Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-4_09-ap-04339/USCOURTS-canb-4_09-ap-04339-0/pdf.json

Parties Involved:
Konstantinos Anastasios Dimoyannis
Plaintiff
Sallie Mae Servicing
Defendant
Educational Credit Management Corporation
Defendant

Document Text:

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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 Decision

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

In re No. 09-43869 EDJ 

 Chapter 7

KONSTANTINOS ANASTASIOS DIMOYANNIS,

 

 Debtor./ 

KONSTANTINOS ANASTASIOS DIMOYANNIS, Adv. No. 09-04339 AJ

 Plaintiff,

vs.

SALLIE MAE SERVICING,

 Defendant./ 

DECISION: COMPLAINT TO DISCHARGE STUDENT LOAN OBLIGATION

Trial was held in the above-captioned adversary proceeding on

March 3, 2010. Plaintiff Konstantinos Dimoyannis (“Dimoyannis”)

appeared on his own behalf. Miriam Hiser appeared on behalf of

Educational Credit Management Corporation (“ECMC”), successor in

interest to defendant Sallie Mae Servicing. By his complaint,

Dimoyannis seeks to have certain student loan obligations discharged

Signed: April 29, 2010

________________________________________

EDWARD D. JELLEN

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

April 29, 2010

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 1 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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 Decision 2

through his chapter 7 bankruptcy case. The court, having considered

the evidence presented at trial, having reviewed the post-trial

briefs submitted by the parties, and for the reasons hereinafter

discussed, will enter its judgment against Dimoyannis and in favor

of ECMC. 

I. Background

Dimoyannis is a 62 year old man with no dependants whose income

is comprised of a part time salary earned as a retail sales

associate and modest social security benefits. Dimoyannis earned

two degrees from San Francisco State University: a Bachelor’s degree

in 1991, and a Master’s of Economics degree 1996. He financed his

education through student loans funded by the Department of

Education; ECMC now holds Dimoyannis’ consolidated note. The sum

presently owed to ECMC has grown to some $107,000. 

After earning his Master’s degree, Dimoyannis was employed for

a period of approximately four years as an Economic Research Analyst

in the Division of Labor Statistics and Research of the Department

of Industrial Relations for the State of California. He was

terminated in 2002 for cause, and has since been unsuccessful in

obtaining employment that utilizes his Masters degree. Due to

chronic under-employment, Dimoyannis has been unable to repay his

student loan obligation.

In 2001, Dimoyannis filed a petition under chapter 13 of the

Bankruptcy Code. (Case no. 01-40233 RJN.) Dimoyannis performed

under a confirmed plan and received a discharge in 2004. No

payments were made on the student loan obligation during that time. 

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 2 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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1 Unless otherwise indicated, all future section references

are to 11 U.S.C. §101, et seq. 

 Decision 3

On May 7, 2009, Dimoyannis filed a petition in bankruptcy under

chapter 7 of the code. This adversary proceeding followed. 

II. Discussion

Bankruptcy Code § 523(a)(8) provides that qualified education

loans are excepted from a debtor’s discharge, unless such exception

would impose an undue hardship on the debtor and the debtor’s

dependants. 11 U.S.C. §523(a)(8)1. The Ninth Circuit has adopted a

three-part test laid out by the Second Circuit in In re Brunner that

the debtor must satisfy in order to demonstrate undue hardship

within the meaning of § 523(a)(8). See United Student Aid Funds,

Inc. v. Pena, 155 F.3d 1108, 1112 (9th Cir. 1998) (adopting the

Second Circuit test laid out in Brunner v. New York State Higher

Educ. Svcs., 46 B.R. 752, 758 (D.C.N.Y. 1985), aff’d 831 F.2d

395,396 (2nd Cir. 1987)). The Brunner test requires that the debtor

establish three elements: 1) that she cannot maintain, based on

current income and expenses, a minimal standard of living for

herself and her dependants, 2) that additional circumstances exist

indicating that this state of affairs is likely to persist for a

significant portion of the repayment period, and 3) that the debtor

has made good faith efforts to repay the loans. See Brunner, 831

F.2d at 396.

To determine whether Dimoyannis is capable of maintaining a

minimal standard of living, the court must examine his finances. 

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 3 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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2 $14,000 divided by twelve is $1,166.66. According to IRS

form 1040 (available at http://www.irs.gov/pub/irs-pdf/f1040.pdf)

the 2009 standard deduction for a single taxpayer was $5,700 and

the personal exemption amount was $3,650. See 26 U.S.C. §§ 63,

151. This suggests that $9,350 of Dimoyannis’ income is earned

tax-free, and the remaining $4,650 is subject to income taxation. 

 Decision 4

See Education Credit Management Corporation v. Howe, 319 B.R. 886,

890 (9th Cir. BAP 2005). The burden of proving the three Brunner

elements and therefore demonstrating undue hardship is on the

debtor. See Rifino v. United States, et al., 245 F.3d 1083, 1087-88

(9th Cir. 2001). 

At trial, Dimoyannis testified that although he has made a

diligent effort to obtain employment in his field, he has been

unsuccessful due to the prior “for cause” termination by the State

of California. Dimoyannis testified that the termination

effectively barred him from finding work with the State of

California or its municipalities. He has also been unable to find

work in the private sector that utilizes his degree. Dimoyannis is

currently employed part-time as a sales associate at a Sears

department store.

