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UNITED STATES BANKRUPTCY COURT DISTRICT OF OREGON _______________________________________________________ In re: ) ) MICHAEL ERIC HEDLUND and ) No. 03-63788 STEPHANIE RAE HEDLUND, ) ) Debtors. ) ______________________________) ) MICHAEL ERIC HEDLUND, ) ) Plaintiff, ) ) vs. ) No. 03-06231 ) THE EDUCATION RESOURCES ) INSTITUTE INC., et al., ) ) Defendants. ) _______________________________________________________ TRANSCRIPT OF THE DIGITALLY-RECORDED PROCEEDINGS BEFORE THE HONORABLE PHILIP H. BRANDT MAY 19, 2011 _______________________________________________________

Reported by:

Robyn Oleson Fiedler CSR #1931

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A P P E A R A N C E S

For the Plaintiff: (telephonically) MR. KEITH Y. BOYD Attorney at Law MUHLHEIM BOYD 88 E. Broadway Eugene, OR 97401 Phone: 541-868-8005 boyd@mb-lawoffice.com

For PHEAA: (telephonically) MR. MILES D. MONSON Attorney at Law 10700 S.W. Bvtn-Hlsdl Highway, #460 Beaverton, OR 97005 Phone: 503-646-9230 miles@andersonmonson.com

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DIGITALLY RECORDED IN TACOMA, WASHINGTON MAY 19, 2011 --ooOoo--

THE COURT: both for calling in.

This is Judge Brandt.

Thank you

And this is the time we set for

my ruling after the argument on the record, and I don't remember precisely what date that was, I think about the 25th of April. I'm going to begin by letting you know that this is going to be a tentative ruling. Given the

somewhat extended history of this adversary proceeding and the possibility that there might be another round of appeals, I think I want to make really sure that we've addressed thoroughly, at the trial court level, all of the issues. So if there's something that comes

out in this ruling that either of you or your clients feel is not appropriate, based on the record and the authorities, we'll set up a time for you to file memoranda to that effect, and then we'll set a further hearing, if necessary, or otherwise enter a judgment after the time passes, if there are no such memoranda filed. So that said, I think I'll just start out. The matter is before the Court, and I'm sitting as a

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bankruptcy judge for the District of Oregon, although I'm a Western Washington judge in recall status. And

it's before the Court on remand from the Ninth Circuit via the Ninth Circuit Bankruptcy Appellate Panel. MR. MONSON: to interrupt. Your Honor, Miles Monson. Sorry

The sound is fading in and out.

I'm

having a hard time hearing you. THE COURT: MR. MONSON: THE COURT: Okay. Is this better? Thank you.

That is better.

I'm try to remember to be as

close to this microphone as possible. So starting with the history of the case, plaintiff Michael Hedlund filed a joint Chapter 7 petition in May of 2003 with his wife Stephanie. And

he received his discharge in September of that year. On June 16th of that year, he filed this adversary proceeding against two student lenders, one of them, The Educational Resources Institute, known as TERI, or T-E-R-I, was owed about $17,700; the other, Pennsylvania Higher Education Assistance Agency, which is typically referred to in pleadings as PHEAA -- all caps, P-H-E-A-A, and I'll probably refer to it mostly that way today. PHEAA was owed over $85,000.

Mr. Hedlund settled with TERI shortly before trial, and ultimately, there was an agreed judgment

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docketed in October of 2004 as docket No. 38.

And the

import of that judgment is that a state court judgment is nondischargeable. It doesn't set forth precise

terms, but we have some evidence of that in the record of the trial. The trial between Mr. Hedlund and PHEAA took place in December of 2003. At that time he argued for

a partial discharge of any amount in excess of $28,000. On December 15th, the Court -- Judge Radcliffe announced his findings of fact and conclusions of law and reached a conclusion that all but $30,000 of the student loan debt should be -student loan debt to PHEAA should be discharged. And

judgment to that effect was entered on January 14th of 2004. PHEAA appealed to the Bankruptcy Appellate Panel, which reversed in an unpublished opinion in August of 2004. Mr. Hedlund then appealed to the Ninth

Circuit, which in a memorandum, again unpublished, entered March 2nd, 2010, vacated the BAP decision and ordered remand to this court. And that's found at 368

Fed Appx 819, or 2010 WL 737641. The BAP remanded to this court at my instigation, when I noticed it hadn't happened, with an order that was filed in the adversary file on the 27th

