On June 12, 2019 the United States District Court for the Southern District of New York entered an order affirming the order of the bankruptcy court.
On June 20, 2017 the Debtor filed a chapter 7 bankruptcy and received a discharge. He filed an adversary against the Educational Management Corporation (“ECMC”) seeking a discharge of his student loans under 11 U.S.C. §523(a)(8).
The Debtor was 67 years old and he and his wife received Social Security and pension benefits in the amount of $5,942.00 per month. The Debtor had a BA and JD but never passed the bar exam. He could still drive and despite his physical limitations a vocational expert called by ECMC testified he should be able to find a job earning $40,000.00 a year. The Debtor had some questionable expenses including $2,500.00 for rent, regularly eating out at restaurants, rental of a separate apartment in Florida (in 2016 and 2017) at $1,100.00 per month, and a number of payments to his adult children and paying his granddaughter a weekly allowance.
In addition, the Debtor and his wife regularly made religious and charitable contributions, which totaled $23,510 in 2016, $21,544 in 2015, $21,866 in 2014, $24,783 in 2013, and $12,678 in 2012. The Debtor refused to reduce his charitable contributions even if it would allow him to repay ECMC because contributing 10% of his income is what he believes the bible commands.
The bankruptcy court stated
In 1998, Congress, through the enactment of the Religious Liberty and Charitable Donation Protection Act, 11 U.S.C. § 1325(b)(2)(A) (“RLCDPA”), “amended several sections of the Bankruptcy Code to exclude ‘charitable contributions’ totaling less than fifteen percent of the debtor’s gross annual income from consideration by the bankruptcy courts for various purposes.” In re Savage, 311 B.R. 835, 842 (B.A.P. 1st Cir. 2004). Congress did not, however, include section 523(a)(8) among those amended provisions.[i]
The bankruptcy court found the student loans non-dischargeable. The bankruptcy court respected the Debtor’s commitment to charity, but concluded that “when [the Debtor] elects to tithe rather than pay his nondischargeable debt, he is making donations using someone else’s money.”[ii]
On appeal, the question presented was whether, and to what extent, religiously-motivated contributions figure into undue hardship analysis for student loan discharge.[iii]
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