In re Briscoe

Decision Date22 December 1981
Docket NumberBankruptcy No. 81 B 10442.
Citation16 BR 128
PartiesIn re Joan BRISCOE, a/k/a Joan Bennett, a/k/a Joan Akers, Debtor. Joan BRISCOE, a/k/a Joan Bennett, a/k/a Joan Akers, Plaintiff, v. BANK OF NEW YORK and New York State Higher Education Services Corporation, Defendant.
CourtU.S. Bankruptcy Court — Southern District of New York

John L. Edmonds, New York City, for debtor/plaintiff.

Frederick J. Schreyer, Albany, N.Y., Lipsig, Sullivan & Liapakis, P.C., New York City, for N.Y.S.H.E.S.C.; Thomas A. Holman, New York City, of counsel.


BURTON R. LIFLAND, Bankruptcy Judge.

The debtor, Joan Briscoe, filed a Chapter 7 (liquidation) petition in bankruptcy on February 27, 1981 hoping to secure relief from current economic hardship. Debts totaling approximately $10,000.00, inclusive of educational loans, were scheduled. Recognizing that an order for relief, alone, left a gap in her goal of total debt absolution, the debtor attempted to close the circle by claiming undue hardship in a complaint to declare her student loan dischargeable in bankruptcy. 11 U.S.C. § 523(a)(8)(B).1

The loan, taken to finance a college education, is the debtor's largest single debt and amounts to over $5,000.00. It is owed to the New York State Higher Education Services Corporation (NYSHEC) as guarantor, who is the defendant in this action. NYSHEC has counterclaimed and asks the Court to declare the loan nondischargeable and to enter a judgment in the amount of the outstanding loan, plus interest.

The sole issue in this case is whether the debtor's circumstances fall within the concept of "undue hardship". "The words `undue hardship' are not defined by the Code, but are words of art, and are left to the discretion and judgment of the Court." In re Hemmen, 3 C.B.C.2d 140, 141, 7 B.R. 63, 64 (Bkrtcy.N.D.Ala.1980). Some guidance is provided by early legislative history.

Under a proposed provision of similar intent, the Commission on the Bankruptcy Laws advised that:

In order to determine whether nondischargeability of the debt will impose an undue hardship on the debtor the rate and amount of his future resources should be estimated reasonably in terms of ability to obtain, retain and continue employment and the rate of pay that can be expected. Any unearned income or other wealth which the debtor can be expected to receive should also be taken into account. The total amount of income, its reliability, and the periodicity of its receipt should be adequate to maintain the debtor and his dependents, at a minimal standard of living within their management capability, as well as to pay the educational debt.

Report of the Commission on the Bankruptcy Laws of the United States, H.R.Doc.No. 93-137, 93rd Cong., 1st Sess. Pt. II (1973) 140-41, n. 17 (discussing proposed § 4-506(8)); Hemmen, 7 B.R. at 65, 3 C.B.C.2d at 142.

A finding of undue hardship is reserved for the exceptional case and must be based on more than present inability to pay. In re White, 6 B.R. 26, 29, 22 C.B.C. 989, 992 (Bkrtcy.S.D.N.Y.1980). However, the standard is not intended to "deprive those who have truly fallen on hard times of the `fresh start' policy of the New Bankruptcy Code." In re Lawson, 10 B.R. 477, 479 (Bkrtcy.E.D. Tenn.1981). The courts have had no trouble in discerning the exceptional case that warrants a finding of undue hardship. See e.g. In the Matter of Diaz, 2 C.B.C.2d 501, 5 B.R. 253 (Bkrtcy.W.D.N.Y.1980) (debtor was impoverished, partially deaf, cardiac, former alcoholic, psychiatric in-patient, divorced from her institutionalized husband, with several children, some of whom require psychiatric and dental care); In re Bagley, 4 B.R. 248, 2 C.B.C.2d 251, 6 B.C.D. 404 (Bkrtcy.Ariz.1980) (acutely impoverished debtor and husband subsiding at welfare level, burdened with medical bills of a child with chronic respiratory illness whose condition requires the care of the debtor and impedes her gainful employment).

In the Matter of Johnson, 5 B.C.D. 532 (E.D.Pa.1979), Bankruptcy Judge Twardowsky fashioned a novel three-tier test to determine undue hardship.

A mechanical (checklist) test considers future financial resources of the debtor (including an analysis of rate of pay, wages and salaries earned, skills, sex, ability to obtain and retain employment, current employment status, employment record, education, health, access to transportation, and dependent children) and other sources of income or wealth, which is then matched against reasonable expenses to yield an estimate of typical, average monthly expenses. Extraordinary, nondiscretionary expenses (e.g. unique medical bills) are then factored in. If the court finds that financial resources are not sufficient to support the debtor and his dependents at a subsistence or poverty standard of living, as well as repay the student loan, it should proceed to examine good faith aspects, including whether the debtor has made a bonafide attempt to repay the loan, and whether the debtor was negligent or irresponsible in conducting his financial affairs such that the debtor's misfortune is self-imposed and the conclusion drawn under the mechanical test should be altered. Lastly, if bad faith is found, there must be a presumption against discharge which can be rebutted only by finding that the debtor's dominant reason for filing was not eradication of substantial student loans and that the debtor...

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