Price v. Devos (In re Price)

• Decision Date: 23 June 2017
• Docket Number: Bky. No. 15–17645 ELF,Adv. No. 16–0011
• Citation: 573 B.R. 579
• Parties: IN RE: Kristin M. PRICE, Debtor Kristin M. Price, Plaintiff v. Betsy DeVos, Secretary, United States Department of Education Defendant
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

573 B.R. 579

IN RE: Kristin M. PRICE, Debtor

Kristin M. Price, Plaintiff

v.Betsy DeVos, Secretary, United States Department of EducationDefendant

Bky. No. 15–17645 ELF

Adv. No. 16–0011

United States Bankruptcy Court, E.D. Pennsylvania.

Signed June 23, 2017

Scott F. Waterman, Media, PA, for Plaintiff.

Virginia R. Powel, Anthony St. Joseph, U.S. Attorney's Office, Eric E. Reed, Fox Rothschild LLP, Philadelphia, PA, for Defendant.

OPINION

ERIC L. FRANK, CHIEF U.S. BANKRUPTCY JUDGE

I.INTRODUCTION

II.PROCEDURAL HISTORY

III.FACTS

A.The DOE and Chase Student Loan Debts

B.The Debtor's Education

C.The Debtor's Family

D.The Debtor's Employment

E.The Debtor's Current Income and Expenses

1.Monthly Income

2.Monthly Expenses

F.Other Facts Affecting the Debtor's Current Financial Status

G.Repayment of the Student Loans

IV.DISCHARGEABILITY UNDER 11 U.S.C. § 523(a)(8)

A.Statutory Authority Governing the Discharge of Student Loans

B.The Test for "Undue Hardship"

V.DISCUSSION: THE FIRST TWO BRUNNER PRONGS

A.The First Prong

1. minimal standard of living

2.DOE's waiver

3. the Debtor met her burden of proof

B.The Third Prong: Good Faith Attempt to Repay

VI.DISCUSSION: THE SECOND BRUNNER PRONG

A.General Principles

B.The "Persistence" Element of the Brunner Second Prong

1. factors and nature of the inquiry

2. the Debtor met her burden of proof

C.The "Duration" Element of the Brunner Second Prong : "A Significant Portion the Repayment Period"

1. the parties' positions on the length of the repayment period

2. consideration of Brunner in its historical context

3. determination of the repayment period

4. determining a "significant portion" of the repayment period—case-by-case

5. the Debtor met her burden of proof

VII.CODA

VIII.CONCLUSION

I.INTRODUCTION

In this adversary proceeding, Debtor Kristin M. Price("the Debtor") seeks a determination that her student loan debt to the United States Department of Education("the DOE") is dischargeable under 11 U.S.C. § 523(a)(8).Under § 523(a)(8), student loan debt is dischargeable only if repayment of the debt would impose an "undue hardship" on the debtor and the debtor's dependents.

This Circuit employs what is known as the "Brunner" test for determining undue hardship under § 523(a)(8).SeeIn re Faish, 72 F.3d 298, 306(3d Cir.1995)(followingBrunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395(2d Cir.1987) ).The Brunner test requires a debtor seeking to discharge her student loans to prove that:

(1) based on current income and expenses, the debtor cannot maintain a "minimal" standard of living for herself and her dependents if forced to repay the loans;

(2) 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) the debtor has made a good faith effort to repay the loans.

Faish, 72 F.3d at 304–05(quotingBrunner, 831 F.2d at 396 ).

In this case, the immediate cause of the Debtor's financial difficulties that led to her bankruptcy filing was a marital separation (which will lead to a divorce), which has left her as the sole custodian of three (3) young children, with reduced income for her family's support.

As detailed below, several factors complicate the application of the Brunner test in this adversary proceeding:

• the DOE does not dispute that, presently, the Debtor cannot repay the subject loan while maintaining a minimal standard of living for herself and her three (3) children, thereby satisfying the first Brunner prong;

• there is no dispute that the Debtor has acted in good faith, thereby satisfying the third Brunner prong;

• the Debtor is relatively young and healthy, but works only part-time due to structural obstacles in the labor market in her professional field (vascular sonography );

• the Debtor may be eligible for an income-based, long term extension of the repayment period for her loan, but, in good faith, has elected not to enter such a program;

• in light of the Debtor's qualifications and license as a vascular sonographer and the fact that her children will become adults and responsible for their own support, the Debtor will likely have the ability to make repayments on the subject student loan, while maintaining a minimal standard of living at some eventual point in the future;

• the parties dispute whether the second Brunner prong should be applied by evaluating the Debtor's future prospects within the remaining seven (7) year term of the Debtor's loan or a substantially longer time frame based on a potentially available income-based, extended term loan repayment program.

