Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-15-06031/USCOURTS-ca8-15-06031-0/pdf.json

Parties Involved:
Mary A. Hurst
Appellant
Southern Arkansas University
Appellee
Renee S. Williams
Appellee

Document Text:

United States Bankruptcy Appellate Panel

For the Eighth Circuit

___________________________

No. 15-6031

___________________________

In re: Mary A. Hurst

lllllllllllllllllllllDebtor

------------------------------

Mary A. Hurst

lllllllllllllllllllll Plaintiff - Appellant

v.

Southern Arkansas University; Renee S. Williams, Chapter 7 Trustee

lllllllllllllllllllll Defendants - Appellees

____________

Appeal from United States Bankruptcy Court 

for the Western District of Arkansas - El Dorado

____________

Submitted: May 19, 2016

Filed: July 19, 2016

____________

Before FEDERMAN, Chief Judge, SALADINO and SHODEEN, Bankruptcy 

Judges.

____________

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FEDERMAN, Chief Judge.

Debtor Mary A. Hurst appeals from the Bankruptcy Court’s1 order denying 

her request to discharge her student loan for undue hardship pursuant to 11 U.S.C. § 

523(a)(8). For the reasons that follow, we affirm.

FACTUAL BACKGROUND

The Debtor obtained a $4,000 federal Perkins student loan while attending

Southern Arkansas University, majoring in education, for the 1994 – 1995 academic 

year. At the end of that school year, she traveled to Texas for a summer job and 

broke her ankle which, she testified, made it impossible for her to return to SAU for 

the following semester. She had two surgeries and therapy on the ankle, and was on 

crutches for a year and a half. While still in Texas recovering from the ankle injury,

she was involved in a car accident and totaled her car, further preventing her from 

returning to SAU. The Debtor remained in Texas until about 2009, when she moved 

back to Magnolia, Arkansas, where she owned a home. She never returned to school. 

The Debtor is 66 years old, and plans to work to age 70. She has vision 

problems as a result of an unsuccessful cataract surgery, and hearing problems, as 

well as some occasional problems with her ankle. As discussed more fully below, 

the Debtor is employed, working part-time at SAU’s cafeteria, and collects social 

security benefits. She has no mortgage on her home, although it took her some 

amount of time (and money) to repair vandalism damage which had occurred while 

she was away in Texas. 

 1 The Honorable Richard D. Taylor, United States Bankruptcy Judge for the 

Western District of Arkansas.

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Before the Debtor went into default on the student loan, the regular payment 

amount was $42. She never made a single voluntary payment on the loan, although 

- 3 -SAU intercepted approximately $600 in income tax refunds and applied that to 

the balance. As of the date of trial, the balance on the student loan was $7,476.78.

The Debtor filed a Chapter 7 bankruptcy case on February 11, 2011. She did 

not list SAU as a creditor, but reopened the case on November 25, 2014 to seek a 

discharge of her student loan as an undue hardship pursuant to § 523(a)(8) of the 

Bankruptcy Code. Following a trial, the Bankruptcy Court held that the Debtor 

failed to prove that her student loan debt should be discharged. The Debtor appeals. 

STANDARD OF REVIEW

We review the Bankruptcy Court’s determination of undue hardship de novo.

2

Subsidiary findings of fact on which the legal conclusions are based are reviewed 

for clear error.3

 We may affirm on any basis supported by the record.4

UNDUE HARDSHIP DISCHARGE OF STUDENT LOANS

Section 523(a)(8) of the Bankruptcy Code provides that student loans are 

nondischargeable “unless excepting such debt from discharge . . . would impose an 

undue hardship on the debtor and the debtor’s dependents.”5

 In the Eighth Circuit, 

 2 In re Long, 322 F.3d 549, 544 (8th Cir. 2003); Educational Credit 

Management Corporation v. Jesperson, 571 F.3d 775, 779 (8th Cir. 2009). 

3 Jesperson, 571 F.3d at 779; In re Reynolds, 425 F.3d 526 (8th Cir. 2005). 

4 Kaler v. Charles (In re Charles), 474 B.R. 680, 687 (B.A.P. 8th Cir. 2012).

5 11 U.S.C. § 523(a)(8).