Dimoyannis testified that his gross annual income from

part-time employment is approximately $14,000. Although Dimoyannis

did not directly testify as to his net monthly income, the court can

surmise that it is something less than $1,1672

. Dimoyannis also

introduced evidence that, as of January 2010, he receives $696 per

month in social security benefits, bringing his total net monthly

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 4 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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3 34 C.F.R. § 682.402(i)(v) provides that a guaranty agency

opposing a petition for an undue hardship discharge may agree to

discharge a portion of the amount owed on a loan if it reasonably

determines that the agreement is necessary in order to obtain a

judgment on the remainder of the loan. 

 Decision 5

income to roughly $1,800. He testified that his monthly expenses

include $900 in rent, $150 in utilities, $25 for an internet

connection, and $150 for food. This leaves Dimoynannis with a

monthly surplus of over $500. 

The court is sympathetic to the fact that Dimoyannis lives very

frugally in order to remain within his means. He testified that he

does not smoke or drink, does not own a functioning automobile, and

has delayed certain medical treatment because he does not have

health insurance or the funds to pay for such treatment out of

pocket. Although Dimoyannis is certainly living modestly, he does

appear to be capable of living, on a month by month basis, on the

income he earns through working and via social security benefits. 

The Ninth Circuit BAP, in In re Howe, stated that, “a minimal

standard of living under § 523(a)(8) does not equate to a middle

class standard of living.” In re Howe, 319 B.R. at 889. 

In addition, ECMC has agreed to discharge a portion of the

amount owed on the loan pursuant to its authority under the Code of

Federal Regulations3. According to its post-trial brief, ECMC has

unilaterally reduced Dimoyannis’ outstanding debt of $107,858.13,

bearing interest at 7.75%, to $20,160 at 0% interest. See PostTrial Brief of Defendant, doc. #15, at 3. 

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 5 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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4

 Note that until total income exceeds $25,000, social

security income is not considered taxable income and is therefore

not included in the IBR calculation. See 26 U.S.C. § 86. 

 Decision 6

Finally, ECMC introduced evidence regarding the Department of

Education’s Income Based Repayment plan (“IBR”), which operates to

limit the amount that an obligor is required to pay based on the

obligor’s income and family size. At trial, ECMC introduced

evidence that no payment is required until debtor’s taxable income

reaches $15,000 per month (see ECMC exhibits D and G), suggesting

that under Dimoyannis’ present circumstances the IBR plan would

require payments of $0. Should Dimoyannis’ income increase, modest

payments would be required under the IBR plan.4

 

The court finds that Dimoyannis is capable of maintaining a

minimal standard of living if required to repay his student loan

obligation. The court bases this finding on the evidence indicating

that, at his current income level, Dimoyannis would be required to

make payments under the IBR plan ranging from $0 to $47, and

Dimoyannis’ testimony suggesting his monthly surplus exceeds those

amounts. The court therefore holds that Dimoyannis fails the first

prong of the Brunner test, and is ineligible for an undue hardship

discharge of his student loan obligation. 

Because the court finds that Dimoyannis is capable of

maintaining a minimal standard of living if his student loan debt is

not discharged, the second and third prongs of the Brunner test are

moot. See In re Howe, 319 B.R. at 889 (“The second and third prongs

of the undue hardship test presuppose that a debtor has satisfied

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 6 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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5 At the time of the Birrane decision, the income-based

repayment plan offered by the Department of Education was called

the Income Contingent Repayment Plan, which, like IBR, tied loan

repayments to the debtor’s annually adjusted income. See Birrane

at 494-95. 

 Decision 7

the first prong”). However, even if this court were to conclude

that Dimoyannis satisfied the first two Brunner elements, his

failure to renegotiate his debt through the Department of

Education’s IBR program would weigh against a finding that he has

made a good faith effort to repay the debt. 

The Ninth Circuit BAP has held that good faith is measured by

the debtor’s efforts to negotiate a repayment plan. See

Pennsylvania Higher Education Assistance Agency v. Birrane 287 B.R.

490, 500 (9th Cir. BAP 2002). In Birrane, the BAP found that the

debtor failed the good faith prong of the Brunner test because she

failed to discuss repayment options similar to IBR5, even though the

debtor in that case was unaware of such programs prior to trial. In

this case, Dimoyannis testified that he is fully aware of the

repayment options available to him through the IBR program, but he

declined to pursue them due to feared negative tax consequences. 

Under these circumstances, the court cannot make a finding that

Dimoyannis has made a good faith effort to repay his student loan

obligation. 

III. Conclusion

For the foregoing reasons, the court holds that Dimoyannis is

not entitled to an undue hardship discharge of his student loan

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UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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 Decision 8

obligations under Bankrtutcy Code §512(a)(8). The court will issue

its judgment in favor of ECMC. 

**END OF DECISION**

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 8 of 9 
UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF CALIFORNIA

1300 Clay Street (2d fl.) 

 Oakland, CA. 94612

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 Decision 9

COURT SERVICE LIST

Konstantinos Anastasios Dimoyannis

5824 College Ave. #6

Oakland, CA 94618 

Miriam E. Hiser

Law Offices of Miriam E. Hiser

550 Montgomery St. #650

San Francisco, CA 94111 

Case: 09-04339 Doc# 17 Filed: 04/29/10 Entered: 04/29/10 19:06:35 Page 9 of 9