                 ELECTRONIC CITATION: 2005 FED App. 0003P (6th Cir.)
                              File Name: 05b0003p.06

             BANKRUPTCY APPELLATE PANEL OF THE SIXTH CIRCUIT

In re: LISA M. FIELDS,                             )
                                                   )
                  Debtor.                          )
_____________________________________              )
                                                   )
LISA M. FIELDS,                                    )
                                                   )
                      Plaintiff-Appellee,          )
                                                   )
       v.                                          )       No. 04-8031
                                                   )
SALLIE MAE SERVICING CORP. and                     )
EDUCATIONAL CREDIT MANAGEMENT                      )
CORP.,                                             )
                                                   )
                  Defendants-Appellants.           )
_____________________________________              )

                        Appeal from the United States Bankruptcy Court
                 for the Northern District of Ohio, Western Division at Toledo.
                              No. 02-31325-7; Adv. No. 02-3140.

                                  Submitted: February 2, 2005

                               Decided and Filed: April 5, 2005

            Before: AUG, COOPER, and LATTA, Bankruptcy Appellate Panel Judges.

                                   ____________________

                                            COUNSEL

ON BRIEF: Daniel N. Sharkey, BUTZEL LONG, Detroit, Michigan, for Appellant.




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                                     ____________________

                                           OPINION
                                     ____________________

       JENNIE D. LATTA, Bankruptcy Appellate Panel Judge. Sallie Mae Servicing Corporation
and Educational Credit Management Corporation appeal an order of the bankruptcy court declaring
a portion of Lisa M. Fields’ (the “Debtor”) student loan debts dischargeable as an undue hardship
pursuant to 11 U.S.C. § 523(a)(8) and § 105(a). For the reasons set forth below, we AFFIRM the
order of the bankruptcy court.
                                    I.   ISSUES ON APPEAL
       Whether a bankruptcy court may grant a partial discharge of student loan debt upon a finding
that repayment of the entire debt would impose an undue hardship pursuant to 11 U.S.C. § 523(a)(8),
but repayment of some portion of the debt would not. If so, what standard should be applied in
granting a partial discharge?
                    II.   JURISDICTION AND STANDARD OF REVIEW
       The Bankruptcy Appellate Panel (“BAP”) of the Sixth Circuit has jurisdiction to hear and
decide this appeal. The United States District Court for the Northern District of Ohio has authorized
appeals to the BAP. A “final order” of a bankruptcy court may be appealed by right under 28 U.S.C.
§ 158(a)(1). For purposes of an appeal, an order is final if it “ends the litigation on the merits and
leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United
States, 489 U.S. 794, 798, 109 S. Ct. 1494, 1497 (1989) (citations omitted). A bankruptcy court’s
judgment determining dischargeability is a final and appealable order. Cundiff v. Cundiff (In re
Cundiff ), 227 B.R. 476, 477 (B.A.P. 6th Cir. 1998) (citations omitted).
       The appellate court reviews conclusions of law de novo. “De novo review requires the Panel
to review questions of law independent of the bankruptcy court’s determination.” First Union
Mortgage Corp. v. Eubanks (In re Eubanks), 219 B.R. 468, 469 (B.A.P. 6th Cir. 1998) (omitting
citations). “Determinations of dischargeability under 11 U.S.C. § 523 are conclusions of law
reviewed de novo.” Bailey v. Bailey (In re Bailey), 254 B.R. 901, 903 (B.A.P. 6th Cir. 2000) (citing
Hart v. Molino (In re Molino), 225 B.R. 904, 906 (B.A.P. 6th Cir. 1998)); see also Sorah v. Sorah
(In re Sorah), 163 F.3d 397, 400 (6th Cir. 1998) (holding that “the interpretation of § 523 is a legal
issue that we review de novo”). But the BAP must “affirm the underlying factual determinations
unless they are clearly erroneous.” Nat’l City Bank v. Plechaty (In re Plechaty), 213 B.R. 119, 121

