Debtor Failed the 8th Circuit’s Totality of the Circumstances Undue Hardship Test to Discharge her Student Loans where she Failed to Make Good Faith Efforts to Maximize her Income

Debtor Failed the 8th Circuit’s Totality of the Circumstances Undue Hardship Test to Discharge her Student Loans where she Failed to Make Good Faith Efforts to Maximize her Income

Before the Court is the Complaint to Discharge Student Loans filed by the debtor on May 3, 2017, and the Answer of Defendant United States Department of Education filed on June 6, 2017. In her complaint, the debtor seeks a determination that the student loan debt that she owes to the U.S. Department of Education [DOE] is nondischargeable under 11 U.S.C. § 523(a)(8) because its payment would impose an undue hardship on the debtor.

Section 523(a)(8) provides that student loans are not discharged in bankruptcy “unless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor’s dependents.” To obtain a discharge of student loan debt, a debtor must prove by a preponderance of the evidence that repayment constitutes an undue hardship. Parker v. Gen. Revenue Corp. (In re Parker), 328 B.R. 548, 552 (B.A.P. 8th Cir. 2005). Proving undue hardship requires more than a demonstration that it would be difficult for the debtor to repay the student loan. Id. at 553. The Eighth Circuit characterizes the debtor’s burden under § 523(a)(8) as “rigorous.” Educ. Credit Mgmt. Corp. v. Jesperson (In re Jesperson), 571 F.3d 775, 779 (8th Cir. 2009). For instance, the Eighth Circuit Bankruptcy Appellate Panel recently affirmed a bankruptcy court’s ruling that a 66-year old debtor’s student loan debt was nondischargeable despite the fact that the debtor was four years away from retirement and suffered from vision, hearing, and ankle problems. Hurst v. S. Ark. Univ. (In re Hurst), 553 B.R. 133 (B.A.P. 2016).

Because § 523(a)(8) does not define undue hardship, “courts have devised their own methods of determining whether an undue hardship exists.” Conway v. Nat’l Collegiate Trust (In re Conway), 495 B.R. 416, 419 (B.A.P. 8th Cir. 2013). The Eighth Circuit employs a totality of the circumstances test that requires courts to evaluate a debtor’s “past, present, and reasonably reliable future financial resources, the debtor’s reasonable and necessary living expenses, and ‘any other relevant facts and circumstances.'” In re Jesperson, 571 F.3d at 779 (quoting Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554 (8th Cir. 2003)).

To begin its totality analysis under Jesperson, the Court will first examine the debtor’s past, present, and reasonably reliable future financial resources and her reasonable and necessary living expenses. The debtor in this case is 36 years old, divorced, and raising her 13-year old daughter. At trial, the debtor appeared intelligent, composed, pleasant, accomplished, and articulate-qualities that have undoubtedly contributed to the debtor’s historical success in the workplace. The debtor began working part time at Arvest Bank when she was 18 years old and a senior in high school. After graduating high school in 1999, she continued to work for Arvest on a part-time basis while she attended college, which her parents were paying for at that time. After attending two semesters of college, the debtor left school to work full-time at Arvest. In 2007, the debtor decided to finish her degree based on her knowledge that Arvest tended to promote employees with college degrees; she believed that she needed to complete her degree in order to advance at Arvest. To that end, the debtor continued her full-time employment with Arvest while attending online college classes through Ashford University. In October 2010, the debtor obtained her bachelor’s degree in psychology with a minor in sociology. She financed her education at Ashford with the student loan that is at issue in this adversary proceeding.

During what ultimately became the debtor’s 17-year tenure at Arvest, the debtor was repeatedly promoted and given regular raises. While the debtor was at Arvest, she had good insurance and a 401(k) retirement account to which Arvest contributed. The debtor was a good employee, as evidenced by her consistent advances-she started out as a part-time teller making $10.00 per hour and received successive promotions to positions including administrative assistant, credit manager, and assistant branch manager. In June 2012-less than two years after she received her bachelor’s degree-the debtor was promoted to the position of branch manager. When she resigned from Arvest in 2015, she was still a branch manager and was earning a base salary of $45,000 per year plus bonuses-although the Court has no evidence regarding the amount or regularity of those bonuses. While employed at Arvest, the debtor made her student loan payment of $350 per month without apparent difficulty.