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courts apply a totality-of-the-circumstances test in determining whether a student 

loan should be discharged as an undue hardship.6

 Under this test, courts must 

consider the debtor’s past, present, and reasonably reliable future financial 

resources; the debtor’s reasonable and necessary living expenses; and any other 

relevant facts and circumstances.7

 The debtor has the burden of proving undue 

hardship by a preponderance of the evidence.8

 The burden has been described as 

“rigorous”: “Simply put, if the debtor’s reasonable future financial resources will 

sufficiently cover payment of the student loan debt – while still allowing for a 

minimal standard of living – then the debt should not be discharged.”9

The Debtor here expressly states in her Brief on appeal that she does not take 

issue with the Court’s findings of fact, which were made on the record at the 

conclusion of the trial.10 Rather, she contends that the facts lead to the inescapable 

conclusion that she will suffer an undue hardship if her student loan is not 

discharged. She asserts that, rather than focusing on her financial circumstances and 

ability to pay, the Bankruptcy Court focused too heavily on the fact that she has 

never made any attempt to repay the student loan. We disagree, but in any event, 

the Court made ample factual findings sufficient to support its conclusion that the 

 6 Nielsen v. ACS, Inc. (In re Nielsen), 473 B.R. 755, 759 (B.A.P. 8th Cir. 

2012), aff’d 502 Fed. Appx. 634 (8th Cir. 2013).

7

 Id. (citing Jesperson, 571 F.3d at 779).

8

 Id.

9

 Id. (quoting Jesperson, 571 F.3d at 779).

10 See Appellant’s Brief at 20.

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Debtor has income sufficient to maintain a minimal standard of living while making 

payments on the student loan. 

The Debtor’s Past, Present, and Reasonably 

Reliable Future Financial Resources

As stated, the Debtor has the burden of proving that she does not have 

reasonably reliable current or future financial resources to make payments on her 

student loan. When a student loan dischargeability adversary proceeding is brought 

years after the bankruptcy discharge was entered, as was the situation here, a 

bankruptcy court should consider the debtor’s financial circumstances between her 

Chapter 7 discharge and the trial date.11 The Court found that the Debtor has 

resources sufficient to pay on her student loan, and that she plans to continue 

working for approximately four more years until retirement. 

The Debtor testified concerning her employment history: While she was in 

Texas after leaving SAU, she worked at a convenience store for two years, earning 

$600 - $800 per month, and then for a limousine company, earning $1,500 - $1,600 

per month. After she moved back to Magnolia, she worked as an advocate at an area 

women’s shelter, earning $1,000 per month. At some point after 2011, she left 

employment at the shelter and got a job with Aramark at the cafeteria at SAU, 

running the cash register, sweeping the floors, and cleaning tables. The cafeteria is 

not open during the summer months or Christmas break, but the Debtor testified she 

is able to occasionally work some hours on catering jobs through Aramark during 

those time periods. She also collects social security, as well as unemployment 

 11 Walker v. Sallie Mae Serv. Corp. (In re Walker), 650 F.3d 1227, 1231 (8th 

Cir. 2011).

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benefits during times of under-employment. The Court found that Debtor failed to 

offer any evidence showing that she attempted to find work during the summers or 

other school vacation periods. The Court also found that she made no effort to use 

income tax refunds toward payments on her student loan. 

The Debtor’s schedules, which were offered as evidence at trial, showed that 

when the Debtor filed her bankruptcy case in 2011, she was earning $1,000 a month 

in wages from the women’s shelter, plus $818 in social security benefits, for total 

income of $1,818. 

As stated, the Debtor stopped working at the shelter at some point after the 

bankruptcy filing and began working for Aramark at the cafeteria. She testified that, 

at the time of trial, she was earning around $600 - $700 per month from Aramark, 

pre-tax, during the school year. She testified she earns less during the summer 

months, but she also collects some unemployment benefits during those months. In 

addition, she testified she now receives about $1,000 per month from social security. 

As a result, her testimony was that she receives a total of about $1,600 - $1,700 per 

month, pre-tax, during the school year, and less during the summer months. The 

Court found the Debtor’s testimony overall to be credible.

The documentary evidence admitted at trial further supports the Court’s 

conclusion that she had income sufficient to make payments. The evidence shows 

that the Debtor actually earns about $1,600 - $1,700, on average, year-round. 

