                  NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                             File Name: 07a0252n.06
                               Filed: April 5, 2007

                                            Case No. 05-3569

                              UNITED STATES COURT OF APPEALS
                                   FOR THE SIXTH CIRCUIT

 In re: LISA M. FIELDS,                                 )
                                                        )
          Debtor,                                       )
                                                        )
 ----------------------------------------               )       ON APPEAL FROM THE
                                                        )       BANKRUPTCY COURT FOR
 LISA M. FIELDS,                                        )       THE NORTHERN DISTRICT
                                                        )       OF OHIO
          Plaintiff-Appellee,                           )
                                                        )
                   v.                                   )
                                                        )
 SALLIE MAE SERVICES CORP., et al.,                     )
                                                        )
       Defendants-Appellants.                           )
 _______________________________________                )

BEFORE: BATCHELDER, CLAY, and ROGERS, Circuit Judges.

        ALICE M. BATCHELDER, Circuit Judge. Defendant-Appellant, Educational Credit

Management Corporation (“ECMC”), appeals the order of the Bankruptcy Court, affirmed by the

Bankruptcy Appellate Panel (“BAP”), granting discharge of a portion of the student loan debts owed

by Plaintiff-Appellee, Lisa Fields (“Fields”). Because we conclude that the bankruptcy court erred

in finding that Fields had demonstrated a good faith effort to repay her loans, and erred in holding

that Fields was entitled to partial discharge of her student loan debt despite her failure to demonstrate

undue hardship, we REVERSE.

                                                   I.
       Lisa Fields is married, in her mid-30s, and the mother of two children. She is a licensed

practical nurse with work experience and supervisory duty in a variety of healthcare facilities, having

earned her LPN in 1989 while on active duty in the Army. During the time between 1989 and 2001,

Fields earned an Associate’s Degree in General Studies from Drury College, a B.S. in Healthcare

Management from Southern Illinois University, and an M.S. in Health Promotion from the

University of Memphis. Fields paid for these college degrees using student loans from Sallie Mae

Service Corporation and ECMC.

       On March 6, 2002, less than two months after the first payments on her loan debt became

due, Fields filed a voluntary Chapter 7 bankruptcy petition. On May 8, 2002, she initiated an

adversary proceeding seeking discharge of her student loan debt, which at that time totaled

approximately $121,000, claiming that it would be an undue hardship for her to repay the student

loans. On July 9, 2002, while this adversary proceeding was pending, the bankruptcy court granted

Fields a general discharge pursuant to 11 U.S.C. § 727, discharging over $15,000 in unsecured debt

other than student loans, and approximately $79,000 in secured debt.

       In this adversary proceeding, Fields asked the court to discharge her student loan obligations

based upon the “undue hardship” exception to nondischargeability in 11 U.S.C. § 523(a)(8). Section

523(a)(8) provides for discharging student loan obligations if “excepting such debt from discharge

. . . would impose an undue hardship on the debtor and the debtor’s dependents.” The Bankruptcy

Code does not define “undue hardship,” and, following this circuit’s precedent at the time, the

bankruptcy court looked to the test announced in Brunner v. New York State Higher Education

Services Corp., 831 F.2d 395 (2d Cir. 1987), for guidance on this issue. Under Brunner, a debtor

seeking discharge of student loans due to “undue hardship” must make a three-part showing: (1) that


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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. In re

Tirch, 409 F.3d 677, 680 (6th Cir. 2005) (citing Brunner, 831 F.2d at 396).

        The bankruptcy court issued a detailed opinion evaluating Fields’ personal, educational, and

financial situation, and found that she had failed to satisfy the first two Brunner prongs. The court

reviewed Fields’s current income and expenses, which included Fields’s current annual salary of

$26,000; her husband’s annual salary of approximately $42,000; annual non-taxable child support

from Fields’s previous husband of some $5,000; and, among other expenses, private elementary

school tuition and monthly payments of $420 for the post-petition purchase of a new minivan.

Additionally, the court noted that Fields’s husband owned the family’s home. The court found that

Fields had failed to satisfy the requirements of the first prong of the Brunner test because “under Ms.

Fields’ current circumstances, she could still afford to make some voluntary monthly payment on

her student loan debts with judicious belt tightening, while at the same time maintaining a basic and

reasonable standard of living for herself and her family.” Ruling on the second prong, “the court

conclude[d], based on Ms. Fields’ age, current good health, substantial education, winning personal

traits and earning potential, and other evidence presented at trial, that any financial difficulties are

temporary and not undue.”

        Despite finding that Fields failed to satisfy the first two prongs of the Brunner test, the

bankruptcy court proceeded to the “good faith” prong and found that although the bankruptcy court




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was Fields’ first stop in seeking debt relief, she had acted in good faith to repay her loans. The court

reasoned:

        Facing maternity leave and the impending increase in the size of her family later in
        2002, the impact of the substantial payments she would have to make even under
        alternative repayment programs and other debt relief that she obtained from her
        bankruptcy filing, the court finds that under the totality of the circumstances Ms.
        Fields has acted in good faith overall as to repayment of her loans, despite making
        almost no payments on her loans and instead turning to the bankruptcy court.

