OPINION
ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE.
III. FACTS
I. INTRODUCTION
In this adversary proceeding, Debtor Kristin M. Price ("the Debtor") seeks a determination that her student loan debt to the United States Department of Education ("the DOE") is dischargeable under 11 U.S.C. § 523(a)(8). Under § 523(a)(8), student loan debt is dischargeable only if repayment of the debt would impose an "undue hardship" on the debtor and the debtor's dependents.
This Circuit employs what is known as the "
In this case, the immediate cause of the Debtor's financial difficulties that led to her bankruptcy filing was a marital separation (which will lead to a divorce), which has left her as the sole custodian of three (3) young children, with reduced income for her family's support.
As detailed below, several factors complicate the application of the
The facts of this case and the legal issues presented have necessitated a close examination of the second prong of the
Accordingly, repayment of the Debtor's student loan debt to the DOE would impose an undue hardship on the Debtor and her dependents under 11 U.S.C. § 523(a)(8) and the debt is dischargeable in this chapter 7 bankruptcy case.
II. PROCEDURAL HISTORY
On October 26, 2015, the Debtor filed a voluntary chapter 7 bankruptcy petition in this court. In her schedules, the Debtor listed student loan debts to two (2) creditors: JP Morgan Chase Bank ("Chase") and the DOE.
On December 4, 2015, the chapter 7 trustee filed a report of no-assets. (Bky. No. 15-17645, Doc. # 12). The Debtor received her chapter 7 discharge on February 4, 2016. (Bky. No. 15-17645, Doc. # 14).
On January 14, 2016, prior to the entry of the discharge order, the Debtor initiated this adversary proceeding by filing a complaint
On August 23, 2016, the court denied Chase's motion for summary judgment. Following a final pretrial conference, trial of the adversary proceeding was scheduled for November 7, 2016. (Adv. No. 16-011, Doc. #'s 33, 39).
On November 4, 2017, with the DOE's consent, the Debtor and Chase stipulated to Chase's dismissal from this action. (Adv. No. 16-011, Doc. # 41).
Trial of this adversary proceeding was held and concluded on November 7, 2016. Two (2) witnesses testified at trial: the Debtor and Phillippe Guillon, a DOE representative. The parties submitted eight (8) joint exhibits by agreement.
After the trial, the Debtor and the DOE submitted post-trial briefs in support of their respective positions, the last of which was filed on January 12, 2017. (Adv. No. 16-011, Doc. #'s 44, 48).
III. FACTS
Set forth below are my findings of fact. In making these findings, I have considered the credibility and demeanor of the trial witnesses, the plausibility of their testimony, the existence of corroborating circumstantial, testimonial or documentary evidence and the totality of the evidentiary record.
A. The DOE and Chase Student Loan Debts
1. As of the trial date, the Debtor was twenty-nine (29) years old with no health problems. (Joint Pretrial Statement, Statement of Uncontested Facts ¶ 1) (hereinafter "JPS Facts").
2. The Debtor attended Thomas Jefferson University and graduated in 2011. (JPS Facts ¶¶ 2, 3; A.T. at 10:03).
3. The Debtor financed her education through various student loans, some private and some federally guaranteed. (JPS Facts ¶ 2).
4. The Debtor owes the DOE $25,971.85 on her government guaranteed student loans, with interest accruing on the principal at the rate of $4.72 a day. (
5. The debt arises from four (4) loan disbursements of $5,500, $7,000, $7,000 and $5,500.00 respectively. (Ex. J-7, at USA 00074, 00080).
6. Based on the repayment schedule in existence at the time the Debtor ceased making payments in November 2015, the DOE debt was scheduled to be paid off in November 2024. (JPS Facts ¶¶ 5, 6).
8. The Debtor also is obligated on two (2) student loans owed to Chase in the combined amount of $30,470.52. (
9. The Debtor's monthly payment on the Chase loans is $273.00. (
10. When the Debtor filed this bankruptcy case, she was obligated to pay approximately $500.00 per month on account of her two (2) student loan debts to the DOE and Chase.
B. The Debtor's Education
11. The Debtor earned a Bachelor of Science in Radiologic Science from Thomas Jefferson University in 2011. (
12. The Debtor's degree qualified her to take the licensing board examinations for both vascular and general sonography. (A.T. at 9:45-9:46, 10:22).