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(B.A.P. 6th Cir. 1997). A factual determination is clearly erroneous “when although there is
evidence to support it, the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.” In re Bailey, 254 B.R. at 903 (citations omitted).
                                           III.   FACTS
       The Debtor filed a voluntary Chapter 7 bankruptcy petition on March 6, 2002, less than two
months after payments on her student loan debt became due. The Debtor initiated an adversary
proceeding on May 8, 2002, seeking discharge of student loans totaling $129,801.05, alleging that
it would be an undue hardship for her to repay the student loans. A general discharge was granted
on July 9, 2002, pursuant to 11 U.S.C. § 727, discharging more than $15,000.00 in unsecured debt
other than student loans and discharging approximately $79,000.00 in secured debt.
       From 1989 until 2001, the Debtor was enrolled in various educational programs, which she
paid for with student loans. She received an Associates Degree in General Studies from Drury
College in 1993, a Bachelor of Science Degree in Healthcare Management from Southern Illinois
University in 1995, and a Master of Science Degree in Health Promotion from The University of
Memphis in 2001.
       The bankruptcy court, in a lengthy and detailed memorandum opinion, evaluated the
Debtor’s personal, educational, and financial situation, and found that the Debtor had failed to show
undue hardship pursuant to the Brunner test, but that the Debtor had demonstrated that repayment
of the full amount of the student loans would be an undue hardship due to “other factors” and thus
that a partial discharge of the Debtor’s student loan debt was appropriate. The bankruptcy court
found that the Debtor could afford to maintain a reasonable standard of living if forced to make at
least some payments on the loans and that the Debtor’s financial problems were likely to be
temporary. The bankruptcy court noted that the Debtor did not make any effort to make payments
on the loans before filing for bankruptcy, but concluded that the Debtor had exhibited good faith
since she truthfully believed that any available repayment plans for the student loans would be
unworkable and since she had maintained both oral and written contact with student loan creditors.
The bankruptcy court concluded that the Debtor did not succeed in proving the hardship necessary
to except her entire student loan debt from discharge. This conclusion did not end the bankruptcy
court’s undue hardship analysis, however.
       Relying on Hornsby and Cheesman, the bankruptcy court found that it was required to take
the further step of analyzing whether any other circumstances justified an equitable or partial remedy


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for the Debtor. See Hornsby v. Tenn. Student Assistance Corp. (In re Hornsby), 144 F.3d 433, 435
(6th Cir. 1998); Cheesman v. Tenn. Student Assistance Corp. (In re Cheesman), 25 F.3d 356 (6th
Cir. 1994). The bankruptcy court interpreted Cheesman as authorization from the court of appeals
for trial courts to evaluate undue hardship under 11 U.S.C. § 523(a)(8) in light of and in conjunction
with 11 U.S.C. § 105(a), and interpreted Hornsby as a mandate that trial courts undertake such an
analysis.

       The bankruptcy court found that the most significant other factor justifying a partial remedy
for the Debtor was the substantial amount of the Debtor’s student loan debt. At the time of trial, the
Debtor’s total student loan debt was $129,801.05. The bankruptcy court calculated the likely
amount of monthly payments that would be required of the Debtor pursuant to a graduated
repayment plan (approximately $884.00 per month), and found that repayment of that amount each
month would be “unsustainable under the family’s current and reasonably predictable future
financial circumstances,” noting that the Debtor’s biweekly pay at the time of trial was $781.46.
The bankruptcy court found that the Debtor was maximizing her personal and professional
resources, that she was acting in good faith, and that even if she further reduced her expenses she
would still be unable to pay her existing student loan debts. The bankruptcy court noted that since
Hornsby, bankruptcy courts in the Sixth Circuit have consistently granted partial discharges and
developed other remedies in undue hardship cases. The bankruptcy court went on to find that the
Debtor could clearly make some payments but that her ability to repay the entire debt “borders on
hopelessness” and found the case appropriate for equitable intervention under § 105. The
bankruptcy court then proceeded to fashion a remedy.