Finding that Ms. Fields had satisfied only one prong of the Brunner test, the court pursued an

equitable or partial remedy, noting that when evaluating undue hardship under 11 U.S.C. § 523(a),

the court “may issue any order, process, or judgment that is necessary or appropriate to carry out the

provisions of this title” pursuant to 11 U.S.C. § 105(a).

        At the time of trial, Fields had paid only $980 on her student loans, and owed $129,801.05

on that debt. The court calculated her monthly payments on the debt to be approximately $884.00,

pursuant to a 30-year extended or graduated repayment schedule. Fields’s biweekly income at the

time of trial was $781.46, and the court considered it “highly unlikely, based on present and

reasonably foreseeable circumstances derived from the record, that Ms. Fields will ever be able to

repay the total debt she now faces absent court intervention . . . . Ms. Fields has established that it

would be an undue hardship and insurmountable burden to repay her student loan debt in full while

maintaining a minimal standard of living.”

        The bankruptcy court also found that at the time of trial, Fields was paying $338.00 per

month on the student loan debt through an administrative garnishment. After analyzing Fields’

family budget, her work experience, and her education, the court determined that she could afford

to pay $338.00 per month for 25 years, the maximum number of years permitted for repayment of



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federally subsidized student loans under income-contingent repayment plans, which would result in

her repaying nearly the full principal amount borrowed, but would not repay capitalized interest,

interest, or fees. The bankruptcy court apportioned payments pro-rata between the two student loan

creditors, abated the accrual and capitalization of interest for six years, and estimated that after six

years Fields’ monthly payments would increase to $623.60. This payment schedule, the court said,

was designed to give Fields some “breathing room,” without providing her a windfall. The court

discharged the remaining portion of the student loan debt.

        The BAP affirmed the bankruptcy court’s conclusion that Fields demonstrated an undue

hardship for a portion of her student loans. To reach this conclusion, the BAP relied on two cases

that this court decided after the bankruptcy court issued its decision: In re Miller, 377 F.3d 616 (6th

Cir. 2004), and In re Oyler, 397 F.3d 382 (6th Cir. 2005). Applying Miller and Oyler, and relying

in large part on the bankruptcy court’s finding that Fields “exhibited good faith by maintaining

contact with her creditors and exploring alternative debt solutions,” the BAP concluded that Fields

satisfied the requirement of a good-faith effort to repay the loan.

                                                  II.

        “We independently review the decision of the bankruptcy court that comes to us by way of

appeal from [the BAP].” In re Maughan, 340 F.3d 337, 341 (6th Cir. 2003); see also In re Fordu,

201 F.3d 693, 696 n.1 (6th Cir. 1999) (“Whether an appeal comes to our court by way of a district

court or the BAP, our review is of the bankruptcy court’s decision.”). “We review the bankruptcy

court’s conclusions of law de novo and its factual determinations for clear error.” In re Palmer, 219

F.3d 580, 583 (6th Cir. 2000). Whether the repayment of student loans would impose an undue




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hardship on the debtor is a question of law that we review de novo. In re Cheesman, 25 F.3d 356,

359 (6th Cir. 1994).

        This circuit has now explicitly adopted the three-part Brunner test. See Oyler, 397 F.3d at

385. And, although we have approved of the bankruptcy court’s use of its equitable powers under

§ 105 to grant a partial discharge of student loan debt, we have not permitted the court to do so in

the absence of a showing of undue hardship at least as to that portion of the debt being discharged.

In Miller, 377 F.3d at 619, the bankruptcy court had concluded that the debtor had not shown undue

hardship, but “[n]evertheless, the court relied on 11 U.S.C. § 105(a) . . . to grant [the debtor] a partial

discharge of her student loan obligations.” We reversed. First, we said that “when a debtor does not

make a showing of undue hardship with respect to the entirety of her student loans, a bankruptcy

court may – pursuant to its § 105 powers – contemplate granting . . . a partial discharge of the

debtor’s student loans.” Id. at 620. We went on to hold, however, that

        Section 523(a)(8) permits the discharge of student loans only upon a finding that
        denying such discharge would impose undue hardship on the debtor. Relying on §
        105 to discharge student loan indebtedness for reasons other than undue hardship
        impermissibly contravenes the express language of the bankruptcy code.

Id. at 624. We therefore reversed the bankruptcy court’s order granting a partial discharge of

Miller’s student loan indebtedness and remanded the matter “so that the bankruptcy court can

determine if Miller has shown undue hardship with respect to the portion of her educational loans

that were discharged.” Id. (emphasis added).

