Clavell v. U.S. Dep't of Educ. & Navient (In re Clavell)
| Decision Date | 07 February 2020 |
| Docket Number | Adv. Pro. No. 16-01181 (MEW),Case No. 15-12343 (MEW) |
| Citation | 611 B.R. 504 |
| Parties | IN RE: Christian CLAVELL, Debtor. Christian Clavell, Plaintiff, v. United States Department of Education and Navient, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Natalie Jean-Baptiste, Law Office of Natalie Jean-Baptiste, P.C., Uniondale, NY, for Plaintiff.
Dominika Tarczynska, Leigh A. Wasserstrom, U.S. Attorney's Office, SDNY, New York, NY, for Defendant.
Navient, Wilkes-Barre, PA, pro se Defendant.
Before the Court is an adversary proceeding filed by the chapter 7 debtor, Christian Clavell, seeking a determination that more than $96,000 of student loan debt that he owes to the Department of Education (the "DOE") should be discharged. The outstanding debt is the product of a consolidation of other student loans and is evidenced by a promissory note dated February 6, 2013 (the "Consolidated Note"). Navient is named as a defendant in the Complaint but it is not a party to the promissory note, and Mr. Clavell and the DOE apparently agree that Navient was not a necessary or proper party to the litigation.
Mr. Clavell argues that he and/or his dependents would suffer undue hardship if his obligations under the Consolidated Note are not discharged. See 11 U.S.C. § 523(a)(8). The DOE opposes the requested relief. It argues primarily that Mr. Clavell can afford to make the minimum payments that would be due under the "Revised Pay as you Earn" or "REPAYE" option that is available under the terms of the Consolidated Note. The most recent calculations submitted to the Court show that such payments would start at $492 per month. DOE also argues that Mr. Clavell should be able to make the payments that would be due even under a normalized repayment schedule that is not income-based (which would be approximately $629 per month over a 30 year repayment period or $670 per month over a 25-year repayment period) and that Mr. Clavell has failed to satisfy other requirements for a discharge of his student loans.
No issue has been raised as to the nature of the underlying debts, or the computation of the amounts currently owed, or the amounts that Mr. Clavell would be required to pay under the different payment options that are available under the Note, and the parties have made supplemental submissions to clarify and to update those calculations. While the parties agree as to what the various payment options would require, they disagree strongly about Mr. Clavell's available income and expenses. DOE also contends that Mr. Clavell has not made sufficient efforts to economize and that he has not made good faith efforts to repay his loans.
On May 20, 2019, this Court held a trial on the merits. At the conclusion of the trial the Court ordered the parties to make additional submissions that itemized the income and expense items about which they agreed and disagreed. Those submissions were filed on July 8, 2019. The DOE then filed a motion to strike certain exhibits that had been attached to Mr. Clavell's post-trial submission. See Mot. to Strike [ECF No. 40]. By Order dated October 2, 2019 [ECF No. 42] the Court directed the parties to submit further information about the REPAYE calculations and also to state their positions as to whether the decision before this Court must be made on an "all-or-nothing" basis (i.e., either a full discharge or no discharge at all), or if they believe the Court has authority to grant a "partial discharge" if the facts were to warrant such an outcome. The parties filed those further submissions on October 22, 2019 [ECF Nos. 43 and 44]. By Order dated November 22, 2019 [ECF No. 45], the Court directed the parties to update their prior calculations as to the payments that would be required under the available payment options, to answer additional questions about the REPAYE program, and (in the case of the DOE) to provide a more definitive statement as to whether the DOE contends that the Court has the power to grant a partial discharge of Mr. Clavell's student loan debts. The parties made such submissions on December 9, 2019 [ECF Nos. 46 and 47]. Among other things, the parties have agreed that the Court has the power to grant a partial discharge, though the DOE contends that such relief is not warranted.
The following factual findings are based on the parties' stipulated facts and the evidence and testimony at trial, as supplemented by the post-trial submissions that the Court has received.
Mr. Clavell was 35 years old at the time of trial. He is employed in the sales group at Liberty Coca-Cola company, which is a privately-owned distributor of Coca-Cola products. He worked at other Coca-Cola related entities for 12 years before beginning his employment with Liberty Coca-Cola. Mr. Clavell lives in his childhood home in the South Bronx with his elderly grandfather who is in his late 80s.