13. The Debtor passed her licensing board examination for vascular sonography in 2013. (
14. The Debtor did not pass her licensing board examination for general sonography. (
15. As of the trial date, the Debtor was not eligible to retake the general sonography boards without additional schooling, which might require attendance at a twelve (12) month full-time program. (
C. The Debtor's Family
16. The Debtor is married, but has been separated from her husband since August 2015, and believes there is no chance of a marital reconciliation. (JPS Facts ¶ 15; A.T. at 9:47).
17. The Debtor resides with her three (3) children, ages three (3), five (5) and eleven (11). (JPS Facts ¶ 16).
18. Based on financial considerations, the Debtor expects to remain married for the immediate future. (A.T. at 10:31).
19. Due to the lack of a suitable, permanent residence, the Debtor's husband does not take on day-to-day child-care responsibilities. (
20. The Debtor's oldest child attends public school. (
21. Her middle child is in day care, but next year will begin half-day kindergarten at the public school. At that time, the Debtor will incur expenses
22. The Debtor's youngest child is in day care and will begin half-day kindergarten in September 2018. At that time, the child also will need before-school-care and after-school-care. (Id.).
D. The Debtor's Employment
23. The Debtor has been employed by Main Line Health, part-time, for three (3) years, as a vascular sonographer. (JPS Facts ¶¶ 21, 22).
24. The Debtor is paid hourly at the rate of $34.22/hour, working two (2) full days (7:30 a.m. to 4:00 p.m.) and one (1) half day per week, for a total of twenty (20) hours per week. The Debtor is also on-call, but has only been called in for extra hours three (3) times since she began working for her current employer. (A.T. at 9:59, 10:06-10:08, 10:11-10:12;
25. The Debtor's qualifications do not permit her to work in areas of sonography other than vascular sonography. (A.T. at 9:45).
26. The Debtor has looked for additional hours or a full-time position in her field in the nearby area, but no such position is available. (
27. The current full-time vascular sonographers at Main Line Health are not due to retire for eight (8) years. (
28. The Debtor has not sought lower-paying, part-time employment outside of her field.
E. The Debtor's Current Income and Expenses
1. Monthly Income
29. The Debtor's gross monthly income is $3,455.83. After payroll deductions, her monthly take-home pay is $2,405.00. (JPS Facts ¶ 23).
30. The Debtor receives child support from her husband in the amount of $1,400.00 per month. (
31. In addition, the Debtor's husband directly pays $507.05 toward certain of the Debtor's expenses (automobile loan; auto and renter's insurance). (
2. Monthly Expenses
33. The Debtor's monthly expenses exceed her income and total $4,482.00 as follows:
$1,400.00 rent
$ 230.00 heat and electricity
$ 30.00 water
$ 240.00 cable, phone and internet
$ 45.00 cell phone
$ 800.00 food and household supplies
$1,127.00 childcare and after school activities10
$ 150.00 clothing
$ 80.00 personal care products
$ 50.00 out of pocket medical expenses
$ 250.00 gas and car maintenance
$ 80.00 entertainment
_________
Total $4,482.0011
[Editor's Note: The preceding image contains
the reference for footnote10 11 ].
34. The Debtor's monthly expenses exceed her monthly income.
F. Other Facts Affecting the Debtor's Current Financial Status
35. The Debtor owns no real estate. (JPS Facts ¶ 17).
36. The Debtor lives in a home owned by her mother, and pays her mother a below-market monthly rent of $1,400.00, which covers her mother's mortgage payments on the property. (A.T. at 9:50).
37. The Debtor's mother provides free childcare for the oldest child when he returns from school on the days that the Debtor is working. (
38. The Debtor's car is leased, with two (2) years remaining on the lease. The Debtor's husband has promised to make monthly payments on a new car and cover the insurance as well in two (2) years when the leased car needs to be replaced. (
39. The Debtor lacks sufficient cash flow to pay all of her monthly expenses. She manages the shortfall by taking loans from her mother, which she repays
40. The Debtor owns no property other than the modest amount of exempt cash, cash equivalents and personal property listed in Schedule B of her bankruptcy schedules. (JPS Facts ¶19).
G. Repayment of the Student Loans
41. During the pendency of this adversary proceeding, the Debtor settled with Chase and will not be making monthly payments on the loans to Chase. (A.T. at 9:40).