        Here, the bankruptcy court granted a partial discharge of Fields’s student loan debt solely on

the court’s finding that Fields had satisfied the third prong of the Brunner test, which required Fields

to demonstrate that she had made a good faith effort to repay her loans. See Brunner, 831 F.2d at



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396. In evaluating Fields’ good faith effort, the bankruptcy court looked “at a multitude of factors

in evaluating the debtor’s overall circumstances and the reasons why payments have not or arguably

cannot be made,” and considered the following six factors drawn from In re Flores, 282 B.R. 847,

856 (Bankr. N.D. Ohio 2002):

       (1) was the debtor’s failure to repay a student loan obligation truly because of factors beyond
       her reasonable control;
       (2) has the debtor realistically used all available resources to repay the debt;
       (3) is the debtor using her best efforts to maximize her earning potential;
       (4) how long after the loan first became due did the debtor seek to discharge the debt;
       (5) what is the percentage of student loan debt in relation to debtor’s total indebtedness; and
       (6) has the debtor obtained any tangible benefit from the student loan obligations.

       Upon reviewing the facts, the court stated that it could not “find that Ms. Fields ha[d]

realistically used, or at least tried to use her financial resources to at least make some payments on

the loans.” As the court noted, Fields filed her bankruptcy petition only a month after her post-

schooling grace period expired. The court also noted that Fields had not attempted to repay her

obligations through the administrative alternatives available under the William D. Ford Federal

Direct Loan Program income contingent repayment plan (“ICR”). Fields testified that she explored

alternative payment options, but that the result was still too much to sustain on a monthly basis. The

court observed that “neither party has submitted an analysis of what Ms. Fields’[s] monthly payment

obligations would be under the income contingent repayment plan,” but the court nevertheless

calculated that “under the maximum of thirty years of repayment for both loans under the extended

or graduated repayment plans, . . . the monthly payment [would be] approximately $346 for the loan

held by ECMC and as approximately $538 for the DOE loans, or a total of $884 monthly.” The

court concluded that the alternative repayment schedules were “unworkable under the Fields’ family




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current financial circumstances,” and that Fields had demonstrated good faith under Brunner. We

disagree.

       In finding good faith, the bankruptcy court purported to rely on the factors outlined in Flores,

but we cannot find on this record that a finding of good faith is supported by even four of those six

factors. The court had already determined that her failure to make payments was not from factors

beyond Fields’ control; the first Flores factor therefore does not weigh in Fields’s favor. Fields did

not use all realistically available resources to repay her loans, inasmuch as she had not even applied

for ICR relief. The second Flores factor does not favor Fields. She sought bankruptcy relief within

two months after her first loan payment, making virtually no attempt to repay the loans through

which she had received a tangible benefit, so Flores’ fourth and sixth factors do not work in her

favor, either. The bankruptcy court did summarily conclude that because Fields was working in “her

chosen area of study,” she was maximizing her earning potential, and we think that the third Flores

factor does weigh in her favor. However, the bankruptcy court explicitly said that the crux of this

case is the size of Fields’s debt, and the court implicitly held that this factor simply outweighed all

of the others. We concede that Fields’s student loan debt is great; however, we hold that the Flores

factors simply do not support a finding that Fields acted in good faith, and we find nothing in Miller

and Oyler – contrary to the BAP’s reading of those cases – that compels a different conclusion.

       Furthermore, our decision in Tirch weighs heavily against Fields and against the bankruptcy

court’s ruling. We observed in Tirch that

       [w]hile not a per se indication of a lack of good faith, Tirch’s decision not to take
       advantage of the ICR is probative of her intent to repay her loans. In cases involving
       a partial discharge of student loans, ‘it is a difficult, although not necessarily
       insurmountable burden for a debtor who is offered, but then declines the



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       government’s income contingent repayment program, to come to this Court and seek
       an equitable adjustment of their student loan debt.’

Tirch, 409 F.3d at 682. We concluded that “[b]ecause Tirch declined to take advantage of an ICR

that would have been advantageous, she failed to sustain the heavy burden of proving that she made

a good faith effort to repay her loans.” Id. at 683. Here, Fields has made almost no payments on her

loans, turning, almost immediately, to the bankruptcy court instead. Moreover, because Fields

declined even to apply for ICR relief, she has failed to sustain the “heavy burden” under Tirch of

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

       We agree with the bankruptcy court that Fields wholly failed to satisfy the first two prongs

under Brunner. Further, however, we hold that the bankruptcy court erred in finding that Fields had

demonstrated a good faith effort to repay any portion of her student loans. And finally, because

Brunner requires the debtor to demonstrate all three prongs in order to support a claim of undue

hardship, see, e.g., Oyler, 397 F.3d at 385-86 (holding that because Oyler had failed the second

prong of the Brunner test, he had failed to demonstrate undue hardship under that test), and because

we have held that the debtor must prove undue hardship at least as to the portion of the debt

discharged, see Miller, 377 F.3d at 624, we hold that the bankruptcy court erred in granting equitable

relief under § 105(a) and discharging a portion of Fields’s debt to ECMC.

       For the foregoing reasons, we REVERSE the decision of the bankruptcy court granting a

partial discharge of Fields’s student loan debt owed to ECMC.




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