By Michael Fuller, Member at Large, Consumer Law Section Executive Committee

Hedlund v Educational Resources Inst. (9th Cir. May 22, 2013)

Michael Hedlund graduated law school and later filed bankruptcy. The bankruptcy court determined Mr. Hedlund acted in good faith and discharged a portion of his student loans. On appeal, the district court reversed, finding that Mr. Hedlund failed to act in good faith.

The Ninth Circuit Court of Appeals reversed because the bankruptcy court’s determination was not clearly erroneous.

In 1998, the Ninth Circuit adopted a three-prong Brunner test to determine student loan dischargeability under 11 U.S.C. § 523(a)(8). To satisfy the third Brunner prong, a debtor must prove he has made good faith efforts to repay his loans.

The Appeals Court reasoned that the district court incorrectly used the de novo standard instead of the “clearly erroneous” standard in reviewing the bankruptcy court’s good faith determination.

Read the full opinion for complete analysis.