Appeal from the United States District Court for the Western District of Wisconsin. No. 01 C 288--John C. Shabaz, Judge.
Before Manion, Kanne, and Williams, Circuit Judges.
The opinion of the court was delivered by: Manion, Circuit Judge.
Jon P. Goulet filed for Chapter 7 bankruptcy and, pursuant to an adversary proceeding, sought to discharge his government-guaranteed educational loans owed to the defendant, Educational Credit Management Corporation ("ECMC"), a not-for-profitorganization that administers guaranteed student loans. After a hearing on the merits, the bankruptcy court concluded that the student loans would impose an "undue hardship" on Goulet under 11 U.S.C. sec. 523(a)(8), and therefore entered an order discharging the loans. ECMC appealed to the district court, which reversed the decision of the bankruptcy court. In re Goulet, 264 B.R. 527 (W.D. Wis. 2001). Goulet appeals, and we affirm the decision of the district court that the loans are not dischargeable under Section 523(a)(8).
The bankruptcy court made the following findings of fact. The debtor, Jon P. Goulet, is 55 years old, lives with his mother in Eau Claire, Wisconsin, and helps her around the house since his father recently died. Goulet has an 11-year-old son, of whom he does not have custody. He owes $228 per month in child support. At the time of the bankruptcy court proceedings, Goulet's mother was paying one-half of the monthly payment on his behalf and he was in arrears on the child support obligation. Goulet's mother generally supports him from her own income, including her Social Security payment, and does not charge him any rent or lodging expenses. He does not receive any form of public assistance.
After graduating high school in Wisconsin in 1963, Goulet attended the University of Wisconsin-Eau Claire periodically from 1963 through 1968. In 1969, he transferred to Regis University in Denver, Colorado (at that time known as Loretta Heights) and, in 1972, he earned his bachelor's degree in history, graduating with a 3.45 GPA. Between 1972 and 1983, he worked at various jobs in Denver, including bartending and restaurant management. In 1984, he moved back to Eau Claire and became a life insurance agent. For the next few years, he made a steady, comfortable living and his income ranged from approximately $20,000 to $30,000.
Then, Goulet's fortunes took a turn for the worse. In 1989, he had his insurance license revoked due to a charge of insurance fraud. He was also arrested for felony possession of cocaine, with intent to deliver.*fn1 After attending out-patient counseling, he worked as a bouncer and bartender from 1988 through 1990. From 1991 to 1995, Goulet went back to school, attending the University of Wisconsin-Stout and completing all the required courses for a master's in psychology with a 3.7 GPA. However, he did not obtain his degree because he failed to complete a statistical analysis for his thesis. Goulet also testified that he did not complete his master's degree work because a counseling job requires 3,000 hours of post-degree experience and certification, which he believed he would be unable to achieve in light of his felony conviction.
After quitting the master's degree program, Goulet applied for and was rejected from some counseling positions. Since then, he has held various bartender positions and managed a restaurant for a short time. As recently as the district court proceeding, he was employed as a real estate agent for Edina Realty, but had yet to make a sale or obtain a listing.*fn2 His income for the year 2000 was $1,490.00 and his monthly expenses, excluding his child support obligation, are approximately $492.00 (or $5,904.00 annually).
While attending graduate school at UW-Stout, Goulet obtained 21 student loans totaling, with accrued interest, approximately $76,000.00.*fn3 The debt is accruing at a 9% interest rate. In September 1994, when his first payment was due, Goulet requested and received a forbearance agreement on the loans. He also timely requested and received additional forbearance agreements when subsequent payments became due, the last in May 2000. At that time, ECMC stopped granting forbearances and Goulet subsequently filed his petition for bankruptcy, seeking relief from the debt. Goulet never made a single payment on his student loans.
Goulet testified that he has suffered from a drug and alcohol problem for approximately 30 years. He has never sought in-patient treatment, but he has had some out-patient counseling, notably through Alcoholics Anonymous. The bankruptcy court heard the testimony of Mr. John Siebold, the manager of the club at the Eau Claire Golf and Country Club where Goulet had been a bartender. Siebold testified that he had never observed any indication that Goulet had an alcohol or drug abuse problem, but the court discounted this testimony, concluding that "we know as lawyers many of our colleagues go home and they're drinking every night." The bankruptcy court then concluded that Goulet was "a smart guy and [has] great capabilities. . . . [and] also [has] a significant problem in that [he has] an addiction." The bankruptcy court also investigated whether Goulet would have the ability to make payments in the future. During the hearing, it heard the testimony of Mr. Jim Theisen, an owner of a successful real estate business, who testified that first-year real estate agents made $17,000 to $40,000 and second-year agents made $25,000 to $60,000. The court, however, discounted Mr. Theisen's testimony, noting that "although we know you can make good money in the real estate business . . . . there are many people I know who wash out in that industry."
After considering the foregoing facts and circumstances, the bankruptcy court, applying our circuit's test for "undue hardship," determined that Goulet did not have the money to make payments, that his inability to pay would persist for the significant future, and that he had made a good faith effort to repay the debt. The court thereby discharged Goulet's student loans. ECMC appealed the bankruptcy court's decision and the federal district court reversed. Goulet appeals.
We must decide whether Goulet established that he would suffer "undue hardship" if his student loans were not discharged. Student loans are not dischargeable in bankruptcy unless they will constitute an "undue hardship" on the debtor. See 11 U.S.C. sec. 523(a)(8).*fn4 The Bankruptcy Code does not define "undue hardship," but this circuit has adopted the Second Circuit's three-pronged Brunner test, see Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395, 396 (2d Cir. 1987), for evaluating such a claim. In the Matter of Roberson, 999 F.2d 1132, 1135 (7th Cir. 1993). Under this test, the debtor must demonstrate (1) 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; (2) that additional circumstances exist indicating that the 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. Roberson, 999 F.2d at 1135 (adopting test from Brunner, 831 F.2d at 396). The debtor has the burden of establishing each element of the test by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291 (1991) ("standard of proof for the ...