IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: :

:

LORNA ALLEN, :

: Bankruptcy No. 04-29038-MBM

 Debtor. :

................................................................:...............................................................

Lorna Allen, : Chapter 7

Plaintiff, :

:

v. : Adversary No. 04-2870-MBM

:

American Education Services, et. al., :

Defendants. :

Appearances: Lawrence H. Fisher, for Lorna Allen.

John P. Neblett, for Educational Credit Management

Corporation.

MEMORANDUM OPINION

Lorna Allen, the instant debtor (hereafter “the Debtor”), commenced the

instant adversary proceeding for the purpose of obtaining a determination by the

Court that (a) to except from her Chapter 7 discharge $47,140 of collective prepetition student loan debt that she owes to American Educational Services

(hereafter “AES”) will impose an undue hardship on her, and (b) said collective

student loan debt is thus discharged pursuant to 11 U.S.C. § 727 rather than is

nondischargeable pursuant to 11 U.S.C. § 523(a)(8). Educational Credit

Management Corporation (hereafter “ECMC”) is now the real party defendant

given that, according to ECMC, it has acquired from AES all right, title and

interest in the collective student loan debt that the Debtor now seeks to have

discharged.

Both parties moved for summary judgment earlier in the instant adversary

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The Court recognizes that the outstanding balance of the collective

student loan debt owed to ECMC has undoubtedly increased since the bringing

of the Debtor’s adversary complaint due to the interim accrual of interest. In

ECMC’s pretrial statement, ECMC listed the outstanding balance due on such

indebtedness at $52,471.98. For the sake of convenience, the Court shall refer

to the total outstanding balance due on such indebtedness as $47,140.

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proceeding, and the Court, in a Memorandum and Order of Court dated May 3,

2005, denied such summary judgment motions with prejudice, see In re Allen,

324 B.R. 278 (Bankr.W.D.Pa. 2005). A trial was held on the matter on August

10, 2005. For the reasons set forth below, the Court determines that $16,915 of

such collective student loan debt is nondischargeable and $30,225 of such

collective student loan debt is discharged.1

STATEMENT OF FACTS

The Debtor, who is approximately 60 years old at the present time,

incurred the student loan debt in question to finance her undergraduate studies,

which studies culminated in the grant of a bachelor’s degree. Although the

Debtor obtained a bachelor’s degree, she was unsuccessful in obtaining such

degree in nursing, which was her chosen field, and therefore had to settle for a

less marketable degree in liberal studies. The Debtor first began incurring her

student loan indebtedness in 1995, when she would have been roughly 50 years

old, and obtained her bachelor’s degree in 2000, when she was roughly 55 years

old.

The Debtor has worked on a part-time basis for a majority of the period

during which her student loan indebtedness has been in repayment status. Such

part-time employment was almost, if not entirely, exclusively with a grocery store

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at an hourly rate of slightly over minimum wage. In the roughly three-month

period prior to the trial in the instant matter, the Debtor obtained full-time

employment as an aging care manager for the Commonwealth of Pennsylvania. 

In her Schedule I that she completed prior to the beginning of such full-time

employment, the Debtor indicated that her total gross monthly income equalled

$1,008.28 and that her total net monthly income equalled $787.02 – such

monthly figures equate to annual figures of $12,099 gross and $9,444 net. After

obtaining full-time employment, the Debtor amended her Schedule I to reflect a

total gross monthly income of $1,861.04 and a total net monthly income of

$1,332.87 – such monthly figures equate to annual figures of $22,332 gross and

$15,994 net. The amended $15,994 net monthly income figure reflects a payroll

deduction of, inter alia, $111.67 for retirement contributions; a deduction for

retirement contributions is not reflected in the earlier $787.02 net monthly income

figure. The Debtor’s adjusted gross income for the years 2001 – 2004 was as

follows: 2001 – $15,067; 2002 – 16,608; 2003 – $17,139; 2004 – 13,527.

In her Schedule J that she completed prior to the beginning of her full-time

employment, the Debtor indicated that her total monthly expenditures equalled

$781, or just $6 less than her total net monthly income. In her amended

Schedule J, the Debtor listed her total monthly expenses at $1,359, or roughly

$26 more than her amended total net monthly income. The Debtor testified, and

was not contradicted in her testimony, that the monthly amounts that she paid for

certain of her utility, insurance, and real estate tax expenses were based on her

ability to pay, and that such monthly expenditures, as one would expect,

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increased correspondingly when she obtained her full-time employment – such

expenditure increases appear to account for more than one-third of the $578

increase in monthly expenses indicated in the Debtor’s amended Schedule J. 

