Martin v. Great Lakes Higher Educ. Grp. (In re Martin), Bankruptcy No. 16–01077

• Decision Date: 16 February 2018
• Docket Number: Bankruptcy No. 16–01077,Adversary No. 16–09052
• Citation: 584 B.R. 886
• Parties: IN RE: Stephen L. MARTIN and Janeese L. Martin, Debtors. Janeese L. Martin, Plaintiff, v. Great Lakes Higher Educ. Group, Defendant, Educational Credit Management Corporation, Intervenor.
• Court: U.S. Bankruptcy Court — Northern District of Iowa

584 B.R. 886

IN RE: Stephen L. MARTIN and Janeese L. Martin, Debtors.Janeese L. Martin, Plaintiff,

v. Great Lakes Higher Educ. Group, Defendant,Educational Credit Management Corporation, Intervenor.

Bankruptcy No. 16–01077

Adversary No. 16–09052

United States Bankruptcy Court, N.D. Iowa.

Signed February 16, 2018

Wil L. Forker, Sioux City, IA, for Plaintiff.

Great Lakes Higher Educ. Group, pro se.

Brooke Suter Van Vliet, Brick Gentry P.C., West Des Moines, IA, for Intervenor.

RULING ON DISCHARGEABILITY OF STUDENT LOAN

THAD J. COLLINS, CHIEF BANKRUPTCY JUDGE

This matter came before the Court for trial in Sioux City, Iowa. Wil Forker appeared for Debtor Janeese Martin ("Debtor"). Brooke Van Vliet appeared for Intervenor–Defendant, Educational Credit Management Corporation ("ECMC"). The parties submitted post-trial briefs. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).

STATEMENT OF THE CASE

Debtor owes over $230,000 in student loan debt, mostly from compounding interest. She obtained student loans, with an original principal balance of around $48,000, while earning an undergraduate degree, a Juris Doctorate degree, and a Master's degree, all from the University of South Dakota. Debtor argues that she has been unable to obtain steady gainful employment and is therefore unable to repay her loan without undue hardship. Debtor argues that allowing her loan to continue to grow puts a mental and emotional burden on her and her family.

ECMC argues that Debtor's unemployment is largely voluntary and that her educational background qualifies her for well-paying jobs. ECMC also argues that discharge is unnecessary because Debtor is eligible for an income-based repayment plan that requires payments of $0 per month unless and until she obtains gainful employment.

For the reasons that follow, the Court finds that not discharging Debtor's student loan would cause an undue hardship. Debtor's student loan is dischargeable under 11 U.S.C. § 523(a)(8).

STATEMENT OF THE FACTS

Debtor is 50 years old. She currently lives in Vermillion, South Dakota with her husband, who is 66, and their two daughters, who are 23 and 21. Debtor is currently unemployed.

Debtor received a bachelor's degree in criminal justice and political science from the University of South Dakota in 1989. She went on to obtain a Juris Doctorate ("J.D.") in 1991 and a Master of Public Administration in 1993, both from the University of South Dakota. Debtor passed the South Dakota bar in 1992.

After finishing her final degree in 1993, Debtor consolidated all her educational loans with Great Lakes Higher Education Guaranty Corporation. At the time of consolidation her loan balance was approximately $48,817. Her consolidated loan has an interest rate of 9%. Debtor's student loan was later assigned to ECMC. As of the date of trial, Debtor's outstanding student loan balance, including principal and accrued interest, was over $230,000.

Shortly before graduating from her Master's program, Debtor was hired as an attorney at East River Legal Services in Sioux Falls, South Dakota. Debtor provided free legal services to qualified individuals. Debtor was laid off from East River due to budget cuts in December of 1995, after roughly three years of work.

Debtor had her first child shortly after being laid off and was unable to seek employment for several months. In early 1996, Debtor's husband got a job in Nebraska and the family moved. Debtor applied to transfer her law license to Nebraska. She was admitted to the Nebraska bar in September of 1996. Debtor sought but was unable to find any legal work in Nebraska. Debtor's husband eventually lost his job in Nebraska and the family returned to South Dakota. After not being able to obtain a full-time job in South Dakota for six months, Debtor accepted a part-time position as an English as a second language (ESL) instructor in Sioux City, Iowa.

Debtor worked as an ELS instructor until December of 2000, when she obtained a full-time position with the Taxpayer's Research Council, a non-profit organization in Sioux City. Debtor's salary was approximately $30,000 per year when she started with the Taxpayer's Research Council and $31,000 when her employment ended. Debtor worked in this capacity until November of 2008, when Debtor decided to try to find work closer to her home and family in Dell Rapids, South Dakota. The Taxpayer's Research Council, upon learning of Debtor's intention to move, forced Debtor to set an immediate end date for her employment. Debtor would have liked to continue with the Taxpayer's Research Council until she found other work near Dell Rapids. Due in part to the tight job market after the 2008 financial crises, Debtor was unable to find any work after her position with the Taxpayer's Research Council ended.

