by The debtor met his burden of establishing undue hardship for discharging his student loan despite eligibility for an income-based repayment program. Abney v. United States Dep’t of Educ. (In re Abney), 2015 Bankr. LEXIS 3849, No. 15-60501, Adv. Pro. 15-6027 (Bankr. W.D. Mo. Nov. 10, 2015).
Mr. Abney accumulated approximately $25,000 in student loans over a four-year period. He did not obtain a college degree. He filed an adversary proceeding seeking to discharge the loan in bankruptcy. As a delivery driver the debtor earned approximately $3,000 per month. He was forty years old and divorced. His net monthly income after expenses and child support was $1,183. It was undisputed that he had no skills other than those required for truck/delivery driving. Although, at the time of his bankruptcy, the debtor was living in an apartment, his efforts over the years to reduce expenses included living with his parents, living out of the cab of his employer’s truck and living in a homeless shelter. He did not own a car. He had a hospitalization for stress and depression. His monthly income, less expenses, was negative $203. The loan history showed that he defaulted early but later brought the loan out of default and began making monthly payments. He had at least one deferment. After he had made approximately $11,000 in payments he defaulted again. By the time the case went before the bankruptcy court seven years later, he owed $37,243.28 in principal and interest.
The court applied the Eighth Circuit’s totality of circumstances test to the question of whether, under section 523(a)(8), the debtor could demonstrate that paying off the student loans would cause undue hardship to him or his dependents. Under this test the Eighth Circuit examines “(1) total present and future incapacity to pay debts for reasons not within the control of the debtor; (2) whether the debtor has made a good faith effort to negotiate a deferment or forbearance of payment; (3) whether the hardship will be long-term; (4) whether the debtor has made payments on the student loan; (5) whether there is permanent or long-term disability of the debtor; (6) the ability of the debtor to obtain gainful employment in the area of the study; (7) whether the debtor has made a good faith effort to maximize income and minimize expenses; (8) whether the dominant purpose of the bankruptcy petition was to discharge the student loan; and (9) the ratio of student loan debt to total indebtedness.”
The court found that Mr. Abney’s expenses were “modest and commensurate with his resources” and that, in fact, he barely meets his own basic needs. Though he tried for many years to pay off or defer his student loan, ultimately he could not maintain his payments and pay child support and the litigation expenses surrounding visitation rights with his children. He had other unsecured debts including medical expenses, attorney fees and a deficiency judgment by Bank of America, totaling over $116,000.
The US Department of Education argued that the loan should not be discharged because Mr. Abney was eligible for an Income-Based Repayment Program. The court acknowledged that in the Eighth Circuit the availability of an IBRP is a factor to be considered in the undue hardship analysis. It rejected the DOE’s argument that the mere availability of the IBRP made it impossible for Mr. Abney to show undue hardship, however. “Holding that eligibility for a program such as IBRP ipso facto leads to denial of an undue hardship discharge would deprive the Court of the discretion granted by § 523(a)(8).” The weight to be given an IBRP is based on the likelihood that the debtor will be able to make payments on the loan in the future and the hardships imposed by the program.
Mr. Abney established the unlikelihood that he would ever have sufficient income to enable him to pay anything toward the student loans. With respect to hardships engendered by the IBRP the court found: 1) participation would require Mr. Abney to “rehabilitate” the loans with nine monthly payments of more than $5; 2) there was potential harm to Mr. Abney’s credit rating and access to employment and housing by virtue of the continued existence of the unpaid debt; 3) the debt would continue to accrue interest, and; 4) even if the debtor successfully completed the IBRP and had the debt forgiven, he would suffer the tax consequences of debt forgiveness which would not apply if the debt were discharged in bankruptcy. To the extent that the debtor might be able to put away money for retirement, the tax consequence of debt forgiveness could eliminate that possibility.
In what is presumably above and beyond the minimum standard for discharge the court concluded that Mr. Abney had made “every humanly-possible effort to pay his child support and student loans,” and “the mere availability of the IBRP is of no help to the Debtor’s current or future situation but, rather, imposes additional burdens on him.”
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