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of April of this year, docket No. 66. The Circuit's decision left to this Court's discretion whether or not to reopen the record for further evidence. My recollection from the papers is

that Mr. Hedlund objected to reopening the record, and in any event, Judge Radcliffe declined to do so. After

briefing and argument, Judge Radcliffe took the matter under advisement, but then he died, unfortunately, before entering his ruling. In response to a request from the chief bankruptcy judge of Oregon, the Ninth Circuit assigned me to carry out -- to finish the process. Under

Federal Rule of Civil Procedure 63, which applies in bankruptcy -- or at least adversary proceedings and contested matters, via Federal Rule of Bankruptcy Procedure 9028, if a judge conducting a hearing or trial is unable to proceed, any other judge may proceed upon certifying familiarity with the record and determining that the case may be completed without prejudice to the parties. that. With respect to a hearing or non-jury trial, which is what we have here, the successor judge may recall witnesses with material testimony who are available to testify without undue burden, and may also And then it goes on from

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recall other witnesses. Rule 63 applies where a successor judge steps into the shoes of the original judge in order to finish something the other judge started. And the substitute

judge may make a finding of fact in a bench trial, based on evidence heard by a different judge -- and that comes from Patelco Credit Union v. Sahni, 262 F.3d 897, a Ninth Circuit case from 2001. Here the parties have stipulated that there are no issues of credibility and have consented to my determining the remand issues on the record, and did so at the 2 March 2011 status conference after I was assigned. In accordance with the rule, I certify that I have examined the complete record of these proceedings, including the pleadings, the stipulation of facts, the trial transcript, the admitted exhibits, and the transcripts of the other arguments in other proceedings after remand held by Judge Radcliffe. And upon that

review, and in light of the parties' stipulation, I find that the case may be completed without prejudice to the parties. In a student loan case, an adversary about discharge of a student loan, 11 USC Section 528(a)(8) provides that a student loan is discharged while in

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bankruptcy only if excepting such debt from discharge would impose an undue hardship on the debtor and the debtor's dependents. In In re Pena, 155 F.3d 1108, a

Ninth Circuit case from 1998, the Ninth Circuit adopted the three-prong test set out in In re Brunner, a Second Circuit case, 831 F.2d 395, from 1987. Under the Brunner standard, first the debtor must establish that he cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans; second, that additional circumstances exist indicating this state of affairs is likely to persist for a significant portion of the repayment period of the loans; and third, the debtor must also show good faith efforts to repay the loans. The debtor's burden of proof is by a preponderance of evidence on all three prongs, and partial discharges are permitted. And that's from

In re Saxman, S-a-x-m-a-n, 325 F.3d 1168, a Ninth Circuit case from 2003. When a partial discharge is sought, the debtor has to show the Brunner elements with respect to the portion of the debt he wishes to discharge. The

time for this determination is as of the time of trial, as we discussed at the status conference.

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The Circuit's remand was that this Court reconsider the evidence in light of the Brunner test and make findings on each of the three factors, so as to facilitate appellate review. To do this, I've

carefully examined the trial transcript of the exhibits and so on, as mentioned before, and considered the plaintiff's arguments, both oral and written, made at the trial as well as after the remand. In other words,

I've looked at the briefs that were filed post remand, as well as the ones that were filed while Judge Radcliffe was hearing the matters. So I'm going to go through the facts now. And keeping in mind that the trial was, what, going on more than seven years ago, I may -- I'll probably use the present tense. But I'm addressing this situation And at that point,

as of the time of the trial. Mr. Hedlund was 33 years old.

His father practiced law in Klamath Falls, Oregon, and one of his brothers was also practicing law. He grew up in that town, attended Oregon State

University, Oregon Institute of Technology, and ultimately graduated from the University of Oregon in 1992 with a bachelor of science in business administration. He had some trouble finding appropriate

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employment and decided, after considering his family's line of work, that he would practice law. So he was

accepted at Willamette University School of Law and graduated in 1997, ranking in the middle of his class. After graduating from law school, he enrolled in a bar exam preparatory course, and he took and then failed the Oregon bar exam. Nevertheless, he was able

to work in the Klamath County District Attorney's Office and hoped to continue working for a few years and then ultimately practice law with his father. While he was at the District Attorney's Office, he took time off to study and then take the bar, the Oregon bar, in February of 1998, again with unfortunate results. He did not pass.

