IN RE BURACKER

THOMAS PERKINS, Bankruptcy Judge

Before the Court is the Complaint filed by Ronald D. Buracker, the Debtor ("RONALD"), against the Student Loan Marketing Association ("SLMA"), to determine the dischargeability of his Health Education Assistance Loans. At the time of trial, RONALD was sixty-one years of age. After graduating from high school in 1960, he graduated from Western Illinois University with a degree in industrial education. RONALD taught school for one year before he attended commercial flight school in Florida. In 1968, at age 26, he was drafted, becoming a pilot in the United States Air Force. In 1977, he left active duty, but continued to fly full time in the reserves until 1981. He returned to the Quad City area to be near his children, having been divorced while in the reserves. Employment was not easy to find, and he worked as a motel desk clerk.

In 1983, at the urging of his treating chiropractor, he enrolled in the Palmer College of Chiropractic. In order to attend, he obtained four Health Education Assistance Loans, referred to as "HEAL" loans, in the following amounts: $9,533.00 on October 8, 1984; $12,490.00 on April 16, 1985; $12,303.00 on May 23, 1986 and $10,021.00 on February 24, 1987. SLMA purchased the loans from Bank of Indiana, N.A., and Bank One, Merrillville, NA. Upon graduation, RONALD opened an office in Port Byron, Illinois, borrowing money on his credit cards in order to do so. Repayment of the loans was to commence on August 11, 1988, following RONALD'S graduation in 1987. At RONALD'S request, he was granted ten forbearance periods, four of which were of five months' duration and five of which were of six months in duration. From late 1990 through early 2000, he made sixty-six payments which totaled $35,326.23. RONALD filed a Chapter 7 petition in March of 1995, and received a discharge of his debts on July 7, 1995. He did not seek a discharge of his HEAL loans in that proceeding.

RONALD remarried in 1996 and he and his wife Barbara (individually referred to as "BARBARA" and together with RONALD referred to as the "DEBTORS"), filed a joint Chapter 7 petition on September 3, 2002. The DEBTORS scheduled their residence, titled in BARBARA'S name alone, as having a value of $93,000.00 and subject to a mortgage of $85,000.00. In addition to household goods and furnishings valued at $2,600.00, the DEBTORS scheduled used office furniture and equipment having a value of $1,300.00. The DEBTORS owned a 1995 Ford Windstar and a 1997 Subaru Outback, valued at $5,000.00 and $10,500.00 respectively. Neither vehicle had appreciable equity. BARBARA owns a 401(k) account valued at $20,000.00. RONALD has no retirement account. The DEBTORS listed unsecured debt totaling $29,679.85, consisting mainly of revolving credit accounts. The debts on the two vehicles and the residence were reaffirmed.

RONALD filed this adversary proceeding, seeking a determination that his remaining obligations under the HEAL loans are dischargeable on the ground that failing to discharge the loans would be unconscionable pursuant to 42 U.S.C. § 292f(g)(2). SLMA answered the complaint, admitting the significant payments made by the DEBTOR. A trial was held on March 4, 2004. The DEBTOR was the only witness to testify. The parties stipulated to the admission of the Declaration of Barry M. Blum, the Chief of the Referral Control Section of the Department of Health and Human Services, which sets forth the amounts of the loans, the payments made and the balance due on the loans as of October 30, 2002, in the amount of $115,842.48. According to Blum's statement, the current interest rate of the loans was 4.75% and interest was accruing at a rate of $15.06 per day.

The dischargeability of HEAL loans is not governed by the general provisions of the Bankruptcy Code, but by 42 U.S.C. § 292f (g), which provides that:

[A] debt that is a loan insured under the authority of this subpart may be released by a discharge in bankruptcy under any chapter of Title 11, only if such discharge is granted —

(1) after the expiration of the seven-year period beginning on the first date when repayment of such loan is required, exclusive of any period after such date in which the obligation to pay installments on the loan is suspended;

(2) upon a finding by the Bankruptcy Court that the nondischarge of such debt would be unconscionable; and

(3) upon the condition that the Secretary shall not have waived the Secretary's rights to apply subsection (f) of this section to the borrower and the discharged debt.

