In re Rice, Bankruptcy No. 480-00246

Decision Date05 August 1981
Docket NumberBankruptcy No. 480-00246,Adv. No. 481-0018.
Citation13 BR 614
PartiesIn re Luther (NMN) RICE and Mary Elizabeth Rice, Debtors. Luther (NMN) RICE and Mary Elizabeth Rice, Plaintiffs, v. UNIVERSITY OF SOUTH DAKOTA, Springfield, South Dakota Branch, U.S. Dept. of Health, Education & Welfare, and U.S. Office of Education, Denver, Colorado, and Aman Collection Service, Inc., A Corporation, Defendants.
CourtU.S. Bankruptcy Court — District of South Dakota

John Harmelink, Yankton, S.D., for plaintiffs.

Daniel R. Moen, McNeary & Moen, Aberdeen, S.D., for defendant Aman.

MEMORANDUM DECISION

PEDER K. ECKER, Bankruptcy Judge.

Luther and Mary Elizabeth Rice, hereinafter Debtors, filed a joint petition for an order for relief in a Chapter 7 bankruptcy and were discharged. As part of Debtors' bankruptcy, they filed a complaint to determine the dischargeability of a federally insured student loan pursuant to 11 U.S.C. § 523(a)(8)(B). Debtors contend any extra monthly payments will impose an undue hardship on Debtors and their dependents.

Aman Collection Service, Inc., hereinafter Creditor, is the assignee of Debtors' student loans. In responsive pleadings, Creditor argues that Debtors' situation does not constitute undue hardship and requests this Court to dismiss Debtors' Complaint.

This Court held a trial on Debtors' Complaint and took the matter under advisement. This Bankruptcy Court makes the following Findings of Fact and Conclusions of Law based upon the pleadings and evidence presented at the trial.

FINDINGS OF FACT

Debtors' Schedule A-3 lists $3,025.00 in student loans at three per cent interest. Their payment is $36.00 per month. Mrs. Rice attended college for one-half semester. Mr. Rice attended college for one and one-half semesters. Debtors quit college because of a lack of money and family responsibilities. Debtors have made no effort at repayment, nor have they contacted the college regarding repayment. Most lenders of federally insured loans allow deferment or forbearance from payment for a time when a person is in a hardship situation.1

Debtors are married and are the parents of four minor children who are still living at home. The children are ages 17, 15, 14, and 12. Debtors' children are unemployed except for occasional babysitting jobs.

Mr. Rice is employed by Dale Electronics, Yankton, South Dakota. He works in the maintenance department, receiving a net monthly check of $740.00. Mrs. Rice is employed by the South Dakota Human Services Center, Yankton, South Dakota. She is a psychiatric aid and receives a net monthly check of $528.00. Debtors have the possibility for raises in the future. Debtors' net monthly income is $1,268.00.

Debtors' Exhibit A, offered and received into evidence, shows their monthly payments and household expenses.

                                          EXHIBIT A
                           "MONTHLY PAYMENTS & HOUSEHOLD EXPENSES
                                    Luther and Mary Rice
                Rent                             $235.00
                Electric Bill                      95.00
                Gas Bill                           33.00
                Water Bill                         30.00
                Telephone                          15.00
                Truck Payment                      98.00
                Medical Clinic                     25.00
                Car Insurance                      23.00
                
                Life Insurance                     47.00
                Gasoline (2 cars)                 120.00
                School Lunches (Reduced meals)     16.00
                Lawyer                             50.00
                Groceries                         450.00
                                                ________
                               TOTAL            $1237.00
                Net monthly income: Luther,       740.00
                                      Mary,       528.00
                                                ________
                                     TOTAL      $1268.00
                Monthly Expenses                 1237.00
                                                ________
                                                $  31.00
                

This Budget does not include clothing allowances or car maintenance."

DEBTORS' ARGUMENTS

1. That failure to discharge Debtors' student loans would create an undue hardship on Debtors and their dependents because Debtors are on a tight budget and any extra money needed for personal items or recreation will have to come out of food expense.

2. That Debtors' college educations have not benefited them in gaining employment that would provide income to support themselves and pay their student loans.

CREDITOR'S ARGUMENTS

1. Debtors have not made a good faith effort at repayment and, consequently, their student loans should be nondischargeable.

2. Debtors' Complaint should be dismissed for failure to state a claim because they have failed to show sufficient financial problems to allow the Court to find an undue hardship.

ISSUES

1. Whether under 11 U.S.C. § 523(a)(8)(B) federally insured student loans can be discharged for undue hardship absent a showing by Debtors of a good faith effort of negotiation of payment with lender regarding hardship deferment or forbearance.

2. Whether repayment of federally insured student loans totaling $3,100.61 at $36.00 per month creates an undue hardship on Debtors and their four dependents when they have a net monthly income of $1,268.00 with a possibility of raises, and monthly expenses of $1,237.00 as shown by Debtors' Exhibit A, leaving a net monthly balance of $31.00.

CONCLUSIONS OF LAW

The Parties ask this Bankruptcy Court to apply 11 U.S.C. § 523(a)(8)(B) to the facts of this case. This statute provides:

"(a) A discharge under section 727, 1141 or 1328(b) of this title does not discharge an individual debtor from any debt — . . .
(8) to a governmental unit, or a nonprofit institution of higher education, for an educational loan unless — . . .
(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor\'s dependents;".
ISSUE—1

Issue No. 1 concerns whether Debtors' federally insured student loans should be discharged for undue hardship absent a showing by Debtors of a good faith effort at negotiation of payment with lender regarding hardship deferment or forbearance. The facts are that Debtors have made no effort at repayment nor have they contacted the college concerning repayment.

Upon reading 11 U.S.C. § 523(a)(8)(B), it is clear that Congress intended that federally insured student loans be nondischargeable absent a showing of undue hardship. This Bankruptcy Court holds that one of the criteria it will consider in granting a discharge of a federally insured loan under the hardship provision is whether a borrower has made a good faith effort to negotiate deferment or forbearance of payment with a lender. This furthers...

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