Specifically, the Debtor submitted her 2013 and 2014 income tax returns as evidence 

at trial. According to the tax returns, in 2013, the Debtor received $11,250 in wages 

and $13,365 in social security, for a total of $24,615. In 2014, she earned $6,320 in 

wages, $115 in unemployment compensation, and $13,563 in social security, for a 

total of $19,998. Thus, the tax returns showed Debtor earned an average of 

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$2,051.25 per month in 2013,12 and $1,666.50 in 2014.13 Also, the tax returns 

indicate that modest amounts had been withheld from her paychecks for taxes, as the 

Court found.

14

The Debtor also submitted Aramark paystubs and her checking account 

statements for the three months from May 19, 2015 through August 17, 2015. The 

checking account statements showed deposits from paychecks and unemployment 

benefits totaling $754, $690, and $500 for those three months, respectively. These 

would, of course, be the net amounts after taxes were withheld. The Debtor testified 

that her social security benefits of approximately $1,000 are deposited into a separate 

savings account. 

However, the tax returns showed the Debtor was in fact receiving $13,300 to

$13,500 per year in social security in 2013 and 2014, approximately $1,100 per 

month. Thus, based on her testimony and the documentary evidence, the Debtor’s 

income totaled $1,600 - $1,854 per month in the summer of 2015, which is consistent 

with the 2013 and 2014 tax returns showing an average of $1,666 - $2,000 per 

month. The Court found that the Debtor has average income of $1,818 per month, 

which is amply supported by the evidence. 

 12 $11,250 + $13,365 ÷ 12 = $2,051.25.

13 $6,320 + $115 + $13,563 ÷ 12 = $1,666.50.

14 The Debtor received federal income tax refunds of $541 in 2013 and $350 

for 2014. 

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The Debtor’s Reasonable and Necessary Living Expenses

The second factor in the totality of the circumstances test is the Debtor’s 

reasonable and necessary living expenses. “To be reasonable and necessary, an 

expense must be modest and commensurate with the debtor’s resources.”15 “Simply 

put, if the debtor’s reasonable financial resources will sufficiently cover payment of 

the student loan debt – while still allowing for a minimal standard of living – then 

the debt should not be discharged.”16

SAU did not argue at trial, nor does it here, that any of the Debtor’s particular 

expenses are unreasonable or unnecessary. Rather, the question is whether the 

Debtor has income remaining after paying those expenses with which to make her 

student loan payments. 

The evidence concerning current expenses was sparse at trial. The 

documentary evidence concerning expenses is limited to the Debtor’s Schedule J

from 2011. As the Bankruptcy Court found, Schedule J showed expenses totaling 

$1,779.02, leaving $38.98 in net income in 2011. 

The only specific evidence about the Debtor’s current expenses was her 

testimony that she no longer has a car payment, which was $297. On that point, the 

Debtor testified generally that she needs the extra $297 “to live on,” but she did not 

point to any specific expense which now eats up those extra funds. And, although 

she said that that using some of that money to make student loan payments would 

 15 Jesperson, 571 F.3d at 780 (citation and internal quotation marks 

omitted). 

16 Id. at 779 (citation omitted).

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“make things harder on [her],” she acknowledged that some of that money could go 

toward making a payment. The Bankruptcy Court found that part of the $297 per 

month could go toward student loan payments. 

This finding was supported by the evidence. The Eighth Circuit has said on 

more than one occasion that “[a] court may not engage in speculation when 

determining net income and reasonable and necessary living expenses.”17 Bearing 

in mind that the Debtor bears the burden of proving that she has no excess funds 

with which to make the student loan payment, there simply was no evidence as to 

how the $297 might be being spent. The Debtor’s budget is modest, but a finding 

that she is spending the $297 on living expenses, without evidence of that, would 

require speculation. In sum, without actual evidence as to how the Debtor’s

expenses might have otherwise changed since 2011, the only evidence was that the 

Debtor now has monthly expenses of $1,482.02. With income averaging at least 

$1,800 per month, as found by the Court and discussed above, the record shows she 

has sufficient income to make the $42 student loan payment and the Bankruptcy 

Court did not clearly err in so finding. 

