In re Young

• Decision Date: 30 September 1998
• Docket Number: Adversary No. 98-0264DAS.,Bankruptcy No. 93-13117DAS
• Citation: 225 BR 312
• Parties: In re Jayne M. YOUNG, Debtor. Jayne M. YOUNG, Plaintiff, v. PHEAA and Academic Services in Trust for the University of Pennsylvania and Temple University, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

225 B.R. 312 (1998)

In re Jayne M. YOUNG, Debtor Jayne M. YOUNG, Plaintiff, v. PHEAA and Academic Services in Trust for the University of Pennsylvania and Temple University, Defendants.

Bankruptcy No. 93-13117DAS, Adversary No. 98-0264DAS.

United States Bankruptcy Court, E.D. Pennsylvania, Philadelphia Division.

September 30, 1998.

Jayne M. Young, Philadelphia, PA, debtor pro se.

Diane T. Ubele, Philadelphia, PA, Shipon & Skorbek, Philadelphia, PA, Shipon & Skorbek, Philadelphia, PA, Former Attys., for debtor.

Jason L. Swartley, PHEAA, Harrisburg, PA, for Pennsylvania Higher Education Assistance Agency.

Edward L. Berger, Gordin & Berger, Philadelphia, PA, for Academic Services in trust for The University of Pennsylvania College and Temple University.

Edward Sparkman, Philadelphia, PA, Standing Chapter 13 Trustee.

OPINION

DAVID A. SCHOLL, Chief Judge.

A. INTRODUCTION

Before us is a proceeding ("the Proceeding") instituted pro se by JAYNE M. YOUNG ("the Debtor") seeking to discharge her student loan obligations, pursuant to 11 U.S.C. § 523(a)(8)(B). The Debtor is an intelligent, healthy, single graduate of the prestigious University of Pennsylvania, with no present dependents. However, she is also a 50-year-old Black woman who was unemployed and out of unemployment compensation benefits at the time of the trial and has had no employment in her chosen legal field for a year and a half. The main issue is whether, having met the first (insufficient current income) and third (good faith) prongs of the test adopted by In re Faish, 72 F.3d 298, 305 (3d Cir.1995), she has proven the presence of the second (circumstances are likely to persist) prong as well. Finding her job search adequate and that § 523(a)(8)(B) dischargeability must ordinarily be all or nothing, we conclude that the Debtor is unable to pay the large minimal amount due on her student loans, satisfies the Faish test, and is entitled to their discharge.

B. PROCEDURAL AND FACTUAL HISTORY

The Debtor filed the underlying individual Chapter 13 bankruptcy case on May 21, 1993. Although her counsel, Diane T. Ubele, Esquire, left the jurisdiction and abandoned the Debtor several years ago, she has persevered in fulfilling the terms of her Chapter 13 plan, confirmed on October 18, 1993. She testified that, when she explained her current economic plight to Edward Sparkman, Esquire, the Standing Chapter 13 Trustee, who filed a final report recommending her discharge on June 12, 1998, he advised her to file the Proceeding. On May 21, 1998, she did so, naming PHEAA, an acronym for the Pennsylvania Higher Education Assistance Agency, ACADEMIC FINANCIAL SERVICES IN TRUST FOR THE UNIVERSITY OF PENNSYLVANIA ("Penn"), and TEMPLE UNIVERSITY ("Temple") as Defendants. Penn and Temple were represented by a single attorney and are collectively referenced herein as "the Schools." After two continuances the Debtor achieved service on all of the Defendants and the Proceeding was tried on August 11, 1998.

The Debtor testified that, upon being left with two young children from a broken marriage, she was employed as a part-time secretary/legal assistant by a Philadelphia law firm from 1978 through 1994. During the early years of this employment, she also attended Penn part-time from 1978 until she obtained a bachelor's degree in 1985, at age 37. In 1991, she began graduate school, but was unable to get a degree before she left a year later. In 1994 she lost her employment due to "downsizing" at the firm.

The Debtor has spent the last several years looking for permanent full-time employment which she believes is commensurate with her education. In 1992 Debtor expended over $2200 on unsuccessfully seeking the assistance of a corporate job-search firm. Except for a six-month stint as a legal assistant in another firm from October 1996 to March 1997, which ended with the Debtor's claim of sexual harassment, the Debtor continued to work part-time and obtain unemployment compensation benefits through June 1998. At that time her last temporary position, as a substitute teacher, ended, as well as her unemployment compensation benefits. She therefore had no income in the two months prior to trial.