Among the monthly expenses listed in the Debtor’s Schedule J is charitable

contributions, which expenditure increased from $80 to $130 between the two

versions of the Debtor’s Schedule J – the Debtor testified that her charitable

contributions consist entirely of tithing to her church in the amount of 10 percent

of her net pay.

The Debtor consolidated her student loan indebtedness on December 10,

2003, into two discrete consolidation loans in the amounts of $16,915 and

$30,225, which amounts total the $47,140 at issue herein. Exhibits indicate that,

if the Debtor were to pay off the $47,140 balance under the graduated repayment

plan requiring 300 installment payments, then the Debtor’s monthly payment

regarding such indebtedness would equal $241.45. Exhibits also indicate that,

when the Debtor’s gross monthly income equalled $1,008.28, her monthly

installment payment on her student loan debt under the Income Contingent

Repayment Plan (offered under the William D. Ford Direct Loan Program)

(hereafter “WDF ICRP”) would have equalled $51.98. Because the amount that

one pays under the WDF ICRP varies with the level of one’s income, and given

the recent increase in the Debtor’s income, the monthly amount that the Debtor

would now pay under the WDF ICRP would necessarily have increased –

according to the Court’s own calculation, such monthly installment would have

increased from $51.98 to an amount in excess of $200. The Debtor made one

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The three-part test set forth by the Second Circuit in its decision in

Brunner originated in the district court decision that was ultimately affirmed by the

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payment of $146 on her student loan debt. Other than such payment, the Debtor

has taken advantage of forbearances with respect to such debt, and consolidated

the same, as set forth above, at the end of 2003.

DISCUSSION

11 U.S.C. § 523(a)(8), which statutory provision controls whether the

Debtor’s student loan debt to ECMC is excepted from her Chapter 7 discharge,

provides, in pertinent part, that:

A discharge under section 727 ... of this title does not discharge an

individual debtor from any debt ... 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

nonprofit institution ..., unless excepting such debt from discharge

under this paragraph will impose an undue hardship on the debtor

and the debtor’s dependents.

11 U.S.C.A. § 523(a)(8) (West 2004). Because “undue hardship” is not defined

in the Bankruptcy Code, courts have developed various tests to determine

whether such hardship is present. This Court, however, is constrained by the

Third Circuit Court of Appeals’ directive in In re Faish, 72 F.3d 298 (3rd Cir.

1995), wherein the Third Circuit held that the three-part test for “undue hardship”

set forth in Brunner v. New York State Higher Education Services Corp., 831

F.2d 395 (2nd Cir. 1987) (per curiam),2

 “must now be applied by bankruptcy

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Second Circuit. See In re Brunner, 46 B.R. 752, 756 (S.D.N.Y. 1985), aff’d, 831

F.2d at 396. The Second Circuit, as part of its rationale for affirming the district

court decision, adopted the aforementioned three-part test. See Brunner, 831

F.2d at 396.

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courts within the Third Circuit.” Faish, 72 F.3d at 306. The Second Circuit in

Brunner set forth its three-part test for “undue hardship” as follows:

(1) that 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 loans; (2) that additional

circumstances exist indicating that this state of affairs is likely to

persist for a significant portion of the repayment period for student

loans; and (3) that the debtor has made good faith efforts to repay

the loans.

Brunner, 831 F.2d at 396. Expanding upon the foregoing, the Third Circuit held

in Faish that:

[s]tudent loan debtors have the burden of establishing each

element of the Brunner test. All three elements must be satisfied

individually before a discharge can be granted. If one of the

requirements of the Brunner test is not met, the bankruptcy court’s

inquiry must end there, with a finding of no dischargeability.

Faish, 72 F.3d at 306. The standard of proof by which a debtor must establish

each element of the Brunner test is by a preponderance of the evidence. See In

re Brightful, 267 F.3d 324, 327 (3rd Cir. 2001).

Before applying the Brunner/Faish test to the Debtor’s student loan

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indebtedness to ECMC, the Court observes that § 523(a)(8) does not contain

language that would permit a court to determine that an educational loan is

nondischargeable only to the extent that excepting said debt from a discharge

would not impose an undue hardship on a debtor. In other words, a court cannot

determine that a debtor should remain obligated to repay a portion of a particular

educational loan while the remainder thereof can be discharged on the ground of

“undue hardship.” In re Hinkle, 200 B.R. 690, 693 (Bankr.W.D.Wash. 1996). 