SLMA has admitted that the first requirement has been satisfied and that the only issue before the Court is whether discharge of the HEAL loan debt would be unconscionable.

Both SLMA and the DEBTOR agree that the court's recent decision in U.S. Dept. Health Human Services v. Smitley, 347 F.3d 109 (4th Cir. 2003), sets forth the governing standard. Attributing the dictionary meaning to the statutorily undefined term "unconscionable" as "lying outside the limits of what is reasonable or acceptable," "shockingly unfair, harsh, or unjust" or "outrageous," the court described the standard as a "stringent" one, more exacting than the undue hardship standard applicable to other student loans under Section 523(a)(8) of the Bankruptcy Code. In making this determination, the court approved a "totality of the circumstances" test, taking into consideration: (1) the debtor's level of income and the debtor's current standard of living; (2) whether the debtor has attempted to minimize expenses for himself and his dependents; (3) the debtor's educational background and earning ability; (4) the debtor's age, health and dependents; and (5) amount, if any, of debtor's accumulated wealth. Of significant importance is the debtor's future prospects, in particular whether the debtor's education and skills are being used to their best advantage, as well as whether the debtor is maximizing the amount of his earnings, through supplemental employment. Lastly, consideration should be given to the amount of the debt and the rate of interest.

Although a different standard is applicable to HEAL loans, the analysis begins much the same as under Section 523(a)(8) for non-HEAL student loans. The first step for the Court is to determine the DEBTORS' disposable income and to compare it to the monthly repayment amount of the HEAL loans. According to Schedules I J filed with the DEBTORS' petition, their combined monthly income is $5,505.24 and their current monthly expenses are $7,070.55. Isolating RONALD'S earnings and the business expenses he incurs, his net income at the time of the filing was $1,394.25. BARBARA is employed as a bookkeeper/clerk, earning approximately $24,000.00 per year. Her net monthly income is $1,388.07. She has worked in that position for fifteen years. Together, the DEBTORS' net monthly income is $2,782.32.

The DEBTORS' monthly living expenses, totaling $3,563.00, include a mortgage payment of $950.00; utilities of $188.00; telephone of $80.00; cable/internet of $86.00; home maintenance of $100.00; food of $500.00; clothing of $100.00; laundry and dry cleaning of $55.00; medical and dental expenses of $150.00; transportation of $50.00; recreation of $40.00; charitable contributions of $50.00; homeowner's insurance of $31.00; life insurance of $100.00; auto insurance of $100.00; boat insurance of $6.00; auto payments of $757.00; computer lease payments of $140.00; and BARBARA'S student loan payment of $80.66. RONALD testified that the debt on the 1995 Ford Windstar was paid off after the filing, but the vehicle was subsequently totaled and that a 2003 Windstar was leased for three years with monthly payments of $347.00. The DEBTORS' monthly expenses exceed their monthly income by $781.00.

At some prior point in time, RONALD, owing approximately $25,000.00 in back federal taxes, entered into an offer and compromise with the Internal Revenue Service, whereby the amount of the delinquency would be forgiven if he would timely pay all taxes owing for a period of five years. RONALD could not say when the agreement was entered into or whether the five-year period had expired at the time of trial.

SLMA challenges certain of the DEBTORS' living expenses, in particular, the internet and cable costs of $86.00 and the charitable contribution of $50.00. RONALD testified that he used the internet in order to keep abreast of developments in the chiropractic field and to educate himself on other conditions with which he might not be familiar. While the DEBTORS' budget may not be as spartan as it could be, the amount which could be further wrung out would not be sufficient to make the difference required here. The DEBTORS' expenses cannot be significantly reduced. While there may have been a less expensive alternative to the leasing of the 2003 Windstar, both DEBTORS are in need of a vehicle to get to and from work.