The facts of this case and the legal issues presented have necessitated a close examination of the second prong of the Brunner test.As explained below, I conclude that:

(1) in applying the second prong of the Brunner test, which requires that the court consider whether a debtor's current financial difficulties will persist for some period of time, the time period to be considered is not open-ended and courts should limit that period of time, as stated in Brunner, to "a significant portion of the repayment period;"

(2) in this case, the "repayment period" under the second prong of Brunner is the seven (7) year repayment period remaining on the Debtor's loan, not the twenty (20) or twenty-five (25) year repayment period potentially available in income-based, extended repayment period programs; and

(3) based on the factual record in this case, the Debtor's present inability to repay the subject loan while maintaining a minimal standard of living for herself and her children will continue for a significant portion of the seven (7) years remaining in the repayment period of the loan.

Accordingly, repayment of the Debtor's student loan debt to the DOE would impose an undue hardship on the Debtor and her dependents under 11 U.S.C. § 523(a)(8) and the debt is dischargeable in this chapter 7 bankruptcy case.

II.PROCEDURAL HISTORY

On October 26, 2015, the Debtor filed a voluntary chapter 7 bankruptcy petition in this court.In her schedules, the Debtor listed student loan debts to two (2) creditors: JP Morgan Chase Bank ("Chase") and the DOE.

On December 4, 2015, the chapter 7trustee filed a report of no-assets.(Bky. No. 15–17645, Doc. # 12).The Debtor received her chapter 7 discharge on February 4, 2016.(Bky. No. 15–17645, Doc. # 14).

On January 14, 2016, prior to the entry of the discharge order, the Debtor initiated this adversary proceeding by filing a complaint against Chase and Arne Duncan in his capacity as Secretary of the DOE,¹ seeking a determination that her student loan debts are dischargeable under 11 U.S.C. § 523(a)(8).The Defendants filed their respective answers to the Complaint on March 15 and 30, 2016.(Adv.No. 16–011, Doc. #'s 1, 16, 22).

On August 23, 2016, the court denied Chase's motion for summary judgment.Following a final pretrial conference, trial of the adversary proceeding was scheduled for November 7, 2016.(Adv.No. 16–011, Doc. #'s 33, 39).

On November 4, 2017, with the DOE's consent, the Debtor and Chase stipulated to Chase's dismissal from this action.(Adv.No. 16–011, Doc. # 41).

Trial of this adversary proceeding was held and concluded on November 7, 2016.Two (2) witnesses testified at trial: the Debtor and Phillippe Guillon, a DOE representative.The parties submitted eight (8) joint exhibits by agreement.

After the trial, the Debtor and the DOE submitted post-trial briefs in support of their respective positions, the last of which was filed on January 12, 2017.(Adv.No. 16–011, Doc. #'s 44, 48).

III.FACTS

Set forth below are my findings of fact.In making these findings, I have considered the credibility and demeanor of the trial witnesses, the plausibility of their testimony, the existence of corroborating circumstantial, testimonial or documentary evidence and the totality of the evidentiary record.

A.The DOE and Chase Student Loan Debts

1.As of the trial date, the Debtor was twenty-nine (29) years old with no health problems.(Joint Pretrial Statement, Statement of Uncontested Facts¶ 1)(hereinafter "JPS Facts").

2.The Debtor attended Thomas Jefferson University and graduated in 2011.(JPS Facts¶¶ 2, 3; A.T. at 10:03).²

3.The Debtor financed her education through various student loans, some private and some federally guaranteed.(JPS Facts¶ 2).

4.The Debtor owes the DOE $25,971.85 on her government guaranteed student loans, with interest accruing on the principal at the rate of $4.72 a day.(Id.¶ 4).³

5.The debt arises from four (4) loan disbursements of $5,500, $7,000, $7,000 and $5,500.00 respectively.(Ex. J–7, atUSA 00074, 00080).

6.Based on the repayment schedule in existence at the time the Debtor ceased making payments in November 2015, the DOE debt was scheduled to be paid off in November 2024.(JPS Facts¶¶ 5, 6).⁴

7.The monthly payment on the debt is in the range of $277.00 to $284.00 per month.⁵

8.The Debtor also is obligated on two (2) student loans owed to Chase in the combined amount of $30,470.52.(Id.at ¶¶ 7, 9, 12).

9.The Debtor's monthly payment on the Chase loans is $273.00.(Id.¶¶ 8, 10).

10.When the Debtor filed this bankruptcy case, she was obligated to pay approximately $500.00 per month on account of her two (2) student loan debts to the DOE and Chase.

B.The Debtor's Education

11.The Debtor earned a Bachelor of Science in Radiologic Science from Thomas Jefferson University in 2011.(Id.¶ 3).

12.The Debtor's degree qualified her to take the licensing board examinations for both vascular and general sonography.(A.T. at 9:45–9:46, 10:22).

13.The Debtor passed her licensing board examination for vascular sonography in 2013.(Id. ).

14.The Debtor did not pass her licensing board examination for general sonography.(Id. ).

15.As of the trial date, the Debtor was not eligible to retake the general sonography boards without additional schooling, which might require attendance at a twelve (12) month full-time program.(Id.;Ex. J–4, ...