However, “while a bankruptcy court cannot restructure the loans [in that manner],

there is no reason[, given that § 523(a)(8) expressly refers to “debt” in the

singular,] that it cannot treat each one separately for the purpose of

dischargeability, if the loans have not been consolidated by agreement of the

parties.” Id. In light of the foregoing, and because the Debtor’s student loan

debts, although they have been consolidated, have been consolidated into two

discrete loans (one for $16,915 and the other for $30,225), the Court can view

each one of those two loans separately for nondischargeability purposes under

§ 523(a)(8); the only thing that the Court is precluded from doing is breaking up

for nondischargeability purposes either or both of said consolidation loans.

I. The Third Prong – The Debtor’s Good Faith.

ECMC focuses at length on whether the Debtor has made good faith

efforts to repay her loans to ECMC. “‘Good faith is measured by the debtor’s

efforts to obtain employment, maximize income, and minimize expenses.’ ... 

‘Good faith is also measured by a debtor’s effort – or lack thereof – to negotiate a

repayment plan.’” In re Marks, 2003 WL 22004844 at 5 (N.D.Cal. 2003) (quoting

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In re Birrane, 287 B.R. 490, 499 (B.A.P. 9th Cir. 2002)); see also Pelliccia v. U.S.

Department of Education, 2003 WL 21024825 at 3 (3rd Cir. 2003) (unpublished,

nonprecedential decision) (“a court inquiring whether a debtor has made a good

faith effort to repay a student loan must consider the following factors: (1)

whether the debtor incurred substantial expenses beyond those required to pay

for basic necessities, and (2) whether the debtor made efforts to restructure his

loan before filing his petition in bankruptcy”).

ECMC successfully opposed the Debtor’s summary judgment motion in

the instant matter on the ground that a genuine dispute exists regarding such

good faith by the Debtor, and sought summary judgment itself – unsuccessfully –

solely on the basis that the Debtor lacked such good faith. The Court, in

disposing of the parties’ dueling summary judgment motions, held – and reaffirms

such holding now – that the Debtor did not exhibit bad faith by (a) failing to take

advantage of the WDF ICRP, see Allen, 324 B.R. at 281-82 & 284, and (b) failing

to dedicate to the repayment of her student loan debt any of the $23,000 that she

borrowed roughly two years prior to when her student loans first went into

repayment status, see Id. at 283-84.

As for whether the Debtor maximized her income – for which issue the

Court identified a genuine dispute at the summary judgment stage, thereby

allowing ECMC to withstand the Debtor’s summary judgment, see Id. at 283 –

the Court now finds, after trial, that the Debtor did not exhibit bad faith by virtue of

her employment history during the time that her indebtedness to ECMC was in

repayment status. The Court holds as it does, in part, because the Debtor

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testified, was not contradicted in her testimony, and the Court accordingly finds in

turn, that (a) she applied for numerous full-time positions subsequent to obtaining

her bachelor’s degree, (b) she eschewed those positions that she could have

obtained, or did obtain, in favor of her part-time grocery store employment

because such employment, in contrast to said other positions, afforded

substantially greater benefits, including free healthcare, and (c) she shunned

other employment with the grocery store chain for which she worked part-time

because such other employment would have required a concomitant increase in

transportation expense that likely would have all but eaten up any favorable

differential in income. The Court also holds as it does because the Debtor

ultimately was offered, accepted, and has since commenced suitable full-time

employment with her present employer, thereby evidencing, at least in part, that

the Debtor never had the intention to purposefully minimize her income.

ECMC also appears to argue now that the Debtor never intended to repay

her student loan indebtedness from its inception, and that she consequently

lacked good faith. As support for such contention, ECMC relies on (a) the fact

that the Debtor now points to her age as one circumstance that would justify

discharge of her student loan indebtedness, and (b) the realization that the

Debtor must have had when she incurred such debt at a relatively advanced age

– i.e., 50 to 55 years of age – that such debt might likely not be fully repaid until

she was even much older. The Court must reject such argument, however,

because, and as the Debtor credibly testified, she borrowed to finance her

college education with the expectation – ultimately not realized by her – that she

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would obtain a degree in nursing, which degree undoubtedly would have been

much more marketable than the one that she ultimately obtained; because the

Debtor did not ascertain that she would not graduate with a degree in nursing

until most of her student loan debt had already been incurred, the Court cannot

find that, when the Debtor incurred such debt, she never had any intention of

repaying the same after her graduation.

