Regan v. U.S. Dep't of Educ. (In re Regan)

Decision Date06 September 2018
Docket NumberNo. 17-11208-j7,Adversary No. 17-1046 J,17-11208-j7
Citation590 B.R. 567
Parties IN RE: Mariah REGAN, Debtor. Mariah Regan, Plaintiff, v. U.S. Department of Education, Defendant.
CourtU.S. Bankruptcy Court — District of New Mexico

Mariah Regan, Rio Rancho, NM, pro se.

Manuel Lucero, Assistant US Attorney, Albuquerque, NM, for Defendant.

MEMORANDUM OPINION

ROBERT H. JACOBVITZ, United States Bankruptcy Judge

THIS MATTER is before the Court following a trial on the merits of this adversary proceeding to determine the dischargeability of student loan debt under 11 U.S.C. § 523(a)(8).1 Plaintiff Mariah Regan represented herself, pro se . Manuel Lucero represented Defendant U.S. Department of Education ("USDOE"). Ms. Regan seeks to discharge the balance of her student loan debt as an undue hardship. This Court is bound to apply the test established by In re Brunner , 46 B.R. 752 (S.D.N.Y. 1985), aff'd sub nom. Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (the " Brunner test"). See Educ. Credit Mgmt. Corp. v. Polleys , 356 F.3d 1302, 1309 (10th Cir. 2004) (adopting the Brunner test). As explained below, because Ms. Regan has failed to satisfy the Brunner test, her student loans cannot be discharged.

FACTS

Since she was a young woman, Ms. Regan has worked hard to better herself. At age sixteen, she ran away from home to escape mistreatment by her adoptive parents. She earned her GED because she never attended high school. She then went to a small community college and earned an associate degree. After that, she was accepted into the University of Massachusetts at Amherst where she took her courses very seriously and was on the Dean's List.

To fund her education, Ms. Regan obtained several student loans from 1982 through 1994. See Exhibit C.2 After earning a degree from the University of Massachusetts, she began a career in teaching. She moved to New Mexico with her then nine-year-old daughter and worked for the Bureau of Indian Affairs ("BIA") as a teacher from 1993 through 2003, and again from August of 2004 through June of 2005. See Exhibit D. Between 1994 and 2003, Ms. Regan made some payments on her student loans. Ms. Regan thought that her student loans could be forgiven if she worked for the federal government through the BIA for a certain length of time. She later learned that her student loans would not be forgiven based on her service as a teacher for the BIA.

In 2003 Ms. Regan underwent emergency surgery at a hospital in Gallup, New Mexico. As a result of the financial difficulties caused by the surgery, she stopped paying on her student loans at that time. She was forced to borrow from her retirement savings to pay for her living expenses. She left Gallup and moved to Albuquerque. In Albuquerque, she applied for teaching jobs, but was only able to secure part-time positions until 2006, when she obtained a full-time teaching job. Ms. Regan obtained years of deferments and forbearances on her student loans. Any time she was offered a deferment or forbearance, she took the offer. She participated in income-contingent repayment plans ("ICRP") but was unable to keep up with the required payments.

In July of 2008, Ms. Regan consolidated her student loans and executed a promissory note for a Direct Consolidation loan from the USDOE. See Exhibit B. The original principal balance of the consolidated note was $29,200.24 and the note provided for interest at a rate of 8.25% per annum. Id. The consolidated loan was made under the William D. Ford Federal Direct Loan Program. Id. A total of $2,297.32 has been credited as payments on Ms. Regan's student loan debt. Id. The evidence does not establish whether the credits were given before or after the consolidated loan was made. Id. In 2016, Ms. Regan defaulted on her loan obligation. Id. Upon the default, the unpaid interest was capitalized and added to the principal balance of her student loan. Id. As of September 12, 2017, the total unpaid balance of the student loan debt was $51,044.03, with interest accruing at the rate of $9.87 per day. See Exhibit B.

Ms. Regan's Current Circumstances

Ms. Regan is currently 62 years old. She has no dependents. Schedule I filed with her bankruptcy petition reflects monthly wages from her teaching job of $3,299.63. See Exhibit A. After taxes ($767.97), mandatory retirement contributions ($365.24), and insurance ($294.58), her monthly take-home pay as reported on Schedule I is $1,871.84. Id. Her monthly expenses as reported on Schedule J exceed her monthly income by $155.16. Id. As of the time Ms. Regan filed her bankruptcy petition, the median income for a family of one in New Mexico was $40,722. See Official Form 122A-1 - Exhibit A. Based on the income reported on Ms. Regan's Schedule I, her annual income is $1,126.44 less than the median income for a family of one in New Mexico.

Ms. Regan testified that she lives paycheck to paycheck and feels incapable of paying back what she considers an insurmountable student loan debt. Due to interest accrual and the capitalization of unpaid interest as permitted under 34 C.F.R. § 685.202(b), the current balance of her consolidated student loan debt ($51,044.33) is more than twice the total amount of the initial student loan disbursements ($21,890.00) that enabled Ms. Regan to earn her degree.