Other Relevant Facts and Circumstances

“Because the totality-of-the-circumstances test is ‘very broad,’ courts in the 

Eighth Circuit have looked to a number of facts and circumstances to assist them in 

making this determination.”18 Such factors include:

(1) total present and future incapacity to pay debts for reasons not 

within the control of the debtor; (2) whether the debtor has made a good 

 17 Walker, 650 F.3d at 1233 (quoting Jesperson, 571 F.3d at 780).

18 Jesperson, 571 F.3d. at 783 (Smith, concurring) (citation omitted).

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faith effort to negotiate a deferment or forbearance of payment; (3) 

whether the hardship will be long-term; (4) whether the debtor has 

made payments on the student loan; (5) whether there is permanent or 

long-term disability of the debtor; (6) the ability of the debtor to obtain 

gainful employment in the area of the study; (7) whether the debtor has 

made a good faith effort to maximize income and minimize expenses; 

(8) whether the dominant purpose of the bankruptcy petition was to 

discharge the student loan; and (9) the ratio of student loan debt to total 

indebtedness.19

These are mere factors for a court to consider, and a court need not address each and 

every one of them, particularly where there is no evidence, one way or the other,

concerning a factor.

The Court found that the Debtor has the ability to make some payments on 

her student loan debt, so the first factor weighed against dischargeability. Next, the 

court found that she had made no effort to obtain deferment or forbearance on her 

loan. As to whether the hardship imposed by loan payments would be long term, 

the Court found that she has the ability to make payments, at least until her 

retirement. The Court further found that she has not made payments voluntarily on 

the loan. The Court did find that she had hearing and vision problems which could 

affect her ability to earn income, but there was no evidence that such problems would 

lead to a reduction in her income during the time that she continues to work. Indeed, 

the Debtor testified she intends to continue to work until age 70. With regard to the 

sixth factor, the evidence was that she has not been able to obtain gainful 

employment in the field of education. As far as the Debtor having made a good faith 

effort to maximize income and minimize expenses, the Court held there was no 

evidence she had attempted to supplement her income during the school vacation 

 19 Id. at 783-84 (Smith concurring) (citation omitted).

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periods, or that she had used tax refunds toward student loan payments. There was 

no evidence offered as to the eighth and ninth factors. Thus, the Bankruptcy Court 

considered all the enumerated factors for which evidence was offered. 

Nevertheless, the Debtor asserts that the Court placed a significant amount of 

emphasis on the second and fourth factors, namely, that she had not made a single 

voluntary payment on, or otherwise attempt to even address, her student loan in the 

twenty years since she incurred them, despite the fact that the payments were only 

$42 per month.

The Eighth Circuit said in In re Jesperson that, “[w]ith the receipt of a 

government-guaranteed education, the student assumes an obligation to make a good 

faith effort to repay those loans, as measured by his or her efforts to obtain 

employment, maximize income and minimize expenses.”20 In essence, what the 

Bankruptcy Court concluded was that, to the extent that requiring the Debtor to repay 

the loan – given her age and the current balance of nearly $7,500 – could be viewed 

as an undue hardship, those circumstances were of the Debtor’s own making,

inasmuch as she never made any attempt at all to pay or otherwise address the student 

loan in more than twenty years.21 Although the facts in Jesperson are dissimilar to 

those here, the Eighth Circuit has said:

While the size of student loan debts relative to the debtor’s financial 

condition is relevant, this should rarely be a determining factor: it 

 20 571 F.3d at 782 (citations omitted). 

21 Accord, Johnson v. Dept. of Educ. (In re Johnson), 543 B.R. 601, 609-610 

(Bankr. W.D. Mo. 2015) (holding that choosing to take out loans later in life, 

entering multiple deferments, and making no payments – resulting in debtor being 

post-retirement age at the conclusion of the repayment plan – did not warrant a 

discharge of student loans).

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would be perverse to allow the debtor to benefit from [his] own 

inaction, delay and recalcitrance by automatically granting a discharge 

simply because the debt is a sizeable one. This, of course, would 

benefit those who delay and obstruct the longest and could encourage 

other students to follow the [same] course.22

As the Bankruptcy Court acknowledged, the standard for discharging student 

loans in the Eighth Circuit is onerous, and the Debtor bears the burden of proving 

undue hardship. While the Court acknowledged that the Debtor’s circumstances 

were “sympathetic,” it concluded that she had not proven that she lacked ability to 

make student loan payments while maintaining a minimal standard of living, given 

the evidence of her income and expenses, and despite the fact that the balance had 

ballooned due to nonpayment. The Court found that the other facts and 

circumstances it considered did not justify a different result. Those factual findings

were not clearly erroneous. 