The debtor testified that she resigned from Arvest in June 2015 because the job became too stressful. She did not describe with any specificity the aspects of the job that became overwhelming, other than to say that her boss at the time was difficult to work for and was harder on the female managers than the male managers. She testified that she was diagnosed with anxiety and depression and was prescribed medications for those conditions by her general practitioner. She also testified that the stress from her job carried over into her personal life, making her short-tempered with her family in the evenings and resulting in her daughter, who was 11 at the time, becoming withdrawn. However, despite the fact that her home life was apparently impacted by her stressful job at Arvest, the debtor testified that her work was never affected and that she left Arvest on good terms. In fact, she said that even now she could go back to work at Arvest but that she would have to start out at a lower position than the one she had when she resigned in 2015. At the time of her resignation from Arvest in June 2015, the debtor cashed out her 401(k) and received between $35,000 and $38,000 at the beginning of July 2015. She gave $16,000 of her 401(k) proceeds to her then-husband to buy a truck, which was then titled in his name. She also loaned $6000 to her adult stepson (now her ex-stepson) to buy a vehicle. The debtor testified that her stepson has never held a job for long and, although there is a written loan document of some variety obligating the stepson to repay the $6000 to the debtor, she knew when she loaned him the money that repayment was unlikely. The debtor said that she paid bills with the rest of her 401(k) proceeds, including a $3000 medical bill. At trial, she could not say which bills she paid or the amounts of those bills. She also testified that she allowed her husband to talk her into making poor decisions with the money. Without her income from Arvest, the debtor and her husband used the debtor’s credit cards to supplement her husband’s $30,000 per year income.

Eight months after she resigned from Arvest, the debtor filed her chapter 7 bankruptcy case. Around the same time, she began working part time at Lowe’s, where she remains employed. She makes $13.46 per hour at Lowe’s and testified that her hours vary. She nets between $250 and $600 per bi-weekly check, estimating that she averages around $400 per check. She is allowed to set her own hours at Lowe’s because she works only part time. Although the debtor believes that Lowe’s would hire her to work 38 hours per week-which is considered full-time at Lowe’s-she chooses not to because she would not have the control over her schedule that she currently enjoys and would not be able to spend as much time with her daughter or run errands for her ailing father.

Of the debtor’s anticipated expenses, the Court finds that it is likely that the debtor will need to replace her vehicle in the foreseeable future and will therefore leave the $300 deduction for a car payment in the debtor’s budget. Until she does buy a car, the debtor will have those funds available to make repairs to her existing vehicle, which the debtor estimates would cost around $500. The Court also finds that $50 per month for emergencies is appropriate and will leave that deduction in place as well. However, the Court does not find that the $300 deduction for upgraded health insurance is warranted for two reasons: first, the debtor made no indication at trial that she planned to obtain more expensive coverage and, second, the debtor could increase her hours at Lowe’s to 38 per week and obtain full insurance coverage for a fraction of the estimated $300 per month-if she chose to do so. Further, although the Court is sympathetic to the debtor’s desire to take her daughter on vacations, a vacation is simply not a necessity that is appropriately deducted as an expense in an undue hardship analysis. The Court finds that the remainder of the debtor’s expenses appear to be necessary, reasonable, and commensurate with her current income level. Based upon the Court’s adjustments to the debtor’s budget, her monthly expenses are $2176. When her expenses are deducted from her monthly income of $2281, the debtor is left with a surplus of $105 per month. This figure does not include the savings she could obtain by avoiding overdraft fees, which were over $470 for the seven-month period from February to August of this year, or by using regular gas instead of no-ethanol gas, as is her custom.


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