The following summer he took time off to try for a third time, approximately two months. He had a

misfortune en route to taking the bar exam, stopped for coffee, locked his keys in his car, and did not make it to the site in time to take the bar. Without the bar -- without being admitted to the bar, it's not clear to me whether he had any choice but to leave the District Attorney's Office, but in any event, he did leave the District Attorney's Office and started with his current employment as a juvenile counselor with the Klamath County Juvenile Department,

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in which capacity he reviews police records, meets with accused juveniles and their parents, recommends whether or not they need to be on probation, appears in court, at least in preliminary matters in juvenile cases, and supervises juveniles to ensure compliance with any probation order. In 2000 he married Stephanie Hedlund, his co-petitioner. She's a high school graduate with some At the time of trial

college education, but no degree.

she was 25, working part-time, one day per week in a flower shop, earning $8.50 an hour. In mid 2001, they had a daughter. And at the

time of trial, they lived in a two-bedroom duplex in Klamath Falls owned by Mr. Hedlund's parents. They That

paid rent below the market rate at $375 a month.

was -- the testimony was that that was $75 a month below the market rate. At the time of trial, Mr. Hedlund and his family were in good health with no obvious health problems. They owned a 1990 Chevrolet Blazer that had

150,000 miles on it, and had leased a 2002 Honda Accord for $354 a month. significance. Mr. Hedlund had financed his law school education primarily with student loans, including the They had no other assets of

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six Stafford loans guaranteed by PHEAA, which are the subject of this adversary proceeding -- or the remaining subject of this adversary proceeding. The

aggregate monthly payment on those loans was in excess of $800. When he took the loans and was in law school, Mr. Hedlund expected to repay by practicing law. The

loans were scheduled to go into repayment six months after he finished law school. But since he had failed

the bar exam and didn't have sufficient resources, Mr. Hedlund requested and got two additional six month hardship forbearances. Thus, the loans went into

repayment status in January of 1999. At that time, Mr. Hedlund asked to consolidate his loans to lower the payments. This was

very close to the deadline, and PHEAA or its employees or agents, advised him not to worry if he got notices that his payments were late while his application was being processed. Some months later, after receiving several of these late payment notices, Mr. Hedlund checked on the status and was told that the application had never been received. He then asked if he could reapply, was told

he couldn't because he wasn't current in the originally scheduled payments.

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He made no payments on the loans until September of 1999 when, after he received an inheritance from his grandmother, he paid $954.72 toward those loans. The other roughly $4,000 he used

to pay other creditors. Still unable to make the full monthly payment, Mr. Hedlund tried again to negotiate a reduced payment. PHEAA gave him the option of paying $10,000

and then $1,300 a month for 10 months, after which his regular payments would be lowered. so. He was unable to do

He did offer a good faith payment of $5,000, which

he would borrow from his parents, in exchange for more lenient terms and a waiver of some of the fees that had been assessed. The offer was rejected.

Thereafter, from January of 2002 until May of 2003, PHEAA garnished Mr. Hedlund's wages, collecting, I think it was at the rate of $258 a month, $4,272.52. In the spring of 2003, TERI also took up garnishment and garnished more than $1,000 from Mr. Hedlund's bank account on the student loan owed to it. Those were the funds that were left over after

garnishment by PHEAA, and were what Mr. Hedlund and his family were expecting to live on. Unable to deal with both garnishments, Mr. and Ms. Hedlund filed the Chapter 7.

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The total owed PHEAA as of the date of trial was $85,245.87, and it bore interest at 4.22 percent per year. The maximum repayment period on the loans

was 20 years, and five of those years had already elapsed. After the adversary had been filed, but before trial, PHEAA offered three repayment plans, I think a choice of three -- simultaneously offered them to Mr. Hedlund, but each would have required monthly payments on a 30-year amortization, and each had payments that stepped up after an initial lower payment. Actually, that's not true. The first option,

I think, was roughly $417 a month for the whole period, with a slightly shorter last payment. The other two

started at -- the other two started at $307 a month, and the first variation of that had two steps, and the second one had three steps. But each totaled 30 years

and would cover the whole amount of the loan. It's to this set of facts that the Brunner test is to be applied. The first prong requires that

the debtor establish that he could not maintain, based on current income and expenses, a minimal standard of living for himself and his family if forced to repay the loans. More than simply tight finances must be

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shown, and more than a temporary financial adversity. But utter hopelessness is not required; that's from In re Rifino, 245 F.3d 1083, a Ninth Circuit case from 2001. A minimal standard of living is above the federal poverty level but below a middle class standard of living, according to In re Howe, 319 B.R. 886, a Ninth Circuit BAP case from 2005. And that case also

teaches that the minimal standards are to be determined in light of the particular facts of each case. And the

test articulated is whether it would be unconscionable to require the debtor to take steps to earn more or reduce expenses further to make the payments under a given schedule. And that is from In re Carnduff.