Mr. Clavell is the first male in his family to attend college. His family moved to the U.S. mainland from a relatively poor part of Puerto Rico. He obtained his bachelor's and master's degrees while working full-time at one of the predecessor entities to Liberty Coca-Cola.
Mr. Clavell first obtained student loans to help him finance the cost of earning an associate degree from Bronx Community College and then a bachelor's degree from the University of Phoenix. Thereafter, Mr. Clavell decided that he would like to pursue a possible career in law enforcement.
To that end he obtained additional loans to finance the costs of obtaining a master's degree from Long Island University in Homeland Security Management Studies. Mr. Clavell received his master's degree in 2012. Mr. Clavell testified credibly that he made diligent efforts to obtain employment in various law enforcement fields but that he was unable to do so. He has instead worked in sales positions, first for "Coca-Cola North America" or "Coca-Cola USA" and then, from and after November 2017, for Liberty Coca-Cola.
Mr. Clavell's son was born following the completion of Mr. Clavell's master's program. His son was born prematurely (at about 27 weeks, or 2 months premature) and spent over two months in the neo-natal intensive care unit after his birth. Mr. Clavell is not married to his son's mother, and she was not employed when she gave birth. Mr. Clavell covered all of the out-of-pocket medical expenses associated with his son's hospitalization along with part of the mother's living expenses. Shortly after his son was born, Mr. Clavell contacted his student loan servicers to inform them of these developments and to tell them that he could not afford to make the minimum payments due on the loans. The loan servicers then agreed to defer the payments.
When his son was a few months old, in or around February 2013, Mr. Clavell consolidated his student loans through the DOE and executed the Consolidated Note in the amount of $66,641.96. The Consolidated Note provides that interest accrues at a fixed rate of 6.75%. It also provides that unpaid interest is capitalized, so that it becomes part of the principal and part of the obligation on which additional interest accruals are calculated, but apparently that capitalization of interest would be waived if Mr. Clavell were to participate in the REPAYE program. The parties stipulated that as of March 21, 2019 the outstanding balance of the loans, including interest, was $93,332.25. The parties agreed in their supplemental submissions on December 9, 2019 that the balance had increased to $96,485.09 due to interest accruals.
In 2013 Mr. Clavell also faced a legal battle concerning custody issues. As noted above, he was not married to his son's mother—whom he dated for a short while—and the mother sought to obtain full custody of their son. The legal fees he incurred in the ensuing year-long legal battle were so significant that he had to borrow against his 401(k) plan to pay them. The outcome of the custody battle was the entry of an order that required Mr. Clavell to make biweekly child support payments. Initially, these payments included an arrearage component and were fixed at $670, but they are now $438, for a total annual expense of $11,388 (the equivalent of a monthly expense of $949). Mr. Clavell testified that he often pays additional sums to meet his son's needs, in amounts that are not regular or easy to predict.
Mr. Clavell also faced mounting credit card bills in addition to the outstanding legal fees, child support awards and other payments he had made to assist his son's mother. He did not make any payments towards his student loans in the first year or so of his son's life, and he testified credibly that he was unable to do so in light of his other expenses. To date, he has not made any payments towards the consolidated DOE loans. However, no default has been declared, and the consolidated loan apparently has been in forbearance during its entire tenure.
Mr. Clavell's son is now six years old. He is enrolled in a New York Department of Education individualized education plan (otherwise known as an "IEP") as a result of his special needs. Mr. Clavell testified that his son has "trouble with cognition," that he suffers from speech issues and that there have been some initial concerns that he may suffer from other conditions, though no formal diagnosis of any such other condition has been made. As part of the IEP, Mr. Clavell's son receives help from a behavioral specialist who assists him in skills in which he is developmentally behind. Mr. Clavell's son also suffers from severe asthma
(for which a minimum of two treatments is required per day) as well as eczema and dental issues. His son's mother, who has the final word on parenting decisions, would like to enroll Mr. Clavell's son in a private school since she believes the IEP placement does not provide him with the individualized attention that he needs.
Mr. Clavell...
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