On May 13, 2013, Monique Evette Jones sought a discharge of her student loan obligations in her Chapter 7 bankruptcy case. Chief Judge Eric L. Frank granted a discharge of approximately $29,760.00 in student loans.
The Brunner Test
Section 523(a)(8) provides that student loans are dischargeable if they impose an undue hardship on the debtor and the debtor’s dependents.” 11 U.S.C. § 523(a)(8). A debtor seeking to discharge her student loans must prove that:
(1) based on current income and expenses, the debtor cannot maintain a “minimal” standard of living for herself or 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.
Monique Evette Jones is a 45 year old single woman with two (2) daughters. Khaliah, is twenty-three (23) years old and does not live with the Debtor and Kierah is sixteen (16) years old and lives with the Debtor. Kierah was diagnosed with Attention Deficit Hyperactivity Disorder (“ADHD”) when she was approximately 8 years old. The Debtor works only part-time so that she can care for Kierah.
Since 2002, the Debtor has been employed by the Philadelphia School District (“PSD”) as a part-time lunchroom aid. She works five (5) hours per day from 8:00 am until 1:00 pm.
The Student Loans
1. The First Loan
On August 21, 2006, the Debtor co-signed a student loan with her daughter Khaliah at Citizen’s Bank. At the time, Khaliah was attending Widener University. The original principal balance was $14,586.52.
2. The Plus Loan
On September 7, 2007, the Debtor signed a “Federal Plus Loan Application and Master Promissory Note” for a second student loan for Khaliah (“the Plus Loan”). On or about January 10, 2008, the Plus Loan was disbursed in the amount of $12,000.00 for Khaliah’s attendance at Widener University.
The Debtor’s Financial Situation
The Debtor’s sole means of support for herself and Kierah are:
a. the Debtor’s monthly pay from PSD of approximately $736.81.
b. $674.00 per month in Social Security Income (“SSI”) benefits that she receives on account of Kierah’s disability.
The Debtor’s total monthly income derived from PSD and Kierah’s SSI check is $1,595.66. The Debtor’s total indebtedness for both student loans is approximately $29,760.00. The combined monthly payment on the two (2) loans is at least $400.00 per month.
A. Dischargeability Standard — 11 U.S.C. § 523(a)(8)
A debtor seeking to discharge student loan debt falling within the purview of § 523(a)(8) assumes the burden of establishing that excepting that debt from discharge will cause the debtor and her dependents “undue hardship.” Congress intended § 523(a)(8)’s heightened standard for obtaining a student loan discharge to help ensure the financial integrity of the student loan program by protecting it from fiscal doom. Section 523(a)(8) is also said to help ensure “public support for the [student loan] program by preventing debtors from easily discharging their debts at the expense of the taxpayers who made possible their educations.”
In short, Congress enacted § 523(a)(8) to foster “the twin goals of rescuing the student loan program from fiscal doom and preventing abuse of the bankruptcy process by undeserving debtors.”
The Third Circuit in Faish adopted the three-part test for evaluating whether “undue hardship” exists set forth by the Second Circuit in Brunner:
(1) present inability to repay the loan while maintaining a minimal standard of living;
(2) additional circumstances suggesting that the present inability to pay will continue for a significant period of the loan’s repayment period; and
(3) a past, good faith effort to repay the loan.
The debtor bears the burden of establishing each element of the Brunner test by a preponderance of the evidence. All three (3) elements must be satisfied individually before a discharge can be granted.
Prong #1 of the Brunner Test
The first prong of the Brunner test requires a debtor to show that at the debtor’s current level of income and expenses, the debtor cannot maintain a minimal standard of living if forced to repay his student loans.
The “minimal standard of living” is not a fixed measure, and the concept is not defined by bright lines. The upper limits of a minimal standard of living generally allow for a debtor to purchase “the basic necessities, such as food, clothing, housing and medical treatment.” While it does not relegate a debtor to the depths of “abject poverty, a minimal standard of living does not accommodate `luxury type expenses.'” After providing for her basic needs, a debtor may not use her financial resources for discretionary expenditures in lieu of repaying student loan creditors
The following is a list of basic needs that illuminates the contours of a minimal standard of living.
(1) shelter that is furnished, clean, free of pests and climate-regulated with heating and cooling;
(2) basic utilities such as electricity, water, gas and telephone;
(3) food and personal hygiene products;
(4) transportation or vehicles (and the ability to service and insure those vehicles);
(5) life insurance and health insurance (or the ability to pay for medical and dental expenses);
(6) modest recreation.
The evaluation on the first prong of the brunner test delves into the amount of money minimally necessary to ensure that the debtor’s needs for food, shelter, clothing and medical treatment are met. Then, the question is whether the debtor has additional funds with which to make payments towards student loans.
Monique Evette Jones’s monthly income is approximately $1,595.66. Based on an income of just under $1,600.00 per month for a family of two (2), the Debtor is hovering slightly above the official poverty level set by the Federal Department of Health and Human Services. An income level that only slightly exceeds the official poverty level likely does not permit an individual to maintain a minimal standard of living. Monique Evette Jones’s cannot maintain a minimal standard of living if required to make any repayment of her student loans.
