64-Year-Old Debtor who Could Barely Fund her Spartan Lifestyle Could Discharge Student Loans, Even Though She Did Not Take Advantage of Income-Contingent Repayment Plan

64-Year-Old Debtor who Could Barely Fund her Spartan Lifestyle Could Discharge Student Loans, Even Though She Did Not Take Advantage of Income-Contingent Repayment Plan

The Plaintiff is a sixty-four-year-old single woman with no dependents. In 1998, the Plaintiff commenced studies at Vermont College where she obtained a Bachelor of Arts in Interdisciplinary Studies with the goal of becoming a counselor. She incurred student loan debt in connection with those studies. The Plaintiff testified that sometime during her undergraduate program at Vermont College, she was diagnosed with a hearing impairment. She further testified that, although she understood the condition to be progressive in nature, it was not possible at the time to know how much her hearing would deteriorate in the coming years.


The Plaintiff financed her graduate studies through more student loans. The outstanding balance on the graduate and undergraduate loans currently exceeds $107,000.00 and it is this indebtedness which the Plaintiff seeks to discharge in this proceeding.

Various pictures of the Plaintiff’s net income have been presented and all show that her finances are strained. For example, when she filed for bankruptcy relief on March 30, 2016, her schedules reflected a monthly deficit of $263.49. Her schedule I indicated monthly gross income from MBH in the amount of $3,188.90. After standard payroll deductions, and deductions for voluntary retirement plan contributions, insurance, health savings account contributions, a student loan garnishment and life insurance premiums, the Plaintiff was, at the time of filing, left with monthly take-home pay of $1,845.51. Schedule J reflected monthly expenses totaling $2,109.00, which expenses included, among others, $850.00 in rent, $350.00 in transportation expenses, and $400.00 in food and housekeeping expenses.


Later, in August of 2017, the Plaintiff supplemented prior responses to interrogatories and requests for production of documents to provide more current information regarding her income and expenses following her transition from MBH to Crossroads and private practice.5 Her amended Schedule I reflects an increase in her monthly take-home pay to $2,213.39 from her original Schedule I net income of $1,845.51. The monthly take-home pay is comprised of two components. First, by averaging the income she received in her first four months of employment by Crossroads, she determined that her average monthly take-home pay from that agency is $1,765.00 ($2,109.00 gross income less $344.00 in tax, Medicare and social security deductions). Second, the Plaintiff determined she earns an average of $448.39 per month from her private practice. She computed this figure by averaging the gross income of her first six months or so of private practice and then subtracting $300.00 for office rent, $40.00 for office utilities and $291.00 for the deductions on a reimbursement claim owed to Sweetser. By adding these two sources of income together, the Plaintiff determined her average monthly income to be $2,213.99.

Although this method of computing the Plaintiff’s average monthly income is not patently unreasonable, this Court is concerned that it understates her current monthly income.6 Adjusting the Plaintiff’s average monthly income from private practice to exclude her first two months as outliers and to include a project monthly income of $1,500.00 for August, her sixth month of private practice, her average gross monthly income derived from her private practice would equal $1,435.80. After deducting the $340.00 in office rent and utilities associated with the new practice and adding the Crossroads income of $1,765.00, the Plaintiff’s monthly income increases from the $2,213.39 shown in the amended Schedule I to $2,860.80.

The $2,860.80 figure does not include the $261.00 per month the Plaintiff had been paying to Sweetser. Although the Plaintiff testified that, at the time of the trial, the current reimbursement claim reflected on the amended Schedule I was almost paid in full, she also anticipated having to commence payments soon thereafter on another $500.00 reimbursement claim at the same rate of $261.00/month. At that time, no further reimbursements were immediately on the horizon, but the fact that the Plaintiff incurred liability for two reimbursement claims in just six months of private practice suggests that such claims are common in this line of work. If reimbursement payments are a regular occurrence, the Plaintiff’s average monthly income may be closer to $2,599.80 than $2,860.80. Based on this analysis, the Court finds that the Plaintiff’s current average monthly income falls somewhere between $2,213.39 and $2,860.80.