SLMA also raises the reasonableness of RONALD'S business expenses, focusing upon the doubling of expenses between 1998 and 1999, from $15,780.00 to $29,761.00. The expenses shown on the 1999 income tax return included a deduction in the amount of $5,100.00, taken under Section 179 of the Internal Revenue Code which permits a taxpayer to elect to expense the cost of certain tangible personal property for the year that the property is placed in service and an expense of $6,307.00 for repairs and maintenance. The DEBTOR testified that he sold his office building in early 2000, taking a loss of nearly $9,000.00. In 2000, the year that RONALD relocated his practice, the income tax return included an expense for rent of $6,030.00. According to RONALD, the new location of his office is in a highly visible area, off a busy highway. The total expenses for 2001 and 2002 remains about the same. Absent any specific objections by SLMA to RONALD'S business expenses, this Court cannot find that they are unreasonable or unnecessary.

The balance due on RONALD'S HEAL loans on the date of trial was $123,236.94. Amortizing the loans over ten years, at the interest rate of 4.75%, RONALD'S monthly payments would be $1,289.63. A five-year amortization, which may be more realistic given RONALD'S age, results in monthly payments of $2,307.10. Monthly payments of $487.81 would be required in order to pay the interest alone. Even if this Court would disregard the DEBTORS' monthly deficit of $781.00, the DEBTORS would not have the ability to make that payment. Monthly payments of $1,289.63 under the 10-year amortization of the HEAL loans would consume all but $100.00 of RONALD'S income from his practice, leaving BARBARA'S net monthly income of only $1,388.07 to support them both. That result would be, in this Court's view, "shockingly unfair, harsh, and unjust," well justifying discharge of the HEAL loans.

Along the same lines, it is appropriate to compare RONALD'S circumstances when the loans were first made with his current circumstances. Similar to the question of whether a repayment hardship is undue under Section 523(a)(8), the question of whether a continuing HEAL loan repayment obligation is unconscionable references the expectations of the parties at the time the obligation was incurred.

RONALD borrowed a total of $44,347.00 between 1984 and 1987. When the repayment period began in 1988, he was forty-five years old and embarking on a new career as a chiropractor. Amortized over ten years with interest at 9.00%, he could have paid off the debt by making monthly payments of $570.00. At that point, he would have been fifty-five years of age and would have had ten years of his working life remaining in which to save for retirement.

Although RONALD was able to make payments of over $35,000.00, he was unable to even keep up with the interest accrual. Now, at the age of sixty-one, having struggled for sixteen years to make payments, he is faced with a loan balance in excess of $123,000.00, almost three times the amount he originally borrowed. This circumstance is certainly not something he expected or bargained for when he took out the loans and the large amount of the debt burden at this stage in RONALD'S life weighs heavily in favor of a finding of unconscionability. Cf. In re Fahrer, __ B.R. __, 2004 WL 557292 (Bankr. W.D.Mo. 2004) (requiring a debtor to repay student loan over period of time that significantly exceeds debtor's working life constitutes undue hardship) (collecting cases).

SLMA asserts that RONALD is ill-suited to complain about the nearly tripled balance on the HEAL loans, because he requested the numerous forebearances which resulted in the negative amortization. It takes two to tango, however, and the consequences of postponing payment do not all fall on a debtor. Forbearance requests may be denied. By granting a forbearance, the holder of the student loan is taking its chances that the debtor's circumstances will improve such that a larger debt may be satisfied. Implicit in the granting of RONALD'S requests for forbearance is the determination, on each occasion, that the DEBTORS lacked the ability to make any payments on the loans. See In re Brown, 249 B.R. 525, 530 (Bankr.W.D.Mo. 2000).

