The Education Resources Institute v. Zumbro (In re Kandace Zumbro)

Summarized by Kathleen DiSanto , Bush Ross, PA
12 years 4 months ago

Citation:

The Education Resources Institute v. Zumbro (In re Zumbro), Case No. 13-11868 (11th Cir. Oct. 3, 2013) (unpublished).

Tag(s):

Ruling:

The Eleventh Circuit Court of Appeals held that the district court properly affirmed the bankruptcy court’s order determining that student loans co-signed by the debtor were dischargeable.

Procedural context:

The bankruptcy court initially determined that the Student Loans (as defined below) were non-dischargeable based on the mistaken assumption that they could be restructured under 34 C.F.R. § 685.208, which allows borrowers of certain government issued student loans to restructure their payment period for up to thirty years. Because Kandace Zumbro (the “Debtor”) was not the borrower and was merely the co-signer and the Student Loans were not government issued, the debts were not eligible for the extended repayment period under 34 C.F.R. § 685.208. The bankruptcy court then reversed its prior ruling, concluding that the debtor’s current state of affairs would persist for a significant portion of the repayment period. The district court affirmed the bankruptcy court’s ultimate determination that the debt was dischargeable. The Education Resources Institute, Inc. (the “Institute”), which had guaranteed the Student Loans, appealed the district court’s decision to the Eleventh Circuit.

Facts:

The Debtor co-signed three promissory notes to obtain loans for her former spouse, Jerry J. Lee, Jr. (“Lee”) to attend medical school (the “Student Loans”). Lee practiced medicine for only a few years and surrendered his medical license in 2003. Lee has been incarcerated since 2005 for molesting his nine year old daughter, and the Debtor filed for divorce the same year. The Debtor sought relief under chapter 13 of the Bankruptcy Code and filed a complaint seeking to discharge the Student Loans. On appeal, the Institute argued that (i) the Debtor did not satisfy the Bruner test required to establish undue hardship and (ii) the evidentiary findings that the bankruptcy court made in initially concluding that the Student Loans were non-dischargeable are not altered by the inapplicability of 34 C.F.R. § 685.208. The second prong of the Bruner test requires a debtor to demonstrate that the state of affairs will persist for a significant portion of the repayment period. Because the repayment period of the Student Loans could not be extended under 34 C.F.R. § 685.208 and two of the notes were due in 2006, and the third note in 2016, the bankruptcy court found that the Debtor’s state of affairs would persist for a significant portion of the repayment period. In upholding the decisions of the district court and the bankruptcy court, the Eleventh Circuit concluded that the district court properly addressed and rejected the issues raised by the Institute and adopted the reasoning set forth in the district court’s order.

Judge(s):

Pryor, Jordan, and Cox, Circuit Judges

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