42. The DOE offers two (2) repayment plans that are available to the Debtor: Income-Based Repayment ("IBR") and Revised Pay As You Earn ("REPAYE"). Both plans are keyed to a borrower's income. (
43. The DOE measures the borrower's discretionary income available for repayment of the loan by reference to the difference between:
44. Under the IBR plan, a borrower must pay fifteen percent (15%) of their monthly disposable income for twenty (20) years. Any loan balance which is unpaid at the end of the repayment term is forgiven. (A.T. at 11:10; 34 C.F.R. § 685.221(b)(1)).
45. Under the REPAYE plan, a borrower must pay ten percent (10%) of their monthly discretionary income for twenty-five (25) years. To qualify for REPAYE, the borrower must consolidate all federal loans, which will result in the capitalizing of any accrued interest and a new interest rate equal to the average of the prior rates. (A.T. at 11:16; 34 C.F.R. § 685.209(c)(2)(i)).
46. The DOE recognizes that the consolidation of loans and capitalization of accrued interest requirement is a materially unfavorable feature of the REPAYE program. (A.T. at 11:16).
47. As long as a borrower's monthly income is below 150% of the poverty line for a household of the appropriate size, the monthly payment under either plan will be $0.00. (
48. Under both the IBR and REPAYE plans, any loan balance which is unpaid at the end of the repayment term is forgiven, which may result in cancellation of indebtedness income for the
49. The Debtor explored repayment plans offered by the DOE by attempting to set up a repayment plan online. She did not complete the process after she realized she could not pay the lowered monthly payment. (
50. No evidence was presented regarding the precise amount of the monthly payment under either of the income contingent repayment plans for which the Debtor may be eligible.
IV. CHARGEABILITY UNDER 11 U.S.C. § 523(a)(8)
A. Statutory Authority Governing the Discharge of Student Loans
Congress has excluded certain educational loans from the general chapter 7 bankruptcy discharge. Section 523(a)(8) of the Bankruptcy Code provides:
In this adversary proceeding, it is undisputed that the Debtor's DOE student loans constitute the sort of educational debt obligation encompassed by § 523(a)(8)(A)(i). Accordingly, the loans are nondischargeable unless the Debtor proves that repayment would "impose an undue hardship on the debtor and the debtor's dependents." 11 U.S.C. § 523(a)(8).
B. The Test for "Undue Hardship"
The Bankruptcy Code does not define the "undue hardship" standard. Since 1995, the law in this Circuit has been that "undue hardship" is evaluated by applying the
The
I have previously analyzed the
A debtor seeking to discharge student loan debt falling within the purview of § 523(a)(8) bears the burden of establishing that excepting that debt from discharge will cause the debtor and his or her dependents "undue hardship."
The § 523(a)(8) discharge exception is designed to effectuate two (2) distinct purposes: (1) preventing abuses of the educational loan system by restricting the ability to discharge a student loan shortly after a student's graduation; and (2) safeguarding the financial integrity of governmental entities and nonprofit institutions that participate in educational loan programs.
V. DISCUSSION: THE FIRST AND THIRD BRUNNER PRONGS
A. The First Prong
1. minimal standard of living
Under the first prong of the
A minimal standard of living does not mean that the debtor must live in poverty.
2. the DOE's waiver
At trial, the DOE stated that it was not contesting the first prong of
On this record, I conclude that the DOE conceded at trial that the Debtor has satisfied the first prong of
3. the Debtor met her burden of proof
In case there is any doubt regarding DOE's trial concession regarding the first prong, I find, independently, that the Debtor met her burden of proving that she currently cannot maintain a minimal standard of living for herself and her dependent children. The evidentiary record on the first
The record establishes that the Debtor's net monthly income, from her part-time employment and support from her estranged spouse (including his direct payment of certain expenses), totals just under $4,500.00. This income comes close, but does not quite cover all of her family's living expenses. The problem is exacerbated by a cash flow problem arising from the Debtor's practice (a common one in our society), of having her employer deduct more from her paycheck than her eventual income tax liability. The Debtor's mother covers the Debtor's budget shortfall and cash flow difficulties by providing below-market rent on the Debtor's residence and short-term financial assistance when needed.