Finally, the Eighth Circuit has said that the availability of an income-based 

repayment program is an important factor to consider in discharging student loans.23 

Here, SAU’s representative testified that, because the university still holds the loan, 

it is not subject to the Department of Education’s frequently-discussed income-based 

programs. However, the representative testified that the loan could be 

“rehabilitated” through twelve months of negotiated payments, at which time the 

loan would come out of default status and the Debtor could resume the $42 monthly 

 22 Jesperson, 571 F.3d at 780 (quoting United States v. Kephart, 170 B.R. 

787, 792 (W.D. N.Y. 1994)).

23 In re Walker, 427 B.R. at 486-87 (“Although some question remains as to 

the weight to be given to the ability to make an [IBRP] payment following 

Jesperson, the Eighth Circuit made it clear that the ability to do so is, at a 

minimum, an important factor in the analysis.”).

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payments. As stated, the Debtor never applied to participate in that rehabilitation 

program, and so was not able to offer any evidence as to what her payment would 

be during the one-year rehabilitation period. Nevertheless, the evidence showed that 

she has the ability to make payments in excess of $42 per month, at least during the 

year required. 

The dissenting opinion points out that the Bankruptcy Court – and this panel 

– cannot speculate in making student loan determinations. In other words, student 

loan cases must be decided based only on the evidence offered. And, the Debtor 

carries both the burden of going forward with the evidence, and the burden of 

persuasion as to the outcome. Here, as to the Debtor’s present ability to make 

payments, except as to the vague testimony that she uses all of her income “to live 

on,” the evidence was uncontradicted that the Debtor has up to $300 per month in 

income available with which she could be making student loan payments. The 

Debtor has, therefore, failed to prove that she lacks the present ability to make 

payments on her student loans. Perhaps the Debtor could have proven that she has 

current expenses in excess of her income, but she did not do so. Therefore, her action 

seeking discharge of her student loan as an undue hardship must fail.

24

CONCLUSION

For the reasons stated, the Bankruptcy Court did not err in holding that the 

Debtor did not meet her burden of proving that repayment of the student loan would 

 24 In re Walker, 427 B.R. at 479 (suggesting in dicta that § 523(b) and 

Federal Rule of Bankruptcy Procedure 4007(b) may permit debtors to seek a 

discharge of student loans in a second bankruptcy case, based on changed 

circumstances, notwithstanding a determination of nondischargeability in a prior 

case).

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impose an undue hardship on her. ACCORDINGLY, the Judgment of the 

Bankruptcy Court is AFFIRMED. 

SHODEEN, Bankruptcy Judge dissenting.

The majority concludes that sufficient facts support the bankruptcy court’s 

determination that Hurst does not qualify for discharge of her student loans for undue 

hardship. I believe this result rests upon an overly narrow application of the totality 

of the circumstances test, and, therefore, I respectfully dissent.

Discharge of student loan debt in bankruptcy is governed by 11 U.S.C. § 

523(a)(8) which in relevant part states: “[a] discharge under section 727 . . . of this 

title does not discharge an individual debtor from any debt unless excepting such 

debt from discharge under this paragraph would impose an undue hardship on the 

debtor and the debtor's dependents.” The intent of this statute is to prevent abuse of 

the bankruptcy system by undeserving students seeking to discharge their student 

loan obligations. Andresen v. Neb. Student Loan Program, Inc. (In re Andresen), 

232 B.R. 127, 130 (B.A.P. 8th Cir. 1999). The term undue hardship is not defined 

in the Bankruptcy Code. Consequently, the standards to determine what constitutes 

undue hardship have been developed by the courts. There are two primary tests used 

to evaluate whether an undue hardship exists for discharge of student loans. The 

majority of Circuits follow the test adopted by the Second Circuit in Brunner v. New 

York State Higher Education Services Corp., 831 F.2d 395 (2d Cir. 1987). Under 

Brunner, three required elements must be met to establish an undue hardship: (1) 

the debtor cannot maintain, based on current income and expenses, a “minimal” 

standard of living for herself and her dependents if forced to repay the loan; (2) 

additional circumstances exist that indicate this state of affairs is likely to persist for 

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a significant portion of the repayment period of the student loans; and (3) the debtor 

has made good faith efforts to repay the loans. Id. at 396. 

