all the while coping with chronic medical problems and caring for her ailing mother.

Although her efforts to repay her loans have been largely unsuccessful, it appears that this lack of

success has been caused by factors outside of her control. Accordingly, we conclude that Coco

has made a sufficient showing of good faith to survive summary judgment.

       In light of the above, we conclude that the District Court erred in affirming the

Bankruptcy Court’s grant of summary judgment. We will vacate the judgment of the District

Court and remand with instructions that the Bankruptcy Court vacate the order granting summary

judgment.




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