District Court Reassesses Evidence of Undue Hardship

Posted by NCBRC - February 6, 2018

The district court reassessed the evidence presented at the adversary hearing and overturned the discharge of the debtor’s student loan debt. DeVos v. Price (In re Price), No. 17-3064 (E.D. Pa. Jan. 24, 2018). Chapter 7 debtor, Kristin M. Price, was a mother of three pre-school children, separated from her husband, and employed part-time as a vascular sonographer. She sought to discharge her almost $26,000.00 federal student loan. The bankruptcy court applied the three-part Brunner test specifically finding that Ms. Price’s financial distress was likely to persist for at least five of the seven years remaining on her loan contract. Because this constituted a “significant portion of the repayment period,” the court granted discharge under section 523(a)(8).

On appeal, the district court reexamined the bankruptcy court’s finding with respect to the second prong of the Brunner test: “that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for student loans.” Though the parties disagreed as to whether the “repayment period” should be the term set forth in the contract, as the bankruptcy court found, or whether it should be the twenty-five year repayment period that would be available to Ms. Price under an income-contingent loan term, as the DOE argued, the district court found that it did not need to resolve that question. It also found that it did not have to apply the stringent “certainty of hopelessness” standard that the Third Circuit had apparently adopted for analysis of the issue. Instead, the district court found that Ms. Price had failed to demonstrate that her financial circumstances would “more likely than not” persist for even five years.

Three factual circumstances were dispositive at both the bankruptcy and district court levels. First, whether Ms. Price was unlikely to be able to find more lucrative employment as a vascular sonographer. The bankruptcy court was persuaded by the evidence that the field was currently saturated and that no full-time position was likely to open up where Ms. Price was working for another seven years. The district court found this finding to be in error because the record was lacking in information about both the likelihood of jobs opening up in other places of employment, and evidence that the current saturation of the market was likely to persist for five years. The district court found that the bankruptcy court improperly imposed the burden on the DOE to show that the saturation was not likely to persist for five years rather than on Ms. Price to show that the current situation was likely to continue.

The court next addressed Ms. Price’s childcare circumstances. At trial Ms. Price produced evidence that if she were to find full-time work, her childcare expenses would increase by $600.00 per month until 2019 when the children reached the age of full-time school. The district court found that the bankruptcy court did not properly calculate the effect of the decrease in her childcare needs in 2019.

Finally, the district court disagreed with the bankruptcy court’s finding that Ms. Price’s eventual divorce was likely to result in further deterioration of her financial condition because Ms. Price’s husband would likely cease his voluntary $500/month support payments, quit paying her health insurance and obtain a lower child support payment order. The court found these conclusions too speculative to meet Ms. Price’s burden.

The court concluded that Ms. Price had failed to satisfy the “heavy burden” of demonstrating the second prong of the Brunner test and therefore failed to show undue hardship under section 523(a)(8).

Price ED Pa opinion Jan 2018

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