Many debtors fail to meet the rigid standards imposed by the Brunner test, 

which has been expressly rejected by the Eight Circuit:

We are convinced that requiring our bankruptcy courts to 

adhere to the strict parameters of a particular test would 

diminish the inherent discretion contained in § 523(a)(8) . 

. . . We believe that fairness and equity require each undue 

hardship case to be examined on the unique facts and 

circumstances that surround the particular bankruptcy. 

Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554 (8th Cir. 2003). 

Instead, we apply a more flexible approach under the totality of the circumstances 

test, which has three components: (1) the debtor’s past, present, and reasonably 

reliable future financial resources; (2) a calculation of the debtor’s and her 

dependent’s reasonable necessary living expenses; and (3) any other relevant facts 

and circumstances surrounding each particular bankruptcy case. Id. Applying the 

facts contained in the record to all three areas of inquiry, I believe an undue hardship 

exists. 

1. Past, Present and Future Financial Resources 

According to her original Schedules I and J, Hurst did not have sufficient 

income to make her student loan payment at the time she filed bankruptcy. While 

she no longer has to make her $297 per month car payment, this saving is offset by 

Hurst’s decreased income. On a month when she works all of the hours available to 

her at Aramark, Hurst makes $300 to $400 less than what she was able to make 

working at the shelter. Also of note is the fact that Hurst’s monthly income is not 

consistent due to the sporadic availability of work at Aramark. To calculate her 

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average monthly income based upon her annual income may not truly reflect the 

actual amount she receives from wages and unemployment in a given month when 

school is not in session. 

Additionally, both the majority and the bankruptcy court overlook the relevant 

inquiry into the reliability of Hurst’s future income to make the loan payments. See 

Jesperson, 571 F.3d at 782 (discussing evidence that debtor could enjoy sustained 

legal employment); Nielsen v. ACS, Inc. (In re Nielsen), 473 B.R. 755, 759-60 

(B.A.P. 8th Cir. 2012) (emphasizing debtor’s ability for professional advancement 

and likelihood of future tax refunds), aff’d 502 Fed. App’x 634 (8th Cir. 2013); Ford 

v. Student Loan Guar. Found. of Ark. (In re Ford), 269 B.R. 673, 676 (B.A.P. 8th 

Cir. 2001) (finding that debtor’s worsening arthritic condition will decrease future 

ability to work and increase medical costs). Hurst earns $7.50 an hour at her job. 

According to her tax return, her combined income from all sources in 2014 was 

$19,883 which included her gross wages ($6,320), unemployment ($115) and social 

security benefits ($13,563). There are no facts to suggest that these amounts will 

increase in the foreseeable future. Instead the record shows that Hurst’s hearing and 

vision problems will almost certainly affect her ability to work. See Reynolds v. Pa. 

Higher Educ. Assistance Agency (In re Reynolds), 425 F.3d 526, 532 (8th Cir. 2005) 

(declining to ignore the reality that in many cases “a debtor’s health and financial 

position are inextricably intertwined”); Ford, 269 B.R. at 676. There is nothing in 

the record to indicate that Hurst’s reliable future income at retirement will consist of 

anything other than her monthly social security benefit. That benefit amount is

currently less than her necessary monthly expenses, even after adjusting for the 

removal of the car payment. 

 

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2. Reasonable and Necessary Living Expenses

Due to the delay in bringing the discharge action, the relevant time period for 

examination of current income and expenses is evaluated at the time of trial. 

Amended Schedules I and J were not submitted to the court for this time period. 

Hurst’s testimony indicated that there had been a change in her expenses because 

she no longer had a car payment. The addition of these funds to her monthly budget 

results in a higher disposable income amount. With that adjustment there is no 

dispute that the expenses are both reasonable and necessary. 

