The Debtor was 56 years old and lived with his 85-year-old mother, subsisting on her Social Security. He was divorced with no children and was unemployed. For about 10 years until 2005, he pursued an MBA and a law degree, taking out student loans to finance his graduate education.
He had twice been unsuccessful at passing a state bar exam and struggled with depression and alcohol abuse. In addition, he was involved in domestic disputes and had several misdemeanor convictions. He claimed that all of these factors combined made it hard for him to find a job.
In his bankruptcy petition, he sought to have the loans discharged, claiming that repayment constituted an “undue hardship” under Bankruptcy Code § 523(a)(8). The bankruptcy court held a trial on the issue and determined that the Debtor failed to show that repaying his student loans would constitute an “undue hardship.” The District Court affirmed, and the Debtor appealed.
Circuit Judge Joel Martin Flaum of the Seventh Circuit wrote in his opinion that student loans are typically not dischargeable in bankruptcy unless the debtor can prove an undue hardship. To determine this, the court adopted the Brunner test, which requires a debtor to show:
(1) he can not maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay his loans;
(2) additional circumstances exist that show his state of affairs is likely to persist for a significant portion of the repayment period; and
(3) he made good faith efforts to repay the loans.
A debtor must satisfy each element of the test to have his loans discharged. In this case, the bankruptcy court found that he only met the first element. As far as the second prong of the test, the bankruptcy court found that the Debtor’s finances could improve as he had an MBA, was a good writer, intelligent, and family issues were mostly in the past. The court also concluded that he was not mentally ill and was able to earn a living.
As far as his mental health, the court considered the testimony of a forensic psychologist hired by the creditor and Debtor’s treating psychologist. The bankruptcy court noted that the Debtor’s doctor diagnosed him with Narcissistic Personality disorder, but that his anxiety and depression did not reach clinical levels. The court also noted that tests performed by the creditor’s forensic psychologist indicated that he “scored very high on several malingering scales,” indicating that he might be faking the psychological symptoms.
Judge Flaum held that the bankruptcy court’s analysis of the additional circumstances prong was not clearly erroneous and agreed that he was capable of earning a living. Flaum also thought it significant that the Debtor was capable of pro se representation in the case—an indicator of his marketable job skills. While he referenced obstacles related to his mental health, expert testimony indicated that he did not suffer from clinical levels of anxiety or depression, and further indicated that he might be exaggerating his symptoms.
The Debtor claimed on appeal that the bankruptcy court did not allow him to present the testimony of two other experts that would have helped his case, most importantly on the issue of his future ability to get and maintain a job. Before the trial, the bankruptcy court excluded the proposed testimony of a forensic psychologist. This expert would have testified that the Debtor had memory problems that would likely cause him to never pass the bar. The second expert was a vocational counselor who would have testified that he was unlikely to find employment paying more than $31,000 to $37,000 per year.
The court granted him three extensions of the pretrial deadline to disclose the experts, which came and went. Then the Debtor filed an emergency motion seeking permission to disclose them, which was denied.
The district court affirmed the decision on the experts and noted that Rule 16(b)(4) states that a pretrial scheduling deadline may only be modified for “good cause.” The Debtor explained that it did not occur to him to seek testimony on memory loss until after he had flunked two exams required to work in the financial industry—several months after the expert disclosure deadline had passed. Then, for the next six months, he apparently gathered “memory evidence” that he wanted to present at trial—and then filed his emergency motion to disclose the two experts. Judge Flaum reasoned that even assuming if the Debtor could not have recognized the need for “memory experts” before the extended deadline, he waited another six months to raise the issue with the bankruptcy court.
The Seventh Circuit agreed with the lower courts that the Debtor did not show good cause for the lateness of his expert disclosure. As a result, it rejected his argument that the bankruptcy court erred in excluding his two proposed experts. The judgment was affirmed.