To determine if excepting student loans from discharge will create an undue hardship on a debtor, the Ninth Circuit has adopted the Brunner test. To obtain a discharge of a student loan obligation, the debtor must prove: (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.
This case involves the undue hardship provision of 11 U.S.C. § 523(a)(8). After debtor-appellant Rosemary Rifino ("Rifino") filed an adversary proceeding seeking to discharge her student loan obligations, the bankruptcy court ruled that Rifino's loans were dischargeable as an undue hardship pursuant to 11 U.S.C. § 523(a)(8). The defendants, holders of Rifino's student loan obligations, appealed to the district court, which reversed the bankruptcy court and reinstated Rifino's loans.
Were the student loans dischargeable?
The judgment of the district court was affirmed. Although the bankruptcy court did not clearly err in finding that the debtor's standard of living would fall below a minimal level if she were required to repay her student loans, the bankruptcy court clearly erred in concluding that the debtor's circumstances were likely to persist for a significant portion of the repayment period of her student loans. Consequently, debtor's student loans were not dischargeable pursuant to § 523(a)(8). The record demonstrated that at the time of the adversary proceeding, Rifino was a professionally employed social worker at Ryther Child Center and earned a gross annual salary of $ 27,591.36. At that time, Rifino was only three years into her employment as a social worker and had already received two salary increases. Given the uncontested testimony of Dr. Longres, the court held that the bankruptcy court clearly erred in concluding that Rifino's circumstances are likely to persist for a significant portion of the repayment period of her student loans.