This state of affairs is enough to satisfy the first prong of
B. The Third Prong: Good Faith Attempt to Repay
The DOE concedes that the Debtor met the third prong of
In examining the third prong, courts consider:
A debtor's efforts to make loan repayment less onerous are an important part of the good faith analysis.
Staying current on student loan payments until the filing of a bankruptcy petition is an effective means of demonstrating good faith. Here, the Debtor was current on all of her student loans owed to the DOE for some period of time, up until November 11, 2015. (JPS Facts ¶ 6). While the parties have not fleshed out the record on this point, considering that the Debtor graduated from Thomas Jefferson University in 2011, even taking into account the likelihood that there was period of payment forbearance, it also seems clear that the there was also a period of time in which the Debtor made her loan repayments.
Further, in this case, the Debtor looked into the possibility of entering an income-based repayment plan. She engaged the DOE's website and began the process of applying for a more suitable repayment plan. She did not complete her application because she realized that under any available plan she would be obliged to make a monthly payment that she could not afford. (A.T. at 9:53).
Finally, there is nothing in the record that suggests that the Debtor manufactured her hardship by volitional conduct that reduced her income potential or that inflated her living expenses. See In re Jones, 392 B.R. 116, 130 (Bankr. E.D. Pa. 2008). Her financial difficulties are entirely involuntary.
VI. DISCUSSION: THE SECOND BRUNNER PRONG
A. General Principles
The battle line in this case is drawn over the second prong of
The second
The second prong has two (2) elements:
As with the other parts of the
The second prong requires courts to project a debtor's future employment opportunities, income and expenses.
B. The "Persistence" Element of the Brunner Second Prong
1. factors and nature of the inquiry
The first element of the second prong requires that the court evaluate the likelihood that the debtor's present financial difficulties will persist. Whatever the precise factors to be considered may be, it is clear that the inquiry is extremely fact intensive.
To aid in this predictive task, a bankruptcy court in this district succinctly summarized the types of circumstances that suggest that the financial difficulties will persist: "long-term physical or mental problems precluding employment, lack of marketable job skills, or the necessity of fully supporting several dependents which precludes sufficient income."
Other courts have developed lengthier, non-exhaustive lists of factors to be considered. One Court of Appeals identified five (5) relevant factors:
Another Court of Appeals set out a twelve (12) factor test:
The number of reported decisions evaluating the second
2. the Debtor met her burden of proof
In this case, the Debtor does not fit into the most common profile of a debtor entitled to a student loan discharge under § 523(a)(8). She is young and healthy; she completed the schooling for which she incurred her student loans and obtained a professional license in her field; she is employed, albeit only part-time. All of these factors suggest that her circumstances could improve.
On the other hand, she has three (3) young children and extensive childcare
On this record, I find that the Debtor has met her burden of establishing the existence of circumstances that satisfy the first element of the second
Whether that "period of time" is sufficiently lengthy to warrant the discharge of her student loan is the subject of the second element of the second
C. The "Duration" Element of the Brunner Second Prong: "A Significant Portion of the Repayment Period"
1. the parties' positions on the length of the repayment period
The second element of the second
This second element of the second
The Debtor argues that the repayment period is governed by her current loan contract, which is due to end in 2024, just over seven (7) years after the trial date. (Debtor's Post-Trial Brief at 3). The DOE asks this court to consider a repayment period of twenty-five (25) years, the longest repayment plan the Debtor may have under an available income contingent repayment programs. (DOE Post-Trial Brief at 6).
The parties' concentration on this issue is understandable. The longer the repayment period, the more difficult the Debtor's evidentiary burden. It also is possible that a debtor might establish that his or
2. consideration of Brunner in its historical context
Before directly addressing the two (2) issues identified above (the length or the repayment period and the length of a significant portion of the repayment period), it is useful to return to
In 1987, when
Also during that time, undue hardship cases arose only if a debtor sought to discharge student loan debt that was in pay status for less than five (5) years. Thus, the "undue hardship" cases coming before the bankruptcy courts in the age of
The reported decisions in the
First, Congress eliminated the temporal discharge in bankruptcy for student loans. Initially, in 1990, Congress extended from five (5) to seven (7) years the "in pay status" requirement of the § 523(a)(8) temporal discharge. See Pub. L. No. 101-647, § 3621, 104 Stat. (Nov. 29, 1990). This was the state of the law when Faish made the Brunner test binding precedent in the Third Circuit. Then, in 1998, Congress repealed the seven (7) year temporal discharge provision in its entirety, leaving undue hardship as the only basis for discharge.