Debtor looked for employment more or less continuously after her job with the Taxpayer's Research Council ended. She has applied for hundreds of jobs, law and non-law related, in and around Sioux Falls, South Dakota and Sioux City, Iowa. In the nine years since her last job, Debtor has received only a few interviews and no offers of employment. Debtor very much wants to work and support herself and her family.

Debtor consistently made payments on her student loan of $410 per month from 1994–1996 while she was employed with East River Legal Services. After she was laid off in 1996, Debtor applied for various deferments. She started making payments again when she was hired at the Taxpayer's Research Council in 2000. Debtor applied for additional deferments at times when she or her husband were unemployed. Debtor used up all available deferments. Eventually she was no longer able to make payments and her loan went into default. According to her loan payment history from 1994–2008, Debtor paid a total of $30,077.76 into her student loan, of which $26,040.78 went to interest and $3,960.30 went to principal.

A majority of Debtor's time is and has been taken up caring for her two adult children. Debtor's daughters are both students at the University of South Dakota, but they both live at home with Debtor and her husband. One of Debtor's daughters suffers from obsessive-compulsive disorder. The other daughter has a learning disability. Debtor frequently cooks and cleans for her children, drives them back and forth between home and their classes, and helps them generally manage their lives.

Debtor and her family depend entirely on Debtor's husband's income. Debtor's husband works as a maintenance person and dishwasher at Café Brulé in Vermillion, South Dakota. Debtor's husband also receives a pension from the State of South Dakota and Social Security payments. In 2016, Debtor's husband made $39,243 total from all sources before taxes. This amount supports Debtor, Debtor's husband, and Debtor's adult children living with them, who also have financial aid and student loans of their own.

CONCLUSIONS OF LAW AND ANALYSIS

Before proceeding to the central issue in this case, the dischargeability of Debtor's student loan, the Court must address the availability of partial discharge.

I. Partial Discharge

During trial, the Court requested additional briefing on whether it has the authority to discharge only a portion of Debtor's student loan debt or some, but not all, of the individual loans. In its post-trial brief, ECMC consented to the Court discharging all but $90,000 of the Debtor's outstanding student loan debt. ECMC's Post–Trial Brief at 13, Martin v. Great Lakes Higher Educ. Group, No. 16–09052 (Bankr. N.D. Iowa Nov. 28, 2017). In its brief, ECMC also admitted that requiring Debtor to pay back any more than $90,000 would create an undue hardship. Id. While ECMC's efforts at striking a compromise are commendable, the Court does not have the authority to partially discharge student loan debt.

Some Circuits have allowed partial discharge under § 523(a)(8). Carnduff v. U.S. Dept. of Educ. (In re Carnduff ), 367 B.R. 120, 130 (9th Cir.BAP 2007) ("The Ninth Circuit has rejected the view that Section 523(a)(8) mandates an ‘all-or-nothing’ approach to nondischargeability of student loan debt."); see also Hagen v. Avangel Coll., Inc. (In re Hagen ), 36 B.R. 578, 579 (Bankr. M.D. Fla. 1983) ; Kuhns v. Pa. Higher Educ. Assistance Agency (In re Kuhns ), 33 B.R. 759, 762–63 (Bankr. S.D. Ohio 1983).

Interpreting § 523(a)(8) to allow partial discharge is arguably the more equitable approach. See Thad Collins, Note, Forging Middle Ground: Revision of Student Loan Debts in Bankruptcy as an Impetus to Amend 11 U.S.C. § 523(a)(8), 75 Iowa L. Rev. 733, 753–57 (1990). But there is little support for the proposition that Congress intended § 523(a)(8) to allow for partial discharge. Id. at 757–63.

The Eighth Circuit has plainly rejected partial discharge, instead adhering to the all-or-nothing approach. Conway v. Nat'l Collegiate Tr. (In re Conway ), 495 B.R. 416, 423 (8th Cir.BAP 2013) ("[T]here is no case law in this circuit that would authorize the court to ‘partially discharge’ a student loan."). In taking this position, the Eighth Circuit Bankruptcy Appellate Panel reaffirmed the Bankruptcy Court for the Northern District of Iowa's earlier decisions rejecting partial discharge. Hawkins v. Buena Vista Coll. (In re Hawkins ), 187 B.R. 294, 300 (Bankr. N.D. Iowa 1995) ("The court's authority under § 523 is to determine dischargeability. This is an all-or-nothing proposition."); Faktor v. United States (In re Faktor ), 306 B.R. 256, 262–63 (Bankr. N.D. Iowa 2004) ("The court does not have the authority to modify the payment terms of a student loan or to discharge a partial amount of principal or accrued interest.").

The Eight Circuit is an all-or-nothing jurisdiction. While parties can negotiate the terms of repayment, the Court cannot unilaterally renegotiate the terms or amount of a debtor's student loan. The Court's role is to determine whether the student loan in question is dischargeable under 11 U.S.C. § 523.

While the Court does not have the...