That's 367 B.R. 120, a BAP case from 2007. In its remand, the Ninth Circuit noted as to prong one that the Court had not considered whether Mr. Hedlund could increase his income either by taking on a part-time job or by his wife working part-time, and that it did not sufficiently consider whether Hedlund could reduce his expenses to meet a greater portion of the loan payments. That seems to me a somewhat constrained reading of Judge Radcliffe's decision, because he did in fact consider whether Ms. Hedlund -- and in fact,

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factored in Ms. Hedlund working three days a week instead of one, and did in fact consider and direct that some of the expenses be reduced or at least not considered in setting the payment. may, that's where we are. I've re-examined the evidence in light of the remand and conclude that Mr. Hedlund had maximized his income. As the date of trial he was working full-time But be that as it

as a juvenile counselor earning $19.17 per hour, grossing approximately $3,200 a month and netting, after taxes and deductions, about $2,317 a month. He

had benefits which included health, dental and life insurance, vacation and sick time, and a pension plan with mandatory contributions and a significant, roughly 6 percent match from the County. The evidence was that Plaintiff Hedlund was doing as well as he could financially, given his skills, and the then recessionary economic conditions. Paula Pence, the occupational expert called on his behalf, testified that he was well-placed for his skills, that his wages and benefits were excellent for the Klamath Falls area, there were no higher paying jobs available to him, and that the area's employment situation was unlikely to change in the near future. That testimony was uncontroverted.

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After taking his job with the County, Mr. Hedlund continued to look for work in the area, applying for but not getting two higher paying jobs. He also looked out for similar juvenile counselor positions in Oregon and Washington and was willing to relocate if there was a net economic benefit. On this

point, Ms. Pence testified that although there might be higher wages or salaries for similar positions in other areas outside of Klamath Falls, the increased earnings would be offset by the increased expenses, Klamath Falls being a relatively low cost area, and of course, the Hedlunds having quite a low cost situation with their concessionary rent. PHEAA's argued that Mr. Hedlund could earn more as a licensed attorney. And there was evidence

that statewide Oregon attorney's earnings on average exceeded his. But there was no available evidence as

to the average earnings of lawyers in Klamath County, and it's not clear that higher wages elsewhere would net him higher take-home pay, given higher living expenses elsewhere. In addition, besides just the raw dollars, Mr. Hedlund had significant benefits in connection with his employment, as mentioned before. It's not at all

clear that his then current wages or income, including

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the value of the benefits, were in fact lower than an attorney with like years experience practicing law. Further, it's not -- I have to say I don't regard Mr. Hedlund's failure to pass the bar exam as being within his control. He tried twice, was going to

try a third time, had a misfortune, but he's now, as of the time of trial, in a position where he could not afford to lose a couple months' wages or take the bar prep to retake the exam. And it's not at all clear --

I don't believe there was evidence on the point one way or the other whether his employer would let him take sufficient time off to do that. not -- is not available to him. PHEAA also suggested that he should work more than full-time, take an additional part-time job. I would find that unconscionable. But So that simply does

The cases that dealt

with underemployment have typically focused on either being employed at a job -- not the best job or not the best paying job that was then available to the party, or someone not working full-time and not trying to work -- not looking for full-time work. in that connection Mason. And I have in mind

And that cite is 464 F.3d

878, a Ninth Circuit case from 2006. On the other hand, as Judge Radcliffe stated in his initial original findings and conclusions, it