A second development in the student loan environment was the creation of longer term, income contingent repayment programs for student loans, extending what typically was a ten (10) year loan term
The third development has been a material change in the student loan market, including the enormous growth in the amount of student loan indebtedness. As the concurring opinion in
As the above quoted passage from the
Anne E. Wells,
There are at least three (3) "takeaway" points to be drawn from the above recitation of
First, in amending 11 U.S.C. § 523(a)(8) to eliminate the objective, temporal test for student loan discharge, Congress left untouched the statutory term "undue hardship." Because
Second, and significantly, throughout all of these legislative adjustments to § 523(a)(8), the
As construed in
Thus, under
I would modify the
Third, in light of the statutory amendments and social and economic developments,
3. determination of the repayment period
To determine what constitutes a "significant portion" of the "repayment period," it is first necessary to determine the "repayment period." As stated above, the parties disagree on the length of the repayment period in this case.
My research has not uncovered any reported decision that has grappled squarely with the effect of an uninvoked, but available, extended repayment term in analyzing the second prong of
This argument is unpersuasive because it fails to consider that the three (3) prong
There are reasonable arguments available to both sides on this issue.
The DOE's position finds some support in the nature of the subject loan agreements. Government guaranteed student loan agreements are not conventional loan agreements between two (2) private entities. Federally guaranteed student loans are the product of government educational assistance programs. As such, they are subject to considerable federal regulation, through which the original loan repayment terms are subject to modification.
At least where a debtor is entitled to invoke an extended period to repay the loan, it may be consistent with the policies underlying 11 U.S.C. § 523(a)(8) to consider the extended time period as the repayment period for purposes of the second prong of
But there are weighty counter-arguments.
First, to effectuate the § 523(a)(8) goal of protecting the fiscal integrity of the government guaranteed student loan programs, the borrower's loan term should be one that has a realistic possibility of being paid off, whether in a shorter, contract term or a longer, refinanced term. Some debtors, even if they participate in an extended term, income-contingent repayment program, may be able to pay little or nothing over the term of the loan, with the loan balance then being discharged at the end of the extended term. In such a scenario, the fiscal health of the student loan program would be negligibly affected even if the loan is discharged in bankruptcy. The minuscule effect on government finance that results from not discharging unpayable loans is trumped by the general bankruptcy policy of providing a debtor with a fresh start. Thus, treating the repayment
Second, the need to preserve the integrity of the judicial process favors the use of the contractual loan term rather than a lengthy extended loan term. Court cases should be decided in a clear and comprehensible way. Those analyzing a debtor's future financial situation under the second prong of
Third, using the contract term eliminates certain perverse incentives. The contractual term is an actual obligation of the debtor which, like all other contracts, was undertaken voluntarily. In this case, the DOE argues that this court should use the twenty-five (25) year term of the REPAYE program despite the DOE's loan expert's considerable explanation about the negative consequences of the REPAYE program for people like the Debtor. (A.T. at 11:15-11:16). Because REPAYE requires loan consolidation, it results in the capitalization of accrued interest. Capitalization means that individuals on REPAYE are now paying interest on interest. If the REPAYE-borrower's income does not improve within a few years, the loan can reach a kind of "escape velocity," in which a borrower's meager income will never be applied to the original principal and the loan balance will only grow for the next
By utilizing a longer repayment term, the bankruptcy court would be making the Debtor's financial decisions for her, treating her as though she is actually on this repayment plan, while she is still contractually obligated to make much larger monthly payments. And, this court would not only be making sensitive financial decisions for the Debtor, but it would also be making decisions which were actively harmful to her financial situation, as the DOE's witness testified. (
Fourth, there is little reason to be concerned that use of the contract term in measuring the repayment will encourage litigation gamesmanship,
In my judgment, the arguments in favor of using the actual contract term outweigh the contrary arguments in this case. Therefore, I hold that notwithstanding a debtor's potential eligibility for an extended term student loan repayment program, if a debtor chose not to enter such a program in good faith, the repayment period under the second
4. determining the "significant portion" of the repayment period: case-by-case
Clear judicial guidance is lacking on the question of how much time constitutes a "significant portion" of the repayment period. In applying this part of the
To the extent that courts have addressed the necessary duration of a debtor's ongoing financial difficulties under
Respectfully, some of the cases employing the terms outlined above (or the like) have not been faithful to Brunner. Standards such as "ever be able" or "permanent" are inconsistent with the second prong of
The other standards outlined above ("long-term;" "extended period;" "well into the foreseeable future") are more consistent with
There is no mechanical approach or inflexible fixed length of time that constitutes a significant portion of the repayment period in every case (e.g., if the repayment period is twenty (20) years, the significant portion is ten (10) years; or if the loan repayment period is twenty-five (25) years, the significant portion is twelve (12) years). Rather, these determinations can be made only on a case-by-case basis, as part of the intensely fact-specific nature of the "undue hardship" analysis under 11 U.S.C. § 523(a)(8).
