In re Halverson, Bankruptcy No. 95-01240-BGC-7. Adv. No. 95-00239.

• Decision Date: 26 September 1995
• Docket Number: Bankruptcy No. 95-01240-BGC-7. Adv. No. 95-00239.
• Parties: In re Danny Carl HALVERSON and Linda Jo Dowdy Halverson, Debtors. Danny Carl HALVERSON, Plaintiff, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, Student Loan Finance Corporation, Education Assistance Corporation, Mt. Hood Community College, and Concordia College, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Alabama

189 B.R. 840 (1995)

In re Danny Carl HALVERSON and Linda Jo Dowdy Halverson, Debtors.

Danny Carl HALVERSON, Plaintiff, v. PENNSYLVANIA HIGHER EDUCATION ASSISTANCE AGENCY, Student Loan Finance Corporation, Education Assistance Corporation, Mt. Hood Community College, and Concordia College, Defendants.

Bankruptcy No. 95-01240-BGC-7. Adv. No. 95-00239.

United States Bankruptcy Court, N.D. Alabama, Southern Division.

September 26, 1995.

Wayne Wheeler, Birmingham, Alabama, for Plaintiff-Debtors.

Leon F. Kelly, Assistant United States Attorney, Birmingham, Alabama, for Defendants.

MEMORANDUM OPINION ON COMPLAINT TO DETERMINE DISCHARGEABILITY OF STUDENT LOAN DEBT

BENJAMIN COHEN, Bankruptcy Judge.

This matter came before the Court on a Complaint to Determine Dischargeability of a Debt filed by the Debtor. After notice, a trial was held on September 13, 1995. Mr. Danny Carl Halverson, the Debtor; Mr. M. Wayne Wheeler, his attorney; Ms. Pat Comer, attorney for Pennsylvania Higher Education Assistance Agency; and Mr. Richard O'Neal, attorney for the U.S. Department of Education, appeared. Of the five named Defendants, only Pennsylvania Higher Education Assistance Agency ("PHEAA") answered. Default judgments were entered against the remaining four defendants on August 21, 1995. The United States Department of Education filed a motion for summary judgment as an unnamed party. That motion has since been withdrawn and the Department of Education, if owed a debt by this Debtor, joins PHEAA in its defense of the complaint. The matter was submitted on the testimony of Mr. Halverson and on documentary evidence as well as arguments of counsel.

The Debtor contends that a student loan debt owed to the PHEAA should be discharged in his chapter 7 bankruptcy. Section 523(a)(8) of the Bankruptcy Code excepts student loans from the discharge provisions of 11 U.S.C. § 727. The Debtor contends that his loan should be an "exception" to the subsection (a)(8) exception. Subsection (a)(8)(B) allows the discharge of student loans where the debtors of those loans prove that the payment of the loans would constitute an "undue hardship" on them.

I. Burdens of Proof

The PHEAA must proof the existence of a debt, owed to a governmental agency, that first became payable less than seven years prior to the date of the bankruptcy. If this burden is met, the Plaintiff must prove "undue hardship." The parties agreed that: (1) there is a student loan debt of $10,710.65; (2) the debt is owed to the governmental agency PHEAA; and, (3) the debt is due to become payable less than seven years prior to the date of the filing of this bankruptcy. Through these facts PHEAA meets its burden of proof. The burden now shifts to the Debtor to prove "undue hardship."

II. Issue

The single issue is whether excepting this debt from discharge will impose an undue hardship on the Debtors or their dependents. See 11 U.S.C. § 523(a)(8)(B).

III. Findings of Fact

All facts to decide this matter are before the Court. The Debtor testified that he received an associates degree in general studies from Mt. Hood College Community College in Gresham, Oregon. In 1991 he received a bachelor of science degree in health care administration from Concordia College in Portland, Oregon.¹ The loans subject to this action are the loans the Debtor received for that education.

Mr. and Ms. Halverson have been married for nine years. Mr. Halverson is employed as a technician at Lenscrafters, Inc. Although living in the metropolitan Birmingham, Alabama area, he works in Montgomery, Alabama approximately one and one-half hours away. Ms. Halverson, the co-debtor in this bankruptcy but unobligated on the student loan, works as the Director of Operations of the Shelby County (Alabama) Humane Society.