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would be reasonable and not unconscionable to require Ms. Hedlund to work three days rather than one day per week, particularly in light of the availability of free child care from grandparents. That would add

approximately $320 gross monthly income and around $265 net to their household income, which would then yield an aggregate net income of $2,715 per month. $2,450 from Schedule I plus the $265. The Court can also adjust expenses in the prong one analysis to those reasonably necessary to maintain a minimal standard of living. And we find That's

that in Craig v. ECMC, 579 F.3d 1040, Ninth Circuit 2009. And as indicated in Mason, those expenses are

within the discretion of the bankruptcy court. Judge Radcliffe followed Sequeira, 278 B.R. 861, a 2001 case from Oregon, and held that the disposable income test from Chapter 13 was an appropriate measure for what's permissible to maintain a minimal standard of living. Arguably, that standard is less strict than unconscionability. But the BAP in Carnduff's Footnote

5 expressed no view on whether the disposable income test of Chapter 13 was either permissible or required as a method of assessing undue hardship under Section 523(a)(8).

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The BAP also referenced a Montana case, In re Fulbright, 319 B.R. 650, from 2005, which has a somewhat different view. So it's clear that there's no

single formula for determining reasonably necessary expenses. They're to be determined on a case-by-case

basis, using concepts such as the Chapter 13 disposable income analysis, Chapter 7 abuse allowances, and expert testimony, of which we had none in this case on this point. I do find that the Chapter 13 standard is And by and large, I'm inclined to use that as

a method of considering expenses, keeping in mind that the Chapter 13 is looking at a situation that will last three to five years in most cases, and student loans cases have a much longer tail, 15 years in this instance, maybe in other instances, 20 or more. PHEAA argues that the Hedlunds should give up the leased Accord, which would free $350 some a month, in favor of relying only on the 1990 Blazer. that that would be unconscionable. I find

The uncontroverted

evidence about the Blazer is that it's not sufficiently reliable for out-of-town trips, and given that the family included at the time of trial a two-year-old child, I don't think that one could reasonably require a family not to have one non-luxury vehicle for

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reliable transportation. Although the lease term would end -- since it is a lease and the car goes away unless lease payments are made, they will either have to renew the lease and continue with similar payments or find something else in the same general price range, very likely. even higher. PHEAA also challenges some expenses: Clothing, cable TV and internet, cell phones, charitable contributions, gym membership, laundry and dry cleaning, recreation, child care and haircuts, as excessive. And I agree that some of those are not Perhaps

reasonably necessary for a minimal standard of living and note that plaintiff conceded in closing argument that $125 a month for clothing was too generous and thought that $75 a month would be more appropriate. I'll certainly adopt that recommendation. And I will

find that the recreation expenses can appropriately be trimmed, but I think PHEAA's suggestion of only $25 a month is unduly restrictive. So what I will find is that $100 a month for recreation, viewed as including the cable TV and internet, is appropriate, and that from the child care budget or miscellaneous category that includes child care and haircuts and so on, given the availability of

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free child care, I'll cut that to $30 a month. The rest of the entries on Mr. Hedlund's Schedule J, and the slightly updated figures set out in his responses to the interrogatories in the adversary, are reasonably necessary for a minimal standard of living. I think the cell phone, in particular, at $75 a month is reasonably necessary. parent a cell phone. This allows each

And Mr. Hedlund is out of town on

work at various times and can't use the County's phone for personal calls. Parents of young children do need

the ability to communicate. Finally, Mr. Hedlund testified that the payment on the TERI settlement is $50 a month, and that's also nondischargeable. So these changes,

rounded off, equal roughly $200 a month. If Mr. Hedlund and his wife's net income, as adjusted, is $2,715 a month, and the current expenses with these adjustments are $2,250, that leaves $465 a month as surplus as of the time of trial. Plaintiff has established by a preponderance of the evidence that he doesn't have the current ability to make the full $800 plus per month payments required under the PHEAA loans without undue hardship, but he could make partial payments.

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On to prong two, in which the debtor must show additional circumstances exist that indicate his present inability to pay is likely to persist for a significant portion of the repayment period. While this case was on appeal, the Circuit clarified that, while a debtor must demonstrate that the additional circumstances are likely to persist for a significant portion of the repayment period, they need to be exceptional only in the sense that they demonstrate insurmountable barriers to his financial recovery and ability to pay. And that's from In re

Nys, 446 F.3d 938, a Ninth Circuit case from 2006. The Court clarified that the additional or exceptional circumstances mean only that the debtor must present something more than her current financial situation. She must present the Court with To prove

circumstances she cannot reasonably change.

undue hardship, circumstances must indicate that the debtor cannot reasonably be expected to increase her income and make payments for a substantial portion of the repayment period. page 946 of that case. Do we still have both counsel? MR. MONSON: MR. HOYT: Yes, Miles Monson is here. And that's found in note 7 at

Yes, Your Honor, Keith Hoyt.