In this case, there is only a very modest potential "swing" in determining the significant portion of the repayment period. The remaining repayment period is only seven (7) years. In the circumstances presented here, I will employ a "look-forward" period of five (5) years, through 2022. That represents slightly more than 70% of the remaining repayment period. By looking forward through 2022, the net effect is that, in this case, consideration of the Debtor's ability to repay the loan will extend through the approximate entire original ten (10) year loan term and a finding of dischargeability in this case will require a determination that the Debtor has been and will continue to be unable to repay the loan until the conclusion of that period.
5. the Debtor met her burden of proof
The Debtor met her burden of proving by a preponderance of the evidence that her financial situation is unlikely to improve for a significant portion of the repayment period (the next five (5) years) so as to enable her to repay her student loan while maintaining a minimal standard of living for herself and her family.
Before providing my reasoning, I acknowledge that I found this case difficult and and the decision was a close call. The Debtor is young and healthy with an objectively decent occupation and eventual, long-term future prospects. However, given the length of time remaining in her repayment period (7 years), her outlook in the foreseeable future (5 years) is far less favorable. Essentially, the Debtor's ability to find gainful full-time employment is hampered by saturation of the market place in her field and the significant demands on child care for her three (3) children, which is compounded by a separation and an impending divorce. The confluence and nature of these conditions lead me to conclude that the Debtor's financial situation will not improve materially over the next five (5) years.
To begin, the Debtor is unable to find full time employment in her field. She provided specific, credible reasons why such options are not available. She testified that she and other recently-graduated sonographers are only employed part-time because there are not enough hours for full-time employment. Apparently, the market is overflowing with far too many qualified vascular sonographers.
Even if the Debtor were to obtain additional hours of employment outside the field of sonography, she barely moves the needle toward improving her financial situation. The Debtor has encountered a scenario evocatively referred to as the "childcare squeeze." The "squeeze" occurs when parents, especially single mothers, "find themselves `squeezed out' of the job market entirely, unable to earn the additional income their family requires because they cannot find jobs that pay enough to offset soaring childcare expenses." Shannon Weeks McCormack,
The Debtor's childcare expenses are based on her half-time work schedule — meaning she will be off two and a half (2 ½) days per week and, therefore, not needing childcare for those days. (A.T. at 10:12). If the Debtor obtains supplemental employment outside her field, she is unlikely to earn a commensurate hourly rate, thus making the additional income for those extra hours a "wash" because it will be largely offset by the increase in childcare costs. In effect, the Debtor must remain underemployed because additional employment does not improve her net income or her ability to repay her loans — it merely takes her away from her children as her paycheck will go to the additional child care expenses. (
The immediate limitations on the Debtor's earning potential also put stress on the increase in child care expenses she certainly will see in the next two (2) years when her middle child and youngest child enter half-day kindergarten in 2017 and 2018. This shorter day in the public school will necessitate the Debtor to pay for "before-care" (care before the public school day begins) and extended "after-care" (child care for the time between the end of the ½ day public kindergarten program, as well as time after the regular public school day) on the days she is working. (Id. at 10:14-10:17). By 2019, all three of her children will be in full-time public school, so child care costs will decrease because the number of hours needed after school will fall back to the current level. At present, that cost is $500.00 per month, but in two years, it is possible the rate for after-care will increase. (Id. at 10:19).