Having fixed, as best it can, the Plaintiff’s income, the Court now turns to the Plaintiff’s expenses as shown in her amended Schedule J. Perhaps the biggest change in the Plaintiff’s expenses is the appearance of a new car lease. After the engine in her ten-year-old car failed post-petition, the Plaintiff entered into a lease on a Subaru Forester pursuant to which she pays $319.00/month. In addition to the car payments, amended Schedule J shows a monthly expense of $195.00 for a dog walker because her new job at Crossroads precludes her from going home at noon to walk the dog she depends on for assistance. The Plaintiff testified that her hearing impairment makes it difficult for her to hear the smoke detector, the phone and the doorbell. Ambient noise in public places exacerbates her hearing difficulties and can pose a safety concern. The Plaintiff relies on her dog in many situations to help her go about her daily activities safely and with some measure of efficiency. Finally, her monthly rent for her two-bedroom apartment in Biddeford, Maine increased from $850.00 to $950.00 on September 1, 2017. In all, the Plaintiff’s monthly expenses shown on amended Schedule J total $2,940.00.

If the Plaintiff’s monthly income is the $2,213.39 reflected on amended Schedule I, then her expenses outstrip her earnings every month by $726.61. That monthly deficit shrinks to $79.00 if the $2,860.80 figure is closer to the Plaintiff’s actual monthly income. For months in which the Plaintiff is required to reimburse Sweetser on an insurance claim, her monthly deficit would be approximately $340.20.

The Court further notes that the Plaintiff’s original schedules included a $104.30 deduction every month for health insurance. The amended Schedule I does not include any such deduction because the Plaintiff does not now have health insurance. Although the amended Schedule J captures $175.00/month in medical and dental expenses that did not appear on the original Schedule J, these funds are insufficient to cover anything more than the most basic medical and dental costs. Any one of a variety of common medical events or ailments could result in out-of-pocket expenses substantially beyond those budgeted in the amended Schedule J.

The Plaintiff also testified at trial that she always expected to work until she was seventy years old but that physical ailments may preclude her from doing so. In addition to her hearing impairment, she claims that she suffers from chronic pain and discomfort associated with fibromyalgia and irritable bowel syndrome. The Plaintiff is projected to receive $1,640.00 per month in social security income if she works until the age of seventy but if she stops working earlier, her social security income would be approximately $1,240.00 per month. The Plaintiff has a 403(b) account with Lincoln Financial—her sole retirement fund—but that account contains approximately $2,200.00 after the Plaintiff withdrew $6,933.00 in 2016 to make a down payment on the Subaru Forester and pay necessary medical expenses. Her two savings accounts contained approximately $200.00 and $700.00, respectively, at the time of trial.

The Plaintiff urges this Court to stay the course and employ the “totality of the circumstances” test it has adopted in prior cases. Under that test, the Debtor is required to “prove by a preponderance of the evidence that (1) . . . [her] past, present, and reasonably reliable future financial resources; (2) . . . [her] and . . . [her] dependents’ reasonably necessary living expenses; and (3) other relevant facts or circumstances unique to the case, prevent [her] from paying the student loans in question while still maintaining a minimal standard of living . . .” Bronsdon v. Educ. Mgmt. Corp. (In re Bronsdon), 435 B.R. 791, 797 (1st Cir. B.A.P. 2010) citing In re Lorenz, 337 B.R. 423, 431 (1st Cir. B.A.P. 2006).

The Plaintiff contends that her modest expenses entirely consume her income such that the application of the “totality of circumstances” test warrants a finding of undue hardship. She further argues that medical expert testimony is unnecessary to prove that medical and physical conditions impair her ability to increase her income, or that those conditions will continue and even worsen with the passage of time. Finally, she rejects the notion that her failure to apply for or participate in an income contingent repayment plan (“ICRP”) evidences a lack of good faith thereby disqualifying her from a hardship discharge of her student loans.

While conceding that this Court is likely to apply the “totality of the circumstances test” established in Bronsdon, the DOE and ECMC suggest that the Brunner test is more appropriate. Under that test, a debtor must show: “1) that the debtor cannot, based on current income and expenses, maintain a ‘minimal’ standard of living for himself or herself and his or her dependents if forced to repay the loans, 2) that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan, and 3) that the debtor has made good faith efforts to repay the loans.” In re Brunner, 46 B.R. 752, 756 (S.D.N.Y. 1985), aff’d sub nom, Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395 (2d Cir. 1987).


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