Mr. Halverson has two children, both from a previous marriage. One of the children, a fifteen year old girl, lives with him; the other, a twelve year old boy, lives with Mr. Halverson's former wife. Mr. Halverson is obligated to pay his former wife child support for the boy; his former wife is obligated to pay him child support for the girl.²

The Debtors purchased a real estate lot and constructed a house on that lot in 1992. A mortgage for approximately $65,000 was given for the project. A friend of the Debtors, the husband of a childhood friend of Ms. Halverson's, was a co-signer on the note and mortgage for the loan. Although all mortgage payments on that property are current, the Debtors were not able to make their June 1995 and July 1995 payments, and their friend and co-signer Mr. Warner Beirsdoefer, made those payments. Mr. Halverson testified that the September 1995 payment had not been made but that he expected Mr. Beirsdoefer to make that payment because Mr. Halverson and his wife were transferring the lot and house to Mr. Beirsdoefer within the week. Mr. Halverson did not expect any monetary compensation for the transfer and expected that he and his wife would pay some rent to Mr. Beirsdoefer while they continue to live in the house.³

Since leaving school in 1991, Mr. Halverson has had many different jobs, but he has worked regularly. He testified that since he received his degrees he has not at any time been unemployed for longer than 60 to 90 days.⁴ Since 1991 Mr. Halverson has worked as a health care recruiter; as a commercial truck driver, having obtained his license for such work; as a driver and deliverer for a millworks company; as a stock person for a department store, and now as an eye glasses lens technician for Lenscrafters, Inc. With Lenscrafters Mr. Halverson expects periodic raises over the next four to six months. If he remains with the company and progresses, there is the possibility of a managerial position within 8 years.

Mr. Halverson testified about his family's current income and expenses. That testimony was compared to the Debtors' bankruptcy petition Schedules I and J listing current income and current expenditures and was also compared to answers Mr. Halverson gave to interrogatories, answers that were admitted into evidence without objection. Mr. Halverson testified that during the years preceding his bankruptcy filing he had borrowed approximately $7,000 to $8,000 from his father-in-law and other funds from a friend.

According to Mr. Halverson's testimony, the Debtors' combined net bi-weekly income is $1,500, or $39,000 per year.⁵ According to their bankruptcy petition their combined net monthly income is $1,400 or $16,800 per year. According to the answers to interrogatories admitted into evidence, the Debtors' combined net monthly income is $1,765 or $21,180 per year.⁶

Neither the Debtors' petition, Mr. Halverson's answers to interrogatories, nor his testimony demonstrate that the Debtors have any unusual or out of the ordinary expenses. On their petition they list monthly expenses of $1,327. In answers to interrogatories Mr. Halverson lists them as $1,832.⁷

Because the Debtors are transferring their house to a friend and because this bankruptcy is one filed under chapter 7, the Debtors will not, but for the loan subject to this proceeding, have any carryover liabilities. They are not obligated on any other loans and have not reaffirmed any secured debts.⁸

The Debtors do not have any credit cards and do not have any stocks or bonds. They do not have any cash or other liquid assets saved. They own two vehicles, a 1987 Jeep and a 1989 Ford.⁹ They do not have any ongoing automobile loan payments for either of these vehicles. Other than approximately $10,000 equity in their house, there are no monetary assets.¹⁰ And while Mr. Halverson's employer maintains a retirement account for employees, Mr. Halverson has not established a balance in that account.

Health insurance is provided through Ms. Halverson's employer. Mr. Halverson's health is good with the exception of an injury suffered during active military duty which qualifies him for a governmental 10% disability, and with the exception of a back injury suffered when working as a furniture deliverer. Within the last six months, Mr. Halverson has not missed a day of work due to illness. Ms. Halverson has missed approximately 12 to 14 days in the last six months due to illness. Her health is "OK."

IV. Conclusions of Law

Mr. Halverson's attorney explained, as the familiar saying goes, "if it weren't for bad luck, Mr. Halverson wouldn't have any luck at all." This Court is sympathetic but must find that the Debtor has the income, skills, ability and prospects to turn around his misfortunes.

Mr. Halverson contends that he does not have now, nor will have in the future, any resources to pay this student loan. He contends that his current expenses exceed his current income, that his prospects for better employment are low and that he is unable to pay this loan.

The Court of Appeals for the Eleventh Circuit has not addressed the issue of what constitutes "undue hardship" under section 523(a)(8)(B) but other circuit courts have. The frequently cited Court of Appeals for the Second Circuit test is:

(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.

Brunner v. New York State Higher Edu. Serv. Corp., 831 F.2d 395, 396 (2nd Cir.1987).

The Court of Appeals for the Sixth Circuit recently applied a variation of this test in In re Cheesman, 25 F.3d 356, 359-360 (6th Cir. 1994), cert. den. ___ U.S. ___, 115 S.Ct. 731, 130 L.Ed.2d 634 (1995). The Court of Appeals for the Seventh Circuit adopted the Second Circuit Brunner test in 1993 in In the Matter of Roberson, 999 F.2d 1132, 1135 (7th Cir.1993). The Courts of Appeals for the Eighth, Tenth and District...