3. Any Other Relevant Facts and Circumstances

Nothing in the record disputes Hurst’s statements that she attempted to contact 

the University regarding her student loan obligation. Eventually, she learned that 

she did not qualify for any deferment or forbearance because the loan was in default 

and had been accelerated. Exhibits 4 and 5 explain the options available to Hurst. 

Rehabilitation of the loan was possible through consecutive monthly payments of an 

agreed upon amount for a one year period25. If she had followed this course of action 

and made all of the required payments without a default, Hurst could then apply for 

forbearance or deferment on her loan obligation. To qualify for a deferment of up 

to three years the borrower must be unemployed. Forbearance, during which interest 

continues to accrue, may be granted for economic hardship defined by the poverty 

guidelines and whether the debt “is excessive in comparison to income.” The terms 

of the loan do not permit the school to cancel the debt or adjust payments due to 

hardship. The options that were and are available to Hurst are very different from 

the testimony that described the Perkins Loans as being popular with nursing and 

 25 Both the bankruptcy court and the majority conclude that $42 is the monthly payment that would be the amount 

required to rehabilitate to the loan but neither that amount nor other conditions are clearly ascertained from the 

record. 

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educational students due to the availability of loan cancelation under certain 

circumstances, which do not include an inability to pay. 

The bankruptcy court focused on Hurst’s failure to take the initiative to obtain 

a payment accommodation and her failure to make any voluntary payment on the 

student loan. Without elaboration, these failures are described as self-imposed 

conditions in the majority opinion. Even under the more stringent Brunner test, a 

failure to make minimal payments does not preclude a determination of undue 

hardship when a debtor’s income has never significantly risen above living expenses. 

See Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R. 908, 918 (B.A.P. 9th 

Cir. 2012). Similarly, under the totality of the circumstances test a failure to make 

payments or participate in available loan programs does not preclude a determination 

of undue hardship. It is simply one factor that can be considered. See Jesperson, 

571 F.3d at 784-85 (citation omitted).

CONCLUSION

The totality of the circumstances test is not a purely mathematical formula. 

Id. at 788. Its purpose is to permit all of a debtor’s relevant circumstances to be fully 

considered to determine whether repayment of a student loan qualifies as an undue 

hardship. Non-pecuniary considerations are equally as important to pecuniary ones 

in the analysis. “We will not adopt an interpretation of ‘undue hardship’ that causes 

the courts to shut their eyes to factors that may lead to disaster, both personal and 

financial, for a suffering debtor.” Reynolds, 425 F.3d at 531. “Each bankruptcy case 

involving a student loan must be examined on the facts and circumstances 

surrounding that particular bankruptcy for the Court to make a determination of 

‘undue hardship.’” Id. at 532 (citation omitted). Both the bankruptcy court and the 

majority opinion rely on Jesperson in reaching their conclusions. There are a 

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number of relevant distinguishing factors between the circumstances in that case to 

those of Hurst. In Jesperson the debtor’s young age, good health, number of degrees, 

marketable skills, and lack of physical impairments all weighed against granting an 

undue hardship discharge. 571 F.3d at 780. Each one of these factors, when 

considered on the basis of the record here, weighs markedly in favor of granting an 

undue hardship discharge in this case.

A court is not permitted to speculate or make unsupported adjustments to a 

debtor’s income, expenses or circumstances in determining undue hardship. These 

are the undisputed facts in this case: Hurst moved to Texas after completing her first 

year as a student with the intent of returning to school. Due to a series of accidents, 

she remained in Texas and did not finish her education. Since 1995 she has 

consistently held low paying jobs. Hurst is approaching retirement age, is working 

at a minimum wage job, and has significant health difficulties which compromise 

her ability to work. If she did successfully complete rehabilitation of the loan, she 

would be another year closer to retirement at which time she could request a 

forbearance of her payments. Hurst’s current and future income will not result in 

substantial repayment on her student loans under any circumstances. At retirement 

she will be left with a loan balance and a fixed income consisting only of her monthly 

social security benefit. 

Under de novo review and for the reasons stated, I conclude that an undue 

hardship exists under the totality of the circumstances test. Accordingly, I would 

reverse the bankruptcy court’s order and remand for entry of a judgment discharging 

Hurst’s student loan obligation. 

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Appellate Case: 15-6031 Page: 19 Date Filed: 07/19/2016 Entry ID: 4427500