The Debtor's likely divorce in the foreseeable future also suggests that a deterioration, rather an improvement in the Debtor's financial is situation, is more likely. Presently, the Debtor is separated from her husband, who sees their children "when he can." (
In summary, some of these cost increases in the Debtor's future are certain, or nearly certain to occur while others, such as a possible car and insurance payments, are more speculative. I mention them because some or all of them are likely to be relevant during the next five (5) years, and all of these contingencies would increase the Debtor's monthly costs above her current costs. Even ignoring the speculative costs, the Debtor's childcare costs are certain to increase for the 2017-2019 period. Given that the Debtor is currently unable to pay on her loan without falling below a minimal standard of living, she will certainly suffer an undue hardship when her child care expenses increase, and her income does not.
I find the Debtor has demonstrated the kind of additional circumstances that show this situation will persist for a significant portion of the next seven (7) years, thus sufficient to meet the Debtor's initial evidentiary burden.
Finally, I point out that the DOE could have, but did not, offer any evidence to rebut the Debtor's testimony — particularly regarding the labor market restrictions in the sonography field that impair the Debtor's earning potential. See In re Hamilton, 361 B.R. 532, 534 (Bankr. D. Mont. 2007) (expert vocational testimony presented by defendant to rebut debtor's prong two (2) Brunner evidence); In re Roach, 288 B.R. 437, 445 (Bankr. E.D. La. 2003) (same). In the absence of contrary evidence, I have credited the Debtor's testimony.
VII. CODA
To some readers, parts of the above analysis may appear unorthodox and my determination that the Debtor's student loan debt is dischargeable may seem counterintuitive. After all, the debt is owed by
First, unlike some courts and commentators, I do not suggest that the
Second, I suggest only that courts take a fresh look at the manner in which
But, this case illustrates that § 523(a)(8), is not an "all or nothing." The Debtor is an individual who, based on her age, education and skills, has a reasonable prospect of improving her financial situation at some eventual point in the future. If "certainty of hopelessness" is the true § 523(a)(8) litmus test, the outcome in this case is incorrect. However, in this opinion, I have attempted to demonstrate that § 523(a)(8) and the
Here, I determined that the appropriate time period to be considered is the existing loan contract term, not the potentially lengthier extended repayment plan term, because the Debtor elected not to enter such a program in good faith. The outcome may well be different in other cases in which the extended loan repayment programs present a more attractive option, or for other appropriate reasons.
Using the contract term as the repayment period turned on the Debtor's good faith in choosing not to participate in an extended loan repayment program. The Debtor's explanation for that decision was reasonable and the DOE did not dispute the issue. Furthermore, the DOE did not develop the record regarding the potential for a particularized application of its extended loan repayment standards for an individual, like the Debtor, whose tax return showed an adjusted gross income that was artificial, in light of her marital separation. Nor did the DOE flesh out the details of the likely repayment terms of a more particularized application of its repayment standards to someone in the Debtor's position. Perhaps a more fulsome record would have made it more appropriate to evaluate the Debtor's prospects over a longer repayment period.
Similarly, the Debtor presented unrebutted evidence supporting her position that, for reasons beyond her control, she could not increase her income from employment in her professional field and that, therefore, her present circumstances were likely to persist. Undoubtedly, if the Debtor worked full-time in her field, she would have sufficient income to repay her student loan without undue hardship. Or, if she lacked an acceptable explanation for not working full-time, the additional income could be attributed to her, with the same outcome,
Finally, I suggest that critical analysis of this decision should separate the law from the application of the law. In this opinion, I advance the legal proposition that proper application of the
VIII. CONCLUSION
For the reasons expressed above, the Debtor has shown that failure to discharge her student loan debt owed to the DOE would cause her and her dependents undue hardship. Therefore, an order will be entered determining that the Debtor's student loan debt is dischargeable under 11 U.S.C. § 523(a)(8).
FootNotes
The parties did introduce into evidence a lengthy exhibit consisting largely of computer printouts which are unintelligible without accompanying explanatory testimony. (
The range of monthly payments in Finding of Fact No. 7 is derived from calculating the payment amount on a loan of $25,000.00, to be repaid over 10 years (120 months) at "blended" rate of either 6% or 6.6%. I used the lower end of 6% as a kind of rough blend of the four (4) original interest rates. In a second computation, which generated the upper end of the range stated in Finding of Fact No. 7, I used an interest rate of 6.6% because that appears to the rate presently being applied and that results in the stipulated per diem interest of $4.72 on the stipulated unpaid balance of $25,971.85,
It is not obvious that the Debtor is entirely correct in her belief that working part-time outside her field in an entry-level type job would provide her with no net income after childcare expenses. But, it is reasonable for her to believe that any additional net income is not significant or material.
