Student loan debt discharged after finding of good cause

Where the debtor showed he could not repay his student loan debt and maintain a “minimal” standard of living, that these circumstances were likely to persist and that he had made a good faith effort to secure employment and communicate with the Department of Education, his student loan debt was discharged.

Background

This case involves an individual debtor for whom the repayment of his student loan debt is an undue hardship. He filed a complaint to discharge his student loan under Bankruptcy Code section 523(a)(8).

Analysis

To prove an “undue hardship,” the debtor seeking discharge of student loans under section 523(a)(8) must show: (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans and (3) that the debtor has made good faith efforts to repay the loans.

Minimal standard of living

In its March 30, 2021, order, this court concluded that, after reviewing Mr. Bell’s current income and expenses, as a matter of law he had satisfied prong one of the test. Mr. Bell put forward evidence and argument demonstrating that he made every effort to reduce his monthly expenses from $4,232 to $3,963. Mr. Bell also showed, however, that his monthly income had decreased from $4,472.25 to $2,738 since the filing of his bankruptcy petition. This court was satisfied that his unbalanced budget made it such that he could not maintain a minimal standard of living based on his current income and expenses if forced to repay the loans.

Length

Mr. Bell’s employment history, experience and current skills render him qualified for work in customer service and employee management. It is unclear such work would render a salary high enough to permit Mr. Bell to repay his student loans based on his actual earnings from work in these fields. His employment history in this court’s record shows that Mr. Bell’s actual earnings, with his skills and experience, did not provide him sufficient income to make the payments on the student loan debt.

Mr. Bell provided to this court support showing the strong but unsuccessful attempt to secure employment income sufficient to permit him to repay the student loans. In considering whether Mr. Bell’s state of affairs is likely to persist during the remaining years of the repayment period, this court is persuaded by the uncontroverted evidence showing the salary ranges available to Mr. Bell during this time period. Income in the range available to Mr. Bell as a teacher, a limousine or licensed commercial driver, a customer service manager or a GS-9 federal employee is not sufficient to pay the indebtedness during the remainder of the repayment period, let alone to pay the indebtedness and maintain a minimum standard of living.

The DOE argues that the availability of an alternative repayment plan calls for a finding that Mr. Bell does not satisfy prong two. Based on Mr. Bell’s current circumstances, the DOE allows him to make monthly payments of zero dollars. In the event his circumstances change for the better, which has been shown to be very unlikely, the DOE will require him to make payments based on his improved circumstances.

If this court were to accept the DOE’s argument on this point, section 523(a)(8) would be rendered essentially meaningless. Moreover, this court finds that participation in this income-based repayment plan for 20 years—into Mr. Bell’s late-eighties—imposes hardships regardless of whether his minimum payment remains at zero dollars per month.

Good faith

Under the third prong, this court must find that the debtor has “made a good faith effort to repay the student loans.” The DOE points to the accepted fact that Mr. Bell has not made any payments on the student loans at issue at any point since graduating from Strayer University. This court finds Mr. Bell made no payments on the loans because his financial situation simply rendered him unable to do so. Mr. Bell’s efforts to secure employment, continued communication with the DOE with respect to his loans and his successful requests for forbearances and alternative repayment programs indicate Mr. Bell’s good faith efforts to repay the loans.

Student loans discharged.

Bell v. U.S. Department of Education, No. 20-05001, Sept. 1, 2021. WDVA Bankr. at Harrisonburg (Connelly). VLW No. 021-4-008. 31 pp.