Shoberg v. Minn. Higher Educ. Coordinating Council

Decision Date01 August 1984
Docket NumberBankruptcy No. 5-83-184,Adv. No. 5-83-63.
Citation41 BR 684
PartiesRandy B. SHOBERG, Plaintiff, v. MINNESOTA HIGHER EDUCATION COORDINATING COUNCIL, Defendant, Higher Education Assistance Foundation, a non-profit Minnesota corporation, Intervenor. Arising in or related to the bankruptcy case of: In re Randy B. SHOBERG, Debtor.
CourtU.S. Bankruptcy Court — District of Minnesota

John N. Nys, Duluth, Minn., for plaintiff-debtor Randy B. Shoberg.

Frederick A. Dudderar, Jr., Duluth, Minn., for Intervenor Higher Educ. Assistance Foundation, assignee of defendant Minnesota Higher Educ. Coordinating Council.

MEMORANDUM DECISION AND ORDER FOR JUDGMENT

GREGORY F. KISHEL, Bankruptcy Judge.

The above-captioned matter has come on before the undersigned United States Bankruptcy Judge for decision upon a designated record, including a Stipulation of Fact, transcript of a deposition of Debtor-Plaintiff, and Memoranda of Law by counsel for both parties. Pursuant to the Federal Rules of Civil Procedure, the Court makes the following Memorandum Decision as its Findings of Fact and Conclusions of Law.

Plaintiff-Debtor Randy B. Shoberg (hereinafter "Debtor") is a 26-year-old resident of International Falls, Minnesota. He is the divorced non-custodial parent of two children, presently ages six and four, who reside with their mother in Bemidji, Minnesota. He filed his Petition for Relief in this Court on July 25, 1983. His schedules listed secured debts in the amount of $1,200.00 and unsecured debts in a total of $5,089.03. The unsecured debts included a student loan incurred by him on or about October 26, 1981, in the principal amount of $3,000.00, the subject of this adversary proceeding for determination of dischargeability. This proceeding was commenced by the filing of Debtor's Complaint in this Court on September 23, 1983.

Debtor is presently self-employed as an auto body repairman operating out of his retired parents' garage. His income from this work is completely dependent upon the number and variety of customers who come to him for auto body repair. During his first year of operation, from October, 1982 through October, 1983, his net monthly income from this self-employment varied from no income at all for several months up to a maximum of $460.00 for one month. His current net monthly living expenses are as follows:

                  Rent to parents            $100.00
                  Child support               100.00
                  Clinic bill                  50.00
                  Medication                   80.00
                  Miscellaneous                50.00
                                             _______
                  Total                      $380.00
                

Debtor dropped out of high school in 1974 at the tenth-grade level and has not received a GED. During the fall of 1980 he began a two-year course of study in auto body repair at the Bemidji, Minnesota Area Vocational-Technical Institute. He incurred the student loan which is the subject of these dischargeability proceedings on or about October 28, 1981, when he executed a Promissory Note payable to the order of the Minnesota State Student Loan program in the principal amount of $3,000.00. This loan was guaranteed by the Higher Education Assistance Foundation, Intervenor herein, and re-insured by the United States of America. Upon Debtor's default the Note was endorsed and assigned to Intervenor. This loan was extended to Debtor so he could attend the above-described course. Debtor attended this course for one year. He dropped out of the course due to extreme emotional stress caused by marital difficulties and the commencement of a dissolution of marriage action by his wife. He has defaulted on his obligation to repay the Note and has made no payments on it. As of August 19, 1983, the total unpaid principal and interest due under the terms of the Note was $3,219.90.

Debtor's work history is limited to unskilled employment. He was employed for a period of approximately four years between 1975 and 1979 at Boise Cascade, International Falls, Minnesota, as a general laborer. During his vocational-technical school training he was employed as a janitor by ServiceMaster in Bemidji on a part-time basis for a gross wage barely in excess of the federal minimum wage. After he dropped out of his vocational-technical course, Debtor returned to Little Fork, Minnesota, and began working in his brother's auto body repair shop. Around this time, his brother suffered a severe eye injury which prevented him from being involved in the business. During the time when Debtor was operating the business, "people just stopped coming" and the business failed. Since the failure of his brother's business, Debtor has supported himself with occasional odd jobs and the sporadic auto body repair work he has conducted in his parents' garage.

Debtor has suffered from the condition of ulcerative colitis since age 12. This condition was aggravated by the stress of the break-up of his marriage and has resulted in internal bleeding, frequent episodes of diarrhea, disruption of Debtor's sleep, and continuing severe abdominal pain. These symptoms have persisted since 1982. Debtor's physician has recommended corrective surgery which would result in a colostomy. Performance of this surgery may prevent Debtor from engaging in any work activity for a substantial period of time.

Debtor has tried to obtain employment in the International Falls, Minnesota area by remaining currently registered with the Minnesota Department of Economic Security and by applying for employment with at least one auto dealership and a retail store managed by a personal friend. He has been unsuccessful in obtaining employment. He owns no assets other than the minimal assets scheduled on his bankruptcy Petition, has no potential or actual lawsuits or claims for damages, and has neither acquired nor given away substantial value in real or personal property since he filed his Petition for Relief in this Court.

This proceeding is governed by 11 U.S.C. § 523(a)(8)(B), which provides as follows:

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

The burden of proof on the issue of "undue hardship" lies on the debtor alleging its existence. In Re Norman, 25 B.R. 545 (Bankr.S.D.Cal.1982); In Re Price, 25 B.R. 256 (Bankr.W.D.Mo.1982). This Court has found that the comprehensive three-pronged test set forth in In Re Albert, 25 B.R. 98 (Bankr.N.D.Ohio 1981), is the most appropriate means to carry out the Congressional intent that discharge of student loans in bankruptcy be granted only in exceptional circumstances. Cossette v. Higher Education Assistance Foundation, 41 B.R. 689 (Bankr.D.Minn.1984).

Under this test, the Court must first apply a threshold "mechanical test", considering the debtor's current employment and income, future employment and income prospects, educational level and work skills, health, family support responsibilities, and marketability of job background and skills. The Court must compare the debtor's current necessary monthly living expense budget with the debtor's current and anticipated future income to determine whether the debtor has, or will have, some surplus of income which would enable him to make some reasonable payment on his student loan obligation without reducing a minimal standard of living for him and his dependents. In Re Andrews, 661 F.2d 702 (8th Cir.1981). If the debtor discharges his burden in this prong of the test, the Court must then determine whether the debtor is in good faith in requesting discharge of his student loans. The debtor must demonstrate that he is actively minimizing his current necessary monthly living expenses and is maximizing his effort to either find employment or to become as fully employed as possible. Albert, supra, at 101.

Under the third prong, the so-called "policy test", the Court must determine whether the debtor's attempt to...

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