Assuming a marginal tax rate of thirty percent (30%) and a (perhaps overly optimistic) wage rate of fifteen dollars ($15) per hour, by working an additional twenty (20) hours per week, the Debtor would make $1,200.00 per month gross and $840.00 per month net. After paying her increased day care costs, she would net less than $300.00 per month over her current earnings. While it is likely that such employment would result in some additional expenses (e.g., transportation), the Debtor nonetheless would likely end up with some additional net income. That additional net income appropriately would be applied to the Debtor's already negative monthly balance for her regular expenses as described in the text
The DOE's use of the Debtor's adjusted gross income from a joint tax return filed by her and her separated spouse tends to misleadingly inflate her ability to repay her loan and reduce her ability to obtain cash flow relief under the income contingent repayment programs. Perhaps the DOE can adjust the Debtor's treatment under these repayment programs in light of her marital separation. However, the record was not developed on this point.
I also point out an apparent anomaly or inconsistency in federal policy. The DOE income contingent repayment plan regulations suggest that once adjusted gross income exceeds a certain threshold, the borrower must make a monthly repayment. (The DOE regulations' methodology seem roughly analogous to bankruptcy "means testing," in which historical income data is compared to fixed expense standards to measure an individual's presumptive prospective ability to pay). However, in the dischargeability context under the Bankruptcy Code, as implemented through the
As stated earlier, the concept of a minimal standard of living does not equate to living at the poverty level.
I acknowledge that some tension exists between my description of the nature of a bankruptcy court's undue hardship determination and the Court of Appeals' statement in Brightful that the undue hardship determination is a legal issue over which an appellate court exercises plenary review. In re Brightful, 267 F.3d 324, 326-27 (3d Cir. 2001). However, in at least one (1), subsequent nonprecedential decision, the court may have softened that stance.
However, in stating the now classic test for measuring undue hardship under § 523(a)(8), the Brunner court did not adopt the phrase "certainty of hopelessness." Instead, the Brunner court referred only to the requirement that the debtor's current financial difficulties continue for a significant period of time. See Part IV.C.3., infra. Thus, the phrase "certainty of hopelessness" carries a connotation that vastly overstates the debtor's evidentiary burden under § 523(a)(8). The phrase "certainty of hopelessness" has been used regularly by many courts over the years. This was unfortunate. The phrase is inaccurate and has led too many courts to employ it as an independent legal standard under § 523(a)(8). It is time to retire its use.
The court's ultimate inquiry, bearing in mind the competing interests embodied in 11 U.S.C. § 523(a)(8), is to determine how long a debtor must live under the pressure and peril of unpaid debt, without the ability to repay, before it rises to the level of undue hardship. If the debtor's circumstances are not likely to improve within that period, the court should determine the debt dischargeable.
In
2015 WL 795830, at *9.
The bankruptcy court did not specifically reference the available longer term income-based repayment plan available to the debtors. Even so, this passage arguably supports the argument that the court is restricted to the actual contract term in evaluating the second
Without taking sides in the "debate" between the bankruptcy court and district court in
The DOE asserted that the legislative history of the 1998 legislation that repealed 11 U.S.C. § 523(a)(8)'s seven (7) year discharge provision "makes clear that Congress intended
The legislative history cited actually states:
H.R. Conf. Rep. 105-750, 408, 1998 U.S.C.C.A.N. 404, 441 (1998).
In justifying the elimination of a debtor-protective provision from the Bankruptcy Code, the legislative history specifically states that the undue hardship provision of the Bankruptcy Code was unaffected and goes on merely to "note" the existence of other programs. In context, that reference appears to suggest that the other programs may ameliorate the potential negative effect of the legislative amendment. Nothing in this passage "makes clear" that Congress intended to "measure" § 523(a)(8) undue hardship itself in light of these programs other programs. The DOE's brief distorts the meaning of the legislative history and is unreasonable.
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