In Re Lorna Kaye Nys, Debtor, Educational Credit Management Corporation v. Lorna Kaye Nys

Debtor-Appellee Lorna Kaye Nys (“Nys”) filed an adversary complaint in bankruptcy court to have her student loans discharged under 11 U.S.C. § 523 (a)(8). The trial court found from the evidence that Nys’s current income is “not nearly enough to pay off her student loans,” and that it “is the most she can reasonably be expected to earn in the foreseeable future.” The bankruptcy court nonetheless ruled against Nys, concluding that “undue hardship” requires the showing of an “exceptional circumstance” beyond the mere inability to pay.

Nys appealed to the Bankruptcy Appellate Panel (“BAP”). In a published decision, Nys v. Educ. Credit Mgmt. Corp. (In re Nys), 308 B.R. 436 (9th Cir. BAP 2004), the BAP reversed and remanded, directing the bankruptcy court to reevaluate Nys’s claim using the correct legal standard. The BAP reasoned that the three-prong test we adopted in United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108 (9th Cir.1998), for determining whether the repayment of student loans would impose an “undue hardship” on the debtor or her dependents requires the debtor to show “additional circumstances” that prove that her inability to pay in the present will…