by Speculation, begging the question, and the absence of countervailing evidence doomed the debtor’s defense to a motion for summary judgment on her student loan discharge action. Markwood v. U.S. Dept. of Educ. (In re Markwood), No. 13-1390, Adv. Proc. 14-4 (Bankr. N.D. W.Va. Oct. 31, 2014).
The court applied the three-part test developed in Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2nd Cir. 1987) (per curiam): “(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.” The court found the debtor failed the first two prongs of this test.
The debtor’s schedules showed an income deficit of $24.60. The court found, ostensibly without “adjudging the legitimacy of any of the Debtor’s household expenses,” that her standard of living was more than “minimal.” Because the lenders were currently charging her $0 per month due to her lack of income, the court found that she failed the first prong of the Brunner test—the student loan did not preclude her minimal standard of living. [Though to reach this holding the court necessarily ignored the portion of the Brunner test examining the debtor’s standard of living if forced to repay the loan].
The court found the debtor also failed to establish a genuine issue of fact with respect to the hopelessness of her financial situation. The court found that her only hardship was financial—there were no physical or mental disabilities standing in the way of future income. In a foray into speculation the court found that even though she was currently employed at an income that was insufficient to pay her student loans she was part owner of a business whose “existence and potential to generate income in the future precludes a finding” that her financial future is hopeless.
Perhaps key to the court’s decision, however, was the fact that “the Debtor failed to set forth specific facts that demonstrate the existence of a genuine dispute of fact for trial in her response to DOE’s motion for summary judgment.” Instead the debtor relied on the bare legal argument that in the context of a highly factual claim of undue hardship, summary judgment is not appropriate.
Contrast this with Macon v. U.S. Dept. of Educ. (In re Macon), No. 12-42846, Adv. Proc. No. 13-4014 (Bankr. N.D. Ga. Oct. 6, 2014) where the court denied the lender’s motion for summary judgment. There, the debtor, a 52 year old, single mother with a degree in elementary education, had been unemployed for about a year and had been unsuccessful in finding new employment. The lender argued that she could not establish the second and third prong of the Brunner test because she could not demonstrate that her unemployment would continue into the future, or that she had made a good faith effort to work with the lenders for a repayment plan.
The court rejected as too simplistic the lender’s argument that because the debtor is able to work and is seeking employment, she cannot demonstrate the hopelessness of her financial situation. The court specified other fact-based considerations which could impact her hope for future employment, such as actual job prospects, work history, etc. Also, as neither party identified the “repayment period” at issue, the court found it impossible to determine whether her financial difficulties would persist throughout it.
Turning to the good faith prong of the Brunner test, the court found that “[t]he Debtor’s failure to avail herself of an income contingent repayment program, standing alone, does not demonstrate a lack of good faith.” The court found that efforts to negotiate a payment plan were only one factor among many in the good faith analysis. Other factors include “the debtor’s effort to obtain and maintain employment, her household budget, and her loan payment history.” The court warned against “graft[ing] a regulatory requirement” onto section 523(a)(8). “If ‘good faith’ requires a continuous effort to repay the student loans through an administrative program, then the absurd result is that student loan debt is never dischargeable. See Krieger v. Educ. Credit Mgmt. Corp., 713 F.3d 882, 884 (7th Cir. 2013) (rejecting conclusion that good faith contemplates future effort to repay because “if this is so, no educational loan ever could be discharged, because it is always possible to pay in the future should prospects improve.”).” The court went further, stating that “a requirement that an unemployed debtor with little to no income must try to negotiate a repayment plan under the ICRP just to be told that her payment will be zero serves no purpose. It requires her to engage in a meaningless exercise, but, more troubling, it exacts a punishment – nondischargeability without regard to any other circumstance – if she does not do so.”