According to the Debtor’s bankruptcy Schedule J, her average monthly expenses total $1,334.00, as follows:
rent and utilities 418.00
telephone (land line) 179.00
auto insurance 88.00
laundry/dry cleaning 10.00
medical expenses 0.00
school supplies (daughter) 20.00
In this case, the Debtor has no excessive or luxury expenses. The fact remains that the Debtor is just making ends meet. After paying for basic life expenses, the Debtor has very little, if anything, left. She has no savings, no life insurance, no medical insurance (other than that provided to her by the government) and has never taken a vacation.
Therefore, the Debtor has met her burden on the first Brunner prong — that with the payment of the student loans she is not able to maintain a minimum standard of living.
Prong #2 of the Brunner Test
Under the second prong of the Brunner test, the Debtor must demonstrate that “additional circumstances exist indicating that [the debtor’s present state of economic distress] is likely to persist for a significant portion of the repayment period for [the] student loans,” and that this inability to pay is attributable to reasons outside the debtor’s control.
The second prong actually is comprised of two (2) elements. The first is whether the debtor’s financial difficulties are “likely” to continue. Under this element, a debtor is only required to establish that her financial situation is not likely to improve. The second element is “temporal” and requires the debtor to prove that the duration of her financial hardship will be for a significant period of the repayment period.
To satisfy the second prong, the Debtor must present “definitive evidence that the Debtor’s earning potential will not improve in the future.” The types of circumstances that satisfy the second prong include “long-term physical or mental problems precluding employment, lack of marketable job skills, or the necessity of fully supporting several dependents which precludes sufficient income.” The second prong puts the bankruptcy court in the “unenviable position of trying to predict what a debtor’s circumstances will be for decades.”
In this case, the Debtor has met her burden under the second prong because she has put forward sufficient evidence that her earning potential will not improve in the future. The Debtor’s situation is compelling. She is a single mother caring for a daughter with special needs. Her limited education forecloses her from a wide variety of employment opportunities and invariably limits her earning potential. Her daughter’s childcare demands restrict the number of hours she can work, thus further inhibiting her ability to bring more income into the household. The Debtor derives nearly half of her household monthly income from the SSI her daughter receives and, as explained earlier, there is no question that the Debtor needs this income to manage her household.
Section 523(a)(8) imposes the burden of proof on the Debtor to establish that it is more likely than not that her situation will not improve. Based on the existing record, the Debtor has met her burden on this issue by a preponderance of the evidence. The Debtor’s financial situation will persist for a significant portion of the repayment period of her student loans. Accordingly, the Debtor has established the second element under Brunner.
Prong #3 of the Brunner Test
The third and final prong in the Brunner analysis requires the Debtor to establish that she made a good faith effort to repay her loans. Under § 523(a)(8), good faith is measured, in large part, by the debtor’s efforts to obtain employment, maximize income, and minimize expenses. Also, “fundamental to the good faith inquiry is the notion that the debtor did not willfully or negligently cause her own default, but that her condition results from factors beyond her control.”
Good faith, in this context, is essentially an inquiry into whether the debtor has consciously or irresponsibly disregarded her repayment obligation — or, instead, whether there is some justification for the debtor’s default and ongoing inability to repay the loan.
The Defendants suggest that the Debtor failed to make a good faith effort to repay the student loans within the meaning of the third Brunner prong, because she made no voluntary payments. Rather the only payments she made were the involuntary payments made on the Plus Loan through the garnishment of her wages. Defendant ECMC further contends that the timing of the Debtor’s bankruptcy case — a few months following the garnishment — is an additional indication of the Debtor’s lack of good faith. ECMC also contends that the Debtor’s lack of good faith is evidenced by her “voluntary” choice to work only part-time. ECMC suggests there is some evidence in the record indicating that the Debtor is not making the effort she should to earn more income; that she made a conscious, voluntary choice to stay home part-time and is, essentially, hiding behind her daughter’s medical condition.
The failure of the debtor to make voluntary repayments is not indicative of a lack of good faith. As noted in In re Crawley, 460 BR 421 – Bankr. Court, ED Pennsylvania 2011:
Even if [the Debtor] made no payments, that fact would not necessarily establish a lack of good faith. The failure to have made any repayments on a student loan is not a litmus test for good faith under the third prong of the Brunner test. The good faith determination depends on the reasons why the Debtor did not make the payments.
In this case, given the Debtor’s circumstances, the fact that she made no voluntary payments is understandable. Nothing in the record suggests that she was ever in the financial position to do so while maintaining a minimal standard of living. The picture painted at trial is a single parent, working at a low-income job, while caring for a special needs child and attempting to assist her other daughter in obtaining an education and the opportunity for a better life.
Monique Evette Jones has established that her student loans are dischargeable under 11 U.S.C. § 523(a)(8). After a trial in the Adversary Proceeding, the Debtor’s student loan debts are DISCHARGED in this bankruptcy case.