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THE COURT:

Thank you.

We just heard a bleep

that suggested maybe somebody lost the call. Under Nys, courts are to presume that a debtor's income will rise to the point at which payments can be made on the student loan obligation while maintaining a minimal standard of living, but a debtor may rebut that presumption. Just as an aside, I'll observe that this presumption may not any longer reflect reality. There's considerable recent economic literature that suggests that lower and middle income American families are essentially losing ground, or certainly not gaining ground, such as was the trend in earlier years, earlier decades. But at this point, that's what the law is in

this Circuit. The Court in that case set out a long inexhaustive list of additional circumstances on page 947, which I won't reread now, but I will reference as I go through the ones that seem to me pertinent. Fundamentally, the question is whether debtors -- the debtor plaintiff's current financial situation will persist for a significant portion of the 15-year period. As to factor No. 2, which is the debtor's obligation to care for dependents, even with

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Ms. Hedlund working for three days a week, he's going to bear the bulk of the responsibility for supporting the family. And that burden will increase if in fact

they have an additional child. As to factors 5 and 6, the lack of usable or marketable job skills or underemployment, which apply here, arguably, through the lack of admission to the bar, and the uncertainty and cost of perhaps gaining that certification or that admission, those suggest that the circumstances will continue indefinitely. As to 7, 9 and 12, which are whether he's maximized his income potential, whether age or other factors prevent retraining or relocation, and whether potentially increasing expenses outweigh any potential appreciation in assets or income -- excuse me, I meant to say 12, not 11. options elsewhere. same way. There are no better jobs available in Klamath County to the plaintiff. There's some possible Possible 12 is the lack of better financial I think that those also point the

promotions and some modest step increases.

promotions are well off into the future when current incumbents and folks higher up in his department retire. And those are certainly not sure things. While there might be some cost of living

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adjustments, they're not likely to outpace inflation. Of the possible promotions, there are only three possible positions in the department, and the earliest that one of those would be expected to be available was eight years out. Thus, Mr. Hedlund had

no significant opportunity for advancement for well over half of the repayment period. Cost of relocating would likely -- and the increase in living expenses suggests that that would not improve his position. And although Ms. Hedlund can

contribute some more to the family income, we've discussed that already, and that doesn't really add very much to suggest that the situation will change and that Mr. Hedlund would be able to repay the entire loan. As to Factor 10, the current assets are minimal, and there's no evidence that he might be getting an inheritance or any other large asset that would help in retiring the student loan debt. As to Factor 11, the plaintiff's testimony was that his housing expenses would soon increase, moving from essentially a below market rate two bedroom duplex into something slightly larger to accommodate a larger family, which would cost on the order of $600 a month, a $225 increase from their present housing

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budget. expense.

That seems to me a reasonably necessary

With respect to the Accord, as I mentioned earlier, although the $354 a month lease payment would run out in October of 2004, something similar would have to be obtained, and the price is likely to be somewhat similar. In all, it doesn't look like Mr. Hedlund's prospects of net economic change for the better was in the offing or to be expected during the repayment period on the loans. So I will find that Mr. Hedlund

rebutted the presumption that his income will increase or his expenses decrease to a point where he could make, without undue hardship, the full payment on the PHEAA debt. But as I indicated before, he could make partial payments without undue hardship. Once the

additional rental expense is factored in, there is left available a $240 a month surplus for payments to PHEAA. On to prong three. The debtor, to establish

prong three, must have established -- must show that he's made good faith efforts to repay the loan. Good

faith was measured by his efforts to obtain employment, maximize income, minimize expenses. from Mason at page 884. And that's, again,

Also, a relevant consideration

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is whether or not he's attempted to negotiate a repayment plan, although that's not dispositive; likewise, payments that the debtors made and the timing of his attempt to have the loan discharged. Mr. Hedlund's efforts to find employment, maximize his income and minimize his expenses I've already discussed. While I find that Ms. Hedlund could

be expected to work three days a week instead of one, it's hard to ascribe her past failure to do so as indicating a lack of good faith, particularly on Mr. Hedlund's part. Even assuming she -- since she's

not an obligor on the loan and arrived after the loans were already in force or already taken out, and I think actually in repayment, the idea that she has an independent duty to maximize her income to help pay for them seems inappropriate. And in addition, she's got a

young child to take care of, and that would override any duty to assist in the payment of the loans, at least as far as good faith is concerned. Although I've indicated that I'm prepared to rule that some of the expenses could be trimmed and that, obviously, the Hedlunds haven't done that before trial, in light of all the circumstances, I don't think that tips the balance away from a good faith finding. And part of the reason I've reached that conclusion is