In response to discovery in the Proceeding, the Debtor testified that, although she has no income, her monthly expenses total $1,300.00, including $500 for food and $50 for cable television service. She testified that she has been living off depleted savings and has again become in arrears on her mortgage in an amount of approximately $8,000. The Debtor is doubtful about prospects of employment because she feels that, while she is very qualified for many professional positions, she is being discriminated against based upon her age and her lack of helpful contacts.

The Debtor obtained the loans which are the subject of this adversary proceeding between 1981 and 1990. As of August 1998, the Debtor is delinquent on eight student loan notes in the aggregate amount of $46,095.16. All of these payments were deferred through 1992 when she entered graduate school. PHEAA's witness, administrative officer Laurie Lint, testified that the lowest monthly payment terms available to the Debtor would require payments of $322.98 monthly for thirty years. An alternative plan would require payments of $379.22 for twenty-five years.

C. DISCUSSION

The Debtor appears to concede that, since her loan payments were deferred until about a year prior to her bankruptcy filing, 11 U.S.C. § 523(a)(8)(A) is inapplicable. See, e.g., In re Woodcock, 144 F.3d 1340, 1342 (10th Cir.1998) (seven-year time period begins running after termination of deferments). She therefore relies on 11 U.S.C. § 523(a)(8)(B), which states as follows:

(a) A discharge under section 727, . . . of this title does not discharge an individual debtor from any debt . . .

. . .

(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for any obligation to repay funds received as an educational benefit, scholarship or stipend, unless —

. . .

(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor\'s dependants; . . .

In order to have a student loan debt discharged under the above Code section, the Debtor must prove that she would otherwise suffer an "undue hardship." In determining whether a debtor would suffer an undue hardship for failure to discharge a student loan, we are bound to apply the three-pronged test originally outlined in Brunner v. New York State Higher Education Services Corp., 831 F.2d 395 (2nd Cir.1987) and adopted by our Circuit in Faish, supra, 72 F.3d at 305, See also In re Mayer, 198 B.R. 116, 124 (Bankr.E.D.Pa.1996), aff'd as to debtor Queen sub nom. Queen v. Pennsylvania Higher Education Assistance Agency, 210 B.R. 677 (E.D.Pa.1997), and aff'd as to debtor Mayer, No. 97-1380, 156 F.3d 1225 (3d Cir. May 14, 1998).

Under the Brunner/Faish analysis, the undue hardship exception applies only if the debtor proves the following:

(1) that the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for herself and her dependants 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 for the student loans; and

(3) that the debtor has made good faith efforts to repay the loans.

72 F.3d at 305, citing 831 F.2d at 396. See also, e.g., Mayer, supra, 198 B.R. at 124; and In re Hoyle, 199 B.R. 518, 521 (Bankr. E.D.Pa.1996).

At the close of the trial, we opined that, since the Debtor has had no income whatsoever for the past two months, she satisfied the first prong of the Brunner/Faish test at present. However, neither PHEAA nor the Schools were prepared to concede even this point in their post-trial submissions. PHEAA argued that the Debtor was better off than the debtor in Brunner in that she had displayed adequate financial resources by avoiding welfare dependency and paying off her Chapter 13 plan. The Schools pointed to particular items which the Debtor recited in answers to interrogatories on her monthly budget and vigorously disputed the Debtor's claims of age discrimination as the basis for her lack of success in seeking employment. With respect to her budget, particular issue was taken with her recitation of monthly expenditures of $50 for cable television service and $500 for food, some of the latter of which the Debtor indicated was devoted to maintenance of two German shepherd dogs. With respect to the age discrimination claims, the Schools appeared to contend that, if we accepted this argument, all elderly debtors would be able to obtain discharges under § 523(a)(8)(B).

We find the Defendants' arguments on this issue overstated and/or totally lacking in merit. The fact that we might conclude that a particular 50-year-old debtor with no income for a period of several months, whose age may indeed be a factor in an unsuccessful work search, lacks sufficient financial resources to maintain herself makes no statement whatsoever regarding the circumstances of other 50-year-old debtors. Quibbling about particular expenditures on a debtor's budget when that debtor has no income also seems pointless. The Debtor does not reside in a particularly fashionable neighborhood. She credibly testified that her mortgage is substantially in arrears, and that over the past several months she has supported herself on savings which are now exhausted.¹ Neither the expenditures referenced by the Schools as purportedly excessive nor any of her other claimed expenditures are indicative of extravagance which would undermine the Debtor's credibility in her claims of to financial hardship.

The comparison of this Debtor with the Brunner debtor is inapt. The Brunner...