Court Opinion

ID: 8499569
Source: CourtListenerOpinion
Date Created: 2022-11-22 22:45:59.921317+00
Date Added: 2024-06-11T12:25:28.958359
License: Public Domain

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 debt- or from any debt unless excepting such *141debt 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 (8th Cir. BAP 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 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 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 (8th Cir. BAP 2012) (emphasizing debtor’s ability for professional advancement and likeli*142hood of future tax refunds), aff'd 502 Fed. Appx. 634 (8th Cir.2013); Ford v. Student Loan Guar. Found. of Ark. (In re Ford), 269 B.R. 673, 676 (8th Cir. BAP 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.
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 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 *143failure 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 (9th Cir. BAP 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 debt- or’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 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 debt- or’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.

. 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.