In light of all of the foregoing, the Court finds that the Debtor has

preponderantly proven that she exhibited good faith relative to the repayment of

her student loan indebtedness.

II. The First Two Prongs – The Debtor’s Ability to Pay and Her

Circumstances.

At the outset, the Court makes the following factual findings and legal

conclusions regarding the Debtor’s ability to repay her student loan indebtedness

and whether circumstances exist that would indicate that such ability will likely

not improve for a significant portion of the repayment period for such

indebtedness:

1. The Debtor, by virtue of her present employment, is maximizing her

income;

2. Given the Debtor’s relative lack of experience and her relatively advanced

age at the present time, her employment prospects and earning ability will

not improve, at least appreciably, during the balance of the repayment

period for her indebtedness to ECMC;

3. Given the Debtor’s relatively advanced age at the present time as well as

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This Court acknowledges such split of authority and sides with those

courts that hold that retirement contributions, reasonable in amount, are

allowable within the context of an “undue hardship” analysis under circumstances

such as are present herein, namely where a debtor is fairly close to retirement,

has not thus far saved anything for retirement, and is not likely to improve his or

her earnings ability such that he or she could otherwise save for retirement.

4

This Court acknowledges such split of authority and sides with those

courts that hold that tithing may not be done at the expense of student loan

creditors, notwithstanding that it is allowable in other contexts such as, for

instance, 11 U.S.C. § 1325.

11

the fact that she does not presently possess any savings for her

retirement, a payroll deduction for $111.67 for retirement contributions is

not only reasonable but, the Court holds as a matter of law, is also

allowable within the context of an “undue hardship” analysis under

§ 523(a)(8), see In re Savage, 311 B.R. 835, 842-43 & n.11 (B.A.P. 1st

Cir. 2004) (noting split of authority within “undue hardship” analysis

context, as well as that the Third Circuit, among other courts, has held, in

an indirectly related context, that retirement contributions must be included

in disposable income for purposes of Chapter 13 plan confirmation3);

4. The Debtor’s deep religious convictions notwithstanding, an expenditure

for tithing is not allowable within the context of an “undue hardship”

analysis under § 523(a)(8), see Savage, 311 B.R. at 842 (noting split of

authority4

); and

5. Save for the $130 monthly expenditure for tithing, the monthly expenses

that are set forth in the Debtor’s Schedule J are reasonable for purposes

of an “undue hardship” analysis under § 523(a)(8), that is without such

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Although the Court finds that the $130 per month that the Debtor

presently dedicates to tithing must instead be dedicated to the repayment of her

student loan indebtedness, the Debtor is free if she wishes, of course, to

continue tithing by reallocating some part of the remainder of her income to

tithing, such as by reducing what the Court finds to be her reasonable

contribution to a retirement plan.

12

expenditures the Court does not find that the Debtor could maintain a

“minimal” standard of living for herself.

In light of the foregoing, the Court finds that the Debtor has $130 per

month that she could dedicate to the repayment of her student loan

indebtedness.5

 Because the Debtor’s consolidation loan for $16,915 represents

approximately 36 percent of her total student loan indebtedness of $47,140, and

since the Court presumes that the monthly installment payment that would be

due only for such loan equals approximately 36 percent of $241.45, or

approximately $87, the Court finds that the Debtor could maintain a minimal

standard of living for herself if forced to repay such loan. Accordingly, the Court

holds, with respect to the $16,915 consolidation loan that the Debtor owes to

ECMC, that (a) the Debtor has not preponderantly satisfied the first of the three

prongs under the Brunner/Faish test, (b) excepting such debt from the Debtor’s

discharge thus will not impose an undue hardship on the Debtor, and (c) such

debt is consequently nondischargeable pursuant to § 523(a)(8).