       The bankruptcy court sought a remedy which would afford the Debtor a financial fresh start,
while holding her accountable for the portion of the cost of her education that she could repay while
still maintaining a basic standard of living. At the time of trial the Debtor was involuntarily paying
$338.00 per month through an administrative garnishment. Based on a close analysis of the family
budget and in light of the Debtor’s age, education and work experience, the court concluded that the
Debtor could afford to pay $338.00 per month for 25 years, the maximum amount of years allowed
for payment to be made under the income contingent repayment plans for federally subsidized
student loans. The court noted that by paying $338.00 per month for 25 years, the Debtor would
pay nearly the entire amount of the original funds borrowed, without capitalized interest, interest,
or fees. The bankruptcy court apportioned payments pro-rata between the two student loan

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creditors. As for interest, the bankruptcy court abated the accrual and capitalization of interest for
six years, explaining that in six years the Debtor would likely be making more money and would
likely have less expenses for children since one of her children would have reached the age of
majority. The bankruptcy court estimated that after six years the amount the Debtor would have to
pay per month would increase from $338.00 to $623.60. This abatement of interest for a brief period
of time was designed by the bankruptcy court to give the Debtor “breathing room” without providing
her a windfall, since the bankruptcy court anticipated that her financial circumstances are more
likely to improve than to remain the same or decline.

                                       IV.    DISCUSSION

       The nondischargeability of student loan obligations is specified at 11 U.S.C. § 523(a)(8),
which provides:

       (a) A discharge under section 727. . . of this title does not discharge an individual
       debtor from any debt —


               (8) 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. § 523(a)(8).

       The broad equitable authority of bankruptcy courts is provided for in 11 U.S.C. § 105(a),
which provides:

       (a) The court may issue any order, process, or judgment that is necessary or
       appropriate to carry out the provisions of this title. No provision of this title
       providing for the raising of an issue by a party in interest shall be construed to
       preclude the court from, sua sponte, taking any action or making any determination
       necessary or appropriate to enforce or implement court orders or rules, or to prevent
       an abuse of process.

11 U.S.C. § 105(a).

       While “undue hardship,” the standard for the discharge of student loans, is not a defined term
in the Bankruptcy Code, the Court of Appeals for the Sixth Circuit has consistently used, and very
recently explicitly adopted, the Brunner test for undue hardship. Oyler v. Educ. Credit Mgmt. Corp.

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(In re Oyler), 397 F. 3d 382 (6th Cir. 2005). The Sixth Circuit has summarized the Brunner test
as follows:

       The Brunner test requires a three-part showing by the debtor:

       (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.

Miller v. Pa. Higher Educ. Assistance Agency (In re Miller), 37 F.3d. 616, 623 (6th Cir. 2004)
(citing Brunner v. N.Y. State Higher Educ. Serv. Corp., 831 F.2d 395, 396 (2d Cir. 1987)).

       Appellants argue that the Debtor failed to establish undue hardship as to any part of her
student loans and suggest that a debtor’s failure to meet any one of the Brunner factors mandates
judgment for the student loan creditor and a complete denial of discharge. That is, the Appellants
urge the Panel to ignore Hornsby and not consider the possibility of partial discharge. The
bankruptcy court held that Debtor’s student loans were dischargeable to the extent that repayment
of the student loans would cause undue hardship for the Debtor. While the bankruptcy court did not
find undue hardship sufficient to warrant a discharge of all of the Debtor’s student loan debt, it did
find that repayment of all of the Debtor’s student loan debt would constitute undue hardship. The
bankruptcy court discharged only that portion of the debt that it found posed an undue hardship to
the Debtor.

       Miller, which was published after the bankruptcy court’s decision, clarified the interplay of
§§ 523(a)(8) and 105(a). Miller also clarified Hornsby, the principal case relied upon by the
bankruptcy court in this case, holding that “the requirement of undue hardship must always apply
to the discharge of student loans in bankruptcy – regardless of whether a court is discharging a
debtor’s student loans in full or only partially.” In re Miller, 37 F.3d at 622.

       The facts of Miller are similar to those of the present case. The chapter 7 debtor, Patricia
Miller (“Miller”), had a B.A., an M.A. in Philosophy, and had spent five years working toward a
Doctorate in Philosophy but failed to meet the requirements for obtaining that degree. Miller sought
discharge of her student loan debt of $89,832.16. She had made payments of only $368.00 toward
her student loan debt. The bankruptcy court in Miller discharged $55,000.00 of Miller’s student
loan debt, despite a finding that the “full amount of the debts did not impose an undue hardship upon

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her.” In re Miller, 37 F.3d at 619. The district court affirmed, but the court of appeals reversed and
remanded the case for a determination of whether Miller had shown undue hardship with respect to
the portion of her student loans which the bankruptcy court discharged.