This Court must also consider the likelihood, if any, that the DEBTORS' circumstances may improve. Given RONALD'S advanced age, the forecast is necessarily a short one. RONALD testified that his practice in Port Byron had just begun to take hold in 1993, when he was sued for malpractice. He attempted to fight the lawsuit, but costs of that action forced him into bankruptcy. In 2000, RONALD relocated his practice to Rapids City, Illinois, a location nearer to the Quad Cities. The net profit from the chiropractic practice was $18,502.00 in 1997; $15,104.00 in 1998; $11,629.00 in 1999; $7,326.00 in 2000; $16,150.00 in 2001; and $18,594.00 in 2002. RONALD'S income tax liability for those years was $6,222.00 in 1997; $4,796.00 in 1998; $3,372.00 in 1999; $3,677.00 in 2000; $5,567.00 in 2001; and $6,167.00 in 2002. RONALD testified that his income in 2003 was slightly less than that earned in 2002. In his view, his practice has reached a plateau. RONALD employs no assistants and hires secretarial help on a limited basis, making it difficult to portray a professional image. He maintains office hours from 8:00 a.m. to 7:00 p.m., but much of that time is unproductive because of a shortage of patients. He cannot afford to advertise beyond the yellow pages of the phone book. Prior to his remarriage, he lived in the back room of his office for six years.

RONALD attributes his lack of financial success to the lingering stigma resulting from the malpractice action allegedly promoted by a hostile competitor, and the increased competition resulting from five additional chiropractors having established offices in the area. While he has considered relocating his practice to an area with more opportunities, he believes that the costs of relocating and establishing a new practice, at this stage, would be counterproductive. Practically speaking, RONALD recognizes that, lacking any financial cushion with which to meet ongoing expenses, such a move is not realistic.

Both the DEBTORS have health insurance through BARBARA'S employment, but many expenses are not covered. BARBARA suffers from fibromyalgia and frequent migraine headaches. RONALD testified that he has health problems which will prevent him from working much longer. He has developed recurring wrist problems over the past five years, making it difficult to adjust his patients. He also suffers from kidney and prostate problems. RONALD is troubled by his loss of memory, based on a history of Alzheimer's disease in his family. In his opinion, his health has already adversely affected his relationship with his patients. RONALD has accumulated no wealth and, upon his retirement, will be entirely dependent upon social security. RONALD testified that he and BARBARA have accumu-lated other medical expenses and that he has no funds on hand to pay his income tax liability for 2003, estimated at $6,000.00. Repayment of the HEAL loans aside, retirement will be a struggle for the DEBTORS. While it is true that BARBARA is only fifty-two years old and will likely continue to work after RONALD retires, her income will be entirely consumed by the DEBTORS' basic living expenses.

Rather than improve, the DEBTORS' future financial circumstances are likely to deteriorate. In this Court's view, the evidence definitively establishes that the DEBTORS cannot repay even the interest on these HEAL loans. Moreover, it is equally clear that, for the DEBTORS, this is as good as it gets. Throughout the fourteen years since the loans first became due and the DEBTORS' bankruptcy filing, RONALD made a good faith effort to repay his HEAL loans, making payments of $35,326.23, whenever circumstances permitted. Although SLMA has cited many cases in its brief where HEAL loans were determined not to be dischargeable, none of those cases involve a debtor on the verge of retirement. In this Court's view, In re Brown, supra, is more factually analogous, even though it is a non-HEAL student loan case. There, the debtor was sixty-one years old and, like RONALD, working in her chosen field. Holding that it lacked the authority to restructure or reduce the debtor's student loan, the court determined, based on the debtor's age and her projected working life of four years, that she lacked the future financial resources to repay the loan in full and that the loan was dischargeable as an undue hardship.

In conclusion, based on the totality of the circumstances, this Court determines that not permitting RONALD'S HEAL loans to be discharged would be unconscionable. Accordingly, those loans are dischargeable as part of the general discharge granted the DEBTORS on December 9, 2002.

This Opinion constitutes this Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. A separate Order will be entered.

For the reasons stated in an Opinion filed this day, IT IS HEREBY ORDERED that Ronald D. Buracker's indebtedness to Student Loan Marketing Association for Health Education Assistance Loans is dischargeable. Judgment is entered for the Plaintiff and against the Defendant.