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that those expenses co-existed with the garnishment, about which I'll say a little bit more later. Although the expenses that I've indicated could be cut and dedicated to student loan repayment, Mr. Hedlund and his family have always lived frugally, and their budget for non-necessities has been modest. Regarding efforts to repay, at no time from -- since the loans went into repayment status did Mr. Hedlund have the ability to make full payments in excess of $800 a month. off and file bankruptcy. But he didn't immediately go During the roughly four years

that followed, he made a voluntary payment of $950 some dollars. He endured 16 and a half months of

garnishments, in his words, "because PHEAA was entitled to the money." He did not challenge those garnishments, nor did PHEAA take any action indicating that that state of affairs, payments at the rate of $258 a month, was unsatisfactory. It was only after TERI garnished the

bank account, obtaining what was left after the PHEAA garnishment and kicking the supports out from the family's financial situation, that they filed bankruptcy. That brings us to alternative repayment plans. As Mason indicates, efforts to obtain and

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participation in an alternative repayment plan is relevant, but it's not dispositive on the issue of good faith. Mr. Hedlund did attempt to negotiate

consolidation and lower payments, but was first stymied by a lost application. Later he made an offer of And he did turn down the

$5,000, which was rejected.

various 30-year options PHEAA presented shortly before trial. Here, even the minimum repayment offered by PHEAA was over $300, which is more than Hedlund could afford without undue hardship. And accepting any of

those offers would have had him paying on his student loans into his mid 60's. His refusal to obligate

himself long past when his child or children would hopefully have had a chance to go to college themselves does not seem to me to obviate good faith. Since remand, PHEAA has argued that his failure to apply for the income contingent repayment plan evidences a lack of good faith. Mr. Hedlund

testified he had investigated ICRP online, but concluded he was not eligible because he was already in default. PHEAA indicated that he may have been qualified, may be qualified, but there's no evidence so indicating. But even at the original trial, in

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closing, PHEAA conceded that the payments under the ICRP would be more per month than the options PHEAA had had offered. And so it seems to me that the same They simply were not feasible.

considerations apply.

But I also have to say one further thing about ICRP. convincing. I simply don't find the ICRP argument very In circumstances such as the plaintiff's

and probably at least a significant number of the folks who are in bankruptcy and seeking to discharge student loans, the ICRP simply is going to substitute a nondischargeable tax debt based on loan forgiveness for the student loan debt. And that tax debt is going to

hit as much as 25 years further out, even when young debtors are likely to be dealing with their own children needing help with college or as they're getting ready for retirement or hoping to get ready for retirement or potentially both. An excellent discussion of how this works is fund in In re Booth, a bankruptcy case from the Eastern District of Washington, 2009, and the cite is 410 B.R. 672. I don't see declining to get into a trade, for

all practical purposes, of nondischargeable debt, and given what we know about Mr. Hedlund's position and circumstances, there's no reason to expect that his situation would improve sufficiently for him to pay any

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very large portion of the debt, thus, there's a considerable forgiveness at the end and considerable nondischargeable tax liability -- it just doesn't seem to me that that -- that his failure to apply or failure to obtain an ICRP payment schedule evidence is a lack of good faith. Finally, I'm to consider whether or not this is self-inflicted harm. Did this arise through the I don't see

debtor's irresponsibility or negligence? any.