        The Miller court explained that partial discharge should only be granted when “certain
requirements are met.” In re Miller, 37 F.3d at 620. The rule announced in Miller is:

        [W]hen 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(a)
        powers – contemplate granting the various forms of relief discussed in Hornsby,
        including granting a partial discharge of the debtor’s student loans.

Id. Bankruptcy courts may “discharge the portion of student loan debt for which payment would
impose an undue hardship on the debtor,” emphasizing that the “requirement of undue hardship must
always apply to the discharge of student loans in bankruptcy . . . .” Id.

        Miller recognized that “undue hardship” is not a defined term in the Bankruptcy Code and
explained that the court has looked to the Brunner test for guidance and may also look to “other
factors, including ‘the amount of the debt . . . [and] the rate at which interest is accruing’ as well as
‘the debtor’s claimed expenses and current standard of living, with a view toward ascertaining
whether the debtor has attempted to minimize the expenses of himself and his dependents.’” Id.
(quoting In re Hornsby, 144 F.3d at 437 (citing Rice v. United States (In re Rice), 78 F.3d 1144 (6th
Cir. 1996))). While reaffirming the availability of partial discharges of student loans in the Sixth
Circuit, the court squarely held that partial discharges of student loans for reasons other than undue
hardship are impermissible and are at odds with the “express language of the Bankruptcy Code.”
In re Miller, 37 F.3d at 620. The court remanded the case to the bankruptcy court to determine
whether Miller had shown undue hardship with respect to the portion of her student loans that were
discharged. Id.

        In Oyler, decided after Miller, the Sixth Circuit incorporated into the Brunner test the so-
called “other factors.” In re Oyler, 397 F. 3d 382. “Other factors,” now part of the Brunner test,
include a debtor’s expenses, standard of living, amount of outstanding debt, and ability to maximize
income. Id.; see also In re Rice, 78 F.3d at 1149-50 (listing as “other factors” income, earning
ability, health, educational background, dependents, age, accumulated wealth, and professional
degree.).



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        Appellants correctly argue that partial discharge of student loans is improper where a debtor
has not shown undue hardship as to that portion of student loan debt to be discharged. In this case,
however, the debtor has shown undue hardship as to a portion of the student loan debt. The factors
that the bankruptcy court relied on, such as the substantial size of the Debtor’s student loan debt, the
overwhelming interest accruing on the debt, the Debtor’s maximization of income, the Debtor’s
continued contact with creditors, and the Debtor’s exploration of other repayment alternatives are
no longer just “other factors” to consider, but have been expressly integrated into the Brunner test
in the Sixth Circuit.

        The bankruptcy court carefully analyzed the Debtor’s financial circumstances, using the
Brunner test as it incorporates factors identified in Miller, Hornsby, and Rice. The court then
structured a partial discharge of student loan debt to the extent that it constituted an undue hardship
for the Debtor. The court took into consideration the amount of the debt, the rate at which interest
was accruing, the amount of money the Debtor makes now and is likely to make in the future, the
Debtor’s good faith in attempting to repay the student loan debts, and the amount of money that the
Debtor could pay now and in the future. In a carefully written opinion, the bankruptcy court
explained in detail how the amount of student loan debt to be discharged was derived in light of all
of these factors. The bankruptcy court addressed the Debtor’s inability to maintain a reasonable
standard of living if forced to repay the entire debt, describing the substantial size of the student loan
debt at issue and the amount of interest rapidly accruing on the debt. In an assessment of “other
factors” which fit within the second prong of the Brunner test, the bankruptcy court found that
circumstances hindering payment will exist for a significant amount of the repayment period. The
bankruptcy court sought to require the Debtor to work towards maximization of income by including
in its remedy an abatement of interest on her loans for a limited amount of time, six years. The
bankruptcy court also found that the Debtor exhibited good faith by maintaining contact with her
creditors and exploring alternative debt solutions. The bankruptcy court found that repayment of
the entire indebtedness would impose an undue hardship on the Debtor. The court’s factual findings
are not clearly erroneous. Based upon applicable law, a partial discharge of the Debtor’s student
loan debt is warranted.

                                         V.   CONCLUSION

        For the foregoing reasons, the decision of the bankruptcy court is AFFIRMED.


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