Ms. Regan's 2017 federal income tax return shows annual income of $44,444.00, which is about $5,000 more than the annual gross income as reported on Schedule I. See Exhibits A and E.3 Ordinarily Ms. Regan's annual gross income is around $39,600. She earned extra income in 2017 because she taught summer school. Ms. Regan testified that she has been able to teach summer school for the last "couple of years." She is currently teaching summer school to earn additional income. When she works during the summer, she can earn about $4,500 in additional income. She could apply for summer programs at other schools, but she has not done so. She has also taken a second job at a JC Penny call center. No evidence of the additional income from Ms. Regan's job at the JC Penny call center was presented to the Court.

Ms. Regan's bankruptcy schedules do not reflect her additional income from summer employment, nor do they account for tax refunds. Last year, she received a tax refund of $700 from the State of New Mexico. She also received a federal tax income refund of $1,327.00 attributable to the 2017 tax year.

Since filing her bankruptcy petition, Ms. Regan has not applied for another ICRP. She has steady full-time employment as a teacher. She has generally been able to keep up with her bills, but once she had to take out a payday loan to cover her living expenses. She has an older car, no credit cards, and no family nearby. She acknowledged that she currently makes a little extra due to her summer teaching job, but she wants to use the additional income to take care of other necessities in her life. She would like to retire and feels that repayment of the student loan debt would be a huge burden for her in the future.

Student Loan Repayment Programs

The USDOE has a Public Service Loan Forgiveness Program ("PSLFP"). See 34 C.F.R. § 685.219. If a student loan borrower qualifies for the PSLFP and makes 120 consecutive qualifying payments, the balance of the loan is forgiven after ten years. A "qualifying" payment means a payment of the full amount of the scheduled loan payment made within 15 days of the loan payment due date. "Qualifying" payments do not have to be consecutive. However, a timely payment of less than the full amount of the scheduled payment, or a late payment of the full amount of the scheduled payment, does not count as a "qualifying" payment. Ms. Regan has applied for the PSLFP program. So far, she has made six qualifying payments. If Ms. Regan continues to qualify for the PSLFP by working as a teacher in a Title 1 school,4 and makes 114 additional, consecutive qualifying payments, her student loan would be forgiven in nine and one-half years.

A borrower under the PSLFP may also apply for an ICRP, or an income-based repayment plan ("IBRP"), which will determine the amount of the required "qualifying" payments under the PSLFP. See 34 C.F.R. § 685.208(k) (describing the income-contingent repayment plans) and 34 C.F.R. § 685.208(m) (describing the income-based repayment plan). Under an ICRP or an IBRP, a borrower can qualify for a reduced payment amount depending on the borrower's reported income. For the IBRP, the payment amount is 10% of the borrower's discretionary income, determined based on the borrower's adjusted gross income less 150% of the poverty guideline income for the same household size. For 2018, 150% of the poverty guideline income for a family of one is $18,210.00.

If Ms. Regan leaves her current job and is no longer eligible for the PSLFP, she may qualify for a standard ICRP or IBRP, provided her student loan is not in default. If Ms. Regan enrolls in a standard ICRP or IBRP, she will be required to make 240 or 300 qualifying payments on the unpaid balance of the student loan before the balance of the student loan debt is forgiven.

Based on Ms. Regan's adjusted gross income as reported on her 2017 Federal Income Tax return, Ms. Regan's payment under an IBRP would be $219 per month.5 A borrower participating in an IBRP and a PSLFP recertifies each year to confirm the borrower's income and that the borrower continues to work in a public service field. Based on the annual certification, if Ms. Regan's income were to decrease, her payments would decrease. If Ms. Regan's income were equal to or less than 150% of the poverty guideline, her required loan repayment amount would be zero, and those payments of $00.00 would still count as "qualifying" payments under the PSLFP. Ms. Regan could also apply for a forbearance if something unforeseen were to happen. If Ms. Regan retired during the loan repayment term under a PSLFP, she would no longer qualify to participate in a PSLFP because she would...

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3 cases
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    • United States
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    ...he is intentionally creating his hardship.356 F.3d at 1309. The debtor must satisfy all three Brunner elements. In re Regan, 590 B.R. 567, 573 (Bankr. D.N.M. 2018). Failure to do so renders the debt nondischargeable. Id.D. Brunner Element #1: Minimal Standard of Living. "A minimal standard ......
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    ...debtor has made good faith efforts to repay the loans.The debtor bears the burden of satisfying all three elements. In re Regan, 590 B.R. 567, 573 (Bankr. D.N.M. 2018). Failure to satisfy any element renders the debt nondischargeable. Id.F. Debtor's Original Theory of the Case and Defendant......
  • Schuckman v. U.S. Dep't of Educ. (In re Schuckman), Case No. 17-10834
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    ...test, "the inquiry ends and the student loan is not dischargeable."). 40. Adv. Doc. 49. 41. See Regan v. U.S. Dept. of Educ. (In re Regan), 590 B.R. 567, 574 (Bankr. D. N.M. 2018) (minimal standard of living means "living within the strictures of a frugal budget," quoting Educ. Credit Mgmt.......

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