However, because the Debtor’s consolidation loan for $30,225 represents

approximately 64 percent of her total student loan indebtedness of $47,140, and

since the Court presumes that the monthly installment payment that would be

due only for such loan equals approximately 64 percent of $241.45, or

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ECMC cites to the decision in In re DeRose, 316 B.R. 606

(Bankr.W.D.N.Y. 2004), as standing for the proposition that the Debtor’s age

cannot qualify as an “additional circumstance” that would satisfy the second

Brunner/Faish prong, and contends that the DeRose court so held, in part,

because of the relatively advanced age of the debtor therein when she incurred

her student loan indebtedness. In fact, the DeRose court explicitly held “that the

age of the student/debtor when the debts were incurred must have no relevance

whatsoever to the Prong 2 inquiry ... [and that h]er current age is relevant.” See

Id. at 609 (emphasis theirs). Thus, the DeRose court recognized that age could

conceivably qualify as an “additional circumstance.” The DeRose court ultimately

held that age did not so qualify therein because of the availability to the debtor

therein of the WDF ICRP. See Id. at 609. This Court disagrees with such

holding by the DeRose court regarding the WDF ICRP for precisely the same

reason that it held earlier that the Debtor did not exhibit bad faith by failing to take

advantage of the WDF ICRP, namely that “the Debtor would thus most likely be

harmed were she to take advantage of the WDF ICRP,” see Allen, 324 B.R. at

282 (such harm arising because she would ultimately incur a substantial,

nondischargeable tax obligation were she to utilize the WDF ICRP).

13

approximately $154.45, the Court finds that the Debtor could not maintain a

minimal standard of living for herself if forced to repay such loan, either by itself

or, of course, in conjunction with the $16,915 consolidation loan. Therefore, the

Court holds, with respect to the $30,225 consolidation loan that the Debtor owes

to ECMC, that the Debtor has preponderantly satisfied the first of the three

prongs under the Brunner/Faish test. Because the Court also holds, as set forth

above, that circumstances – namely the Debtor’s relative lack of experience and

her relatively advanced age at the present time – exist that would indicate that

the Debtor’s employment prospects and earning ability will not improve, at least

appreciably, during the balance of the repayment period for the $30,225

consolidation loan, the Court further holds that the Debtor has preponderantly

satisfied the second of the three prongs under the Brunner/Faish test with

respect to such debt.6

 Finally, because the Court, as set forth above, also holds

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that the Debtor has not exhibited bad faith vis-a-vis the repayment of her student

loan indebtedness, the Court must hold, with respect to the $30,225

consolidation loan, that (a) the Debtor has preponderantly satisfied each of the

three prongs under the Brunner/Faish test, (b) excepting such debt from the

Debtor’s discharge thus would impose an undue hardship on the Debtor, and (c)

such debt is consequently not excepted from discharge pursuant to § 523(a)(8).

CONCLUSION

For all of the foregoing reasons, the Court determines that $16,915 of the

Debtor’s student loan indebtedness to ECMC is nondischargeable pursuant to

§ 523(a)(8), and $30,225 of such student loan indebtedness is discharged.

An appropriate order will be entered.

BY THE COURT

 /s/ 

M. BRUCE McCULLOUGH,

U.S. Bankruptcy Judge

DATED: September 14, 2005

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE WESTERN DISTRICT OF PENNSYLVANIA

IN RE: :

:

LORNA ALLEN, :

: Bankruptcy No. 04-29038-MBM

 Debtor. :

................................................................:...............................................................

Lorna Allen, : Chapter 7

Plaintiff, :

:

v. : Adversary No. 04-2870-MBM

:

American Education Services, et. al., :

Defendants. :

ORDER OF COURT

AND NOW, this 14th day of September, 2005, upon consideration of the

nondischargeability adversary complaint filed by Lorna Allen, the instant debtor

and plaintiff herein (hereafter “the Debtor”), wherein the Debtor seeks a

determination that her student loan indebtedness of $47,140 owed to Educational

Credit Management Corporation (hereafter “ECMC”), who is now the real party

defendant, is not excepted from discharge pursuant to 11 U.S.C. § 523(a)(8);

and subsequent to notice and a trial on the matter held on August 10,

2005;

and for the reasons set forth in the accompanying Memorandum Opinion

dated September 14, 2005;

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it is hereby ORDERED, ADJUDGED, AND DECREED that $16,915 of the

Debtor’s student loan indebtedness to ECMC is NONDISCHARGEABLE

pursuant to § 523(a)(8), and $30,225 of such student loan indebtedness is

DISCHARGED.

BY THE COURT

 /s/ 

M. BRUCE McCULLOUGH,

U.S. Bankruptcy Judge

cm: Lawrence H. Fisher, Esq.

Akman & Associates, P.C.

345 Southpointe Blvd., Suite 100

Canonsburg, PA 15317

John P. Neblett, Esq.

Suite 203

2040 Linglestown Road

Harrisburg, PA 17110

(Parties to be served electronically by Case Administrator)

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