     Case: 19-40269      Document: 00515442411         Page: 1    Date Filed: 06/05/2020




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                          United States Court of Appeals
                                                                                   Fifth Circuit

                                                                                 FILED
                                      No. 19-40269                            June 5, 2020
                                                                            Lyle W. Cayce
In the Matter of: THELMA G. MCCOY                                                Clerk


              Debtor

THELMA G. MCCOY,

              Appellant

v.

UNITED STATES OF AMERICA,

              Appellee




                   Appeal from the United States District Court
                        for the Southern District of Texas
                              USDC No. 3:18-CV-21


Before BARKSDALE, HAYNES, and WILLETT, Circuit Judges.
PER CURIAM:*
       Thelma McCoy incurred a large amount of student loan debt (currently
totaling over $345,000) in pursuit of advanced degrees, beginning when she
was in her forties. She consolidated her loans and entered into an income-


       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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                                       No. 19-40269
based repayment plan. When her degrees did not yield the well-paying jobs
she hoped for, she filed for bankruptcy seeking relief from the consolidated
student loan debt. At the time of her bankruptcy filing, and throughout this
litigation, her repayment plan has required zero dollars per month due to her
low income. If her income does not improve, McCoy will continue to have a
zero-dollar repayment obligation. Under the structure of the repayment plan,
her debt may be forgiven twenty-five years following her first payment under
the plan. See 34 C.F.R. § 685.221(f)(1), (f)(3)(ii)(D) (2013). However, under
current law, such forgiveness has tax implications unless McCoy were to
qualify for an employment-based exception; any forgiven amount will be
subject to whatever taxation laws are in effect at the time the debt is forgiven.
26 U.S.C. §§ 61(a)(11), 108(f)(1).
       Student loan debt is usually not dischargeable in bankruptcy. 11 U.S.C.
§ 523(a)(8).     However, there is an exception, which McCoy asserted, for
circumstances where failure to discharge would impose an “undue hardship”
on the debtor. Id. The bankruptcy court found no undue hardship, and the
district court affirmed. 1 This timely appeal followed. 2
       Requirements for Student Loan Discharge.                             Although the
bankruptcy code provides for student loan debt discharge for undue hardship,
it does not define this term. See id. In the absence of a statutory definition,



       1  The bankruptcy court had jurisdiction over this case under 28 U.S.C. § 1334, the
district court had jurisdiction over the initial appeal under 28 U.S.C. § 158(a)(1), and our
court has jurisdiction over McCoy’s instant appeal under 28 U.S.C. § 158(d)(1).

       2 We “apply[] the same standards of review to the bankruptcy court’s finding[s] of fact
and conclusions of law as applied by the district court”; “[c]onsequently, the bankruptcy
court’s findings of fact are reviewed for clear error and conclusions of law are reviewed de
novo.” In re Thomas, 931 F.3d 449, 451–52 (5th Cir. 2019) (internal quotation marks and
citations omitted). Thus, we review de novo any legal questions underlying whether the loans
pose an undue hardship. Id. at 452.

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                                       No. 19-40269
we have adopted a three-part test originally used by the Second Circuit. In re
Gerhardt, 348 F.3d 89, 91 (5th Cir. 2003) (adopting test from Brunner v. N.Y.
State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2d Cir. 1987) (per curiam)).
       . To prove that a debt imposes an “undue hardship,” a debtor must show:
       (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.
           Now 62 years old, McCoy describes the problems she has faced due to
health issues and difficulty finding a job.               Arguing for affirmance, the
Government appears not to contest the basic premise that McCoy cannot afford
to make higher payments on her loan at the present time. The impact of a
zero-dollar monthly payment under an income-based repayment plan on the
first prong of Brunner has not been decisively determined by our court
previously, 3 and we conclude that we need not address it because McCoy has
failed to establish that the bankruptcy court (as affirmed by the district court)
erred in its findings on the second prong.
       Brunner Second Prong.                   Under our precedent, “[a]dditional
circumstances encompass circumstances that impacted on the debtor’s future
earning potential but which were either not present when the debtor applied
for the loans or have since been exacerbated.”               Gerhardt, 348 F.3d at 92



       3  McCoy argues that the undue hardship comes from the tax liability she will face
some twenty plus years from now. That argument is highly speculative and fails to account
for the fact that tax laws can and do change and that, if she did not survive until the end of
the twenty-five-year repayment period, the loan would be discharged without any further
liability to her estate. See 34 C.F.R. § 682.402(b)(1).

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                                  No. 19-40269
(cleaned up) (citation omitted).      To meet the second prong’s “demanding
requirement,” a “debtor must specifically prove a total incapacity in the future
to pay [her] debts for reasons not within [her] control.”            Id. (internal
alterations, quotation marks, and citations omitted). These circumstances
“may include illness, disability, a lack of useable job skills, or the existence of
a large number of dependents.” In re Oyler, 397 F.3d 382, 386 (6th Cir. 2005).
We recently applied this standard to a debtor with a degenerative medical
condition who had quit jobs where the employers “were unable to accommodate
her need to remain sedentary for periods of time during her shifts” and
determined that she could not meet the second prong because she was “capable
of employment in sedentary work environments.” Thomas, 931 F.3d at 452.
      Here, McCoy argues that “at least two major additional circumstances”
demonstrate that the state of affairs is likely to persist: “(1) she is elderly—at
62 she is less than three years away from the minimum retirement age; and
(2) she suffers from severe mental and physical disabilities, which are not
likely to recede or resolve.”
      The bankruptcy court determined that McCoy could not satisfy the
second prong because, although her payments are set at zero dollars per
month, she had not shown additional circumstances demonstrating her
inability to pay a higher monthly amount would persist. Therefore, McCoy
failed to meet her burden of proof.
      In affirming the bankruptcy court’s determination that McCoy failed to
satisfy the second prong, the district court noted that bankruptcy courts have
considered the timing of additional circumstances. See, e.g., In re Thoms, 257
B.R. 144, 149 (Bankr. S.D.N.Y. 2001) (stating that a pertinent additional
circumstance would be one “which was either not present when the debtor
applied for the loans or has since been exacerbated” because “[o]therwise, the
debtor could have calculated that factor into its cost-benefit analysis at the
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                                 No. 19-40269
time the debtor obtained the loan”). Because critical health issues (a car
accident and a facial burning incident) occurred before McCoy took out the bulk
of the loans and did not prevent her from obtaining her doctorate and various
forms of employment, the district court determined that the bankruptcy court
did not clearly err in its determination.
      McCoy argues that the district court applied the wrong standard when
it reviewed the bankruptcy court’s decision for clear error rather than
providing a de novo review. However, the question at issue—whether McCoy’s
evidence sufficiently demonstrated that additional circumstances show the
state of affairs is likely to persist—rests upon factual determinations. See In
re Ostrom, 283 F. App’x 283, 286 (5th Cir. 2008) (per curiam) (holding that the
bankruptcy court did not clearly err when it found that a debtor did not fulfill
the second prong because the debtor had not put any evidence, except for his
own testimony, into the record demonstrating that his medical concerns would
impact future earnings). Thus, we conclude that the district court applied the
correct standard.
      Reviewing the evidence provided, we conclude that the district court
correctly determined that the bankruptcy court did not clearly err in its
determination about the second prong of the Brunner undue hardship test.
Accordingly, we need not reach the third prong.
      AFFIRMED.




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