He's remained employed at the best job he could He's not got addictions

find, given the circumstances.

to drugs, gambling, alcohol or anything else that diverts a significant portion of his income, or even any, according to the evidence. and his family live modestly. luxuries. His hope was to practice law. He made a He lives modestly. He

They've forgone

valiant effort towards doing that, even beyond the effort that law school requires. His attempts,

repeated attempts to pass the bar, indicate a good faith in trying to maximize the value of his education. Sometimes one simply can't accomplish what one sets out to do, and it's prudent to put the past behind and make the best of the circumstances. Mr. Hedlund has done here. I think that's what

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So I will find that a partial discharge is appropriate in this case and that Mr. Hedlund can pay, without undue hardship, $240 a month in the remaining 15-year repayment period. Again, we're speaking as of

the end of trial in December of 2003. Using the Sequeira methodology, the present value of that stream of payments at a 4.22 percent discount rate is $32,080. That amount will be excepted

from discharge and will bear interest at the rate of 4.22 percent from January 14th, 2004, the date of the original judgment. And Mr. Hedlund shall make monthly

payment of $240 due on the 10th of each month with credit for any payments he's made since that trial. Repayment of any amount in excess of that would impose an undue hardship on Mr. Hedlund and his dependents and, therefore, will be discharged. enter a separate judgment. As I indicated at the beginning of this ruling, these are my tentative findings of fact and conclusions of law. If either party believes there's a I will

flaw in the analysis, I want that party to file a memorandum pointing out what it is, referencing the pertinent authority and precisely where in the record the basis is for that contention. And to do so, I'm

going to pick a date, and then we can talk about it.

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But my pick of a date would be -- we're now at this 13th -- the 3rd of June. And I will say that

I'm going to order out a transcript directly, and I'm going to edit the transcript because I realize that this is of importance to the parties. will take a few days. I assume that

But that should enable the

parties to file -- to analyze the transcript and file what you wish by the 3rd of June. One sort of minor footnote to that, Mr. Boyd, if the 10th of the month is not the best date to set the payment date, that doesn't require anything other than, you know, just telling me what's a better day and maybe briefly why. But that's not significant, whether

it's the 10th or the 5th or so on. So if there are such memoranda filed, we'll set up a hearing to consider. I think it would make

sense to wait until then till we know what schedules are like into June. And if there are no such

memoranda, the Court will prepare a judgment and enter it. Any further questions? Well, let me start Or do either of you

with, is the 3rd of June feasible?

have major trials or vacations with tickets already paid for and things like that that would interfere with that?

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MR. MONSON:

Your Honor, Miles Monson.

We

would like that to be extended just a little bit, because we don't know how much time it's going to take to get the transcript. THE COURT: Okay. So one more week, do you

MR. MONSON: MR. BOYD: more week.

Yes, please. I think one

I agree, Your Honor.

I do have a friend who has surgery on that So I

day up at OHSU, and I do plan to attend that. would appreciate that, also. THE COURT: of June, then. Okay.

Well, we'll say the 10th

My experience with getting transcripts

-- and we'll order it from here because it's in our recording system. My experience is we can typically

get those within a few days, but it may take a couple of days to review it and do the editing and make sure we get the cites correctly and so on. But we'll have a

transcript that gets filed, I would hope, within a week and a half or two. And then once we get there, and if there are further proceedings to be had, we'll sort out when they might be, ideally later in June, although I'm committed to do some work in Sacramento, I think it's the following week. I'm not sure -- in the middle part of

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June.

So we'll have to work around that.

Or maybe

we'll do a telephone hearing from Sacramento, if it turns out that that works best. MR. MONSON: more than a week. Your Honor, if I could suggest By

The 24th might be a better date.

the time we get the transcript, have our chance to review it, have the client look at it, we're probably up against close to that June 10th deadline. THE COURT: than the 17th? MR. MONSON: THE COURT: Please. Okay. Let me tell you that I I don't know that So do you think the 24th rather

don't have July in front of me.

there are significant -- parts of July may be difficult. We've got a wedding in the family in the Never mind. Yes,

middle of -- no, that's in August.

we'll figure out something in July, I should think, then. So the 27th of June -MR. MONSON: THE COURT: MR. MONSON: MR. BOYD: THE COURT: MR. BOYD: The 24th? Excuse me, the 24th. Works for us. Thank you.

Very good. Thank you both. Thank you, Your Honor. Thank you.

MR. MONSON:

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CERTIFICATE

ROBYN OLESON FIEDLER certifies that:

The foregoing pages represent an accurate and complete transcript of the entire record of the digitally-recorded proceedings before the HONORABLE PHILIP H. BRANDT presiding, in the matter of HEDLUND; and

These pages constitute the original or a true copy of the original transcript of the proceedings.

Signed and dated this 3rd day of June, 2011.

by |s| Robyn Oleson Fiedler ROBYN OLESON FIEDLER, Certified Court Reporter.

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