JEFFERY HOPKINS, Bankruptcy JudgePage 2
This matter came before the Court for a trial on a complaint to determine dischargeability pursuant to 11 U.S.C. § 523(a)(8). The issue before the Court is whether excepting the Debtor's student loans from discharge would impose an undue hardship on the Debtor and his dependents. After considering the entire record, the Court concludes that the Debtor did not sustain his burden of proving undue hardship where he failed to demonstrate: (1) additional circumstances indicating that his state of affairs is likely to persist; and (2) that he made good faith efforts to repay the loans. Accordingly, the student loan debt will not be excepted from discharge.
APPLICABLE LAW
Section 523(a)(8) provides in relevant part:
(a) A discharge under section 727 . . . of this title does not discharge an individual debtor from any debt —
. . .
(8) for an educational . . . loan made, insured, or guaranteed by a governmental unit, . . . unless excepting such debt from discharge would impose an undue hardship on the debtor or the debtor's dependants[.]
11 U.S.C. § 523(a)(8). The debtor bears the burden of proof under § 523(a)(8).
Dolph v. Pennsylvania Higher Educ. Assistance Agency (In re Dolph), 215 B.R. 832, 836 (B.A.P. 6th Cir. 1998);
Ledbetter v. United States Dept. of Educ. (In re Ledbetter), 254 B.R. 714, 716 (Bankr. S.D. Ohio 2000) (Hopkins, J.).
"Undue hardship" is not a term that is defined under the Bankruptcy Code. Courts have developed several tests to determine whether excepting a student loan debt from discharge would pose an undue hardship on the debtor or the debtor's dependants. The Sixth Circuit has adopted the three-part test set forth in Brunner v. New York State Higher Educ. Servs., 831 F.2d 395, 396 (2d Cir. 1987). See Oyler v. Educ. Credit Management Corp. (In re Oyler), No. 03-4505, 2005 WL 241268, at *2 (6th Cir. Feb. 3, 2005). The Brunner test requires proof of each of the following elements:
(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 which suggest that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.
Brunner, 831 F.3d at 396.
FACTS
The Debtor executed twenty-one promissory notes for educational purposes. The Debtor used the loan proceeds to attend the University of Cincinnati ("UC") between 1993and 2000. The amount due and owing on the notes as of August 4, 2004, is $88,661.15. The Debtor has never made a full installment payment on this debt. The Debtor testified that he made one or more partial payments that were returned by the lender.
The Debtor is thirty-three years old, has no physical or mental disabilities, and supports five dependent children between the ages of twelve and fourteen. He possesses two degrees from UC. In 1996 he earned an Associate of Arts, which made him eligible to be an instructor assistant in the public schools. He earned a Bachelor of Science in 1998, making him eligible to be a substitute teacher.
The Debtor's federal income tax returns reflect the following:
• The Debtor earned $12,866 in 1998 as a substitute teacher;
• The Debtor earned $17,179 in 1999 as a substitute teacher;
• The Debtor earned $24,607 in 2000 as a social worker;
• The Debtor earned $28,164 in 2001 as a social worker;
• The Debtor earned $32,808 in 2002 as a substitute teacher;
• The Debtor earned $21,071 in 2003 as a lab technician.
At the time of trial, the Debtor was earning $12 per hour, with no fringe benefits, cutting grass for a landscaping company. The Debtor's last ten pay stubs, covering the summer months of June and July, reflect that he is working an average of 28.83 hours per week. At this rate, the Debtor would earn $17,989 over the course of a fifty-two week year. This, however, is unlikely given the seasonal nature of his work. At trial, the Debtor admitted that his current position is his lowest-paying job over the past five years.
The Debtor is eligible to consolidate his loans through the William D. Ford Direct Loan Consolidation Program ("Ford Program"). The Ford Program offers several flexible consolidation options designed to help borrowers meet their student loan obligations even in times of financial hardship. Under the Ford Program, the borrower can repay under a standard, extended or graduated repayment plan, which may extend the payments up to thirty years, depending on the loan balance. The borrower can also choose a repayment plan that bases the monthly payment on the borrower's disposable income. This plan is called the Income Contingent Repayment Plan ("ICRP"). If the borrower does not have sufficient income during any given year, the payment for that year could be as low as $0. Moreover, any balance remaining after twenty-five years is canceled.
Schedule F, filed in the Debtor's bankruptcy case, reflects that the student loan debt represents 85% of the Debtor's prepetition, unsecured debt.
ANALYSIS
I. Likeliness that State of Affairs Will Persist for Significant Portion of Repayment Period
During his case in chief, the Debtor presented little evidence demonstrating that his state of affairs would likely persist for a significant portion of the repayment period. The Debtor testified that he has "feverishly" searched for better employment, but to no avail. As proof, he proffered seven rejection letters received in response to employment applications. However, as the Defendant established on cross-examination, at least five of the positions applied for have little or no relationship to the Debtor's education, training and experience in the fields of teaching and social work. For example, two of the rejection letters concern positions as a "housing specialist" and one references a position as an "assistant court administrator." Regarding two of the letters that did not identify the position applied for, the Debtor was not able to recall the nature of the job in question and its relation to his education, training and experience.
The Debtor offered one other bit of evidence on the second prong of the Brunner test. He testified that he lives in a high crime area where he has been harassed and threatened for reporting criminal activity. Although his car and house have been shot, he stated that he has not moved because he cannot afford to do so. The Court does not doubt that the Debtor cannot afford to move based upon his current income and expenses. The Court empathizes with the Debtor's circumstances. However, living in a high crime area does not prevent the Debtor from obtaining higher-paying employment consistent with his education, training and experience. As such, the Court concludes that the Debtor failed to sustain his burden of proof under the second prong of Brunner.
This conclusion is further supported by the Defendant's cross-examination of the Debtor and its case in chief. On cross-examination, the Debtor acknowledged that he is only thirty-three years old and does not possess any physical or mental disabilities that prevent him from working. The Debtor further acknowledged that he is averaging less than twenty-nine hours of work per week and his current employment yields his lowest income over the past five years. At the very least, even if the Debtor cannot obtain a better paying full-time job, he could procure some form of part-time work to supplement his income to the extent of a forty-hour work week.
Lastly, the Defendant offered the testimony of Dr. Edward P. Berla, a vocational economic analyst who specializes in assessing earnings capacity based upon education, experience, training, age and disability. The Debtor stipulated to Dr. Berla's qualification as an expert witness. Dr. Berla testified that the average male between the ages of twenty-five and thirty-four earns $41,118 per year with an associate's degree and $59,754 per year with a bachelor's degree. These figures do not include fringe benefits, which average 25% of base earnings. Moreover, these figures only increase with age. Therefore, according to Dr. Berla, the Debtor is presently capable of earning an average of $41,118 to $59,754 per year plus annual fringe benefits averaging between $10,279 to $14,938. Instead, the record reflects that the Debtor is on pace to earn $17,989 over the course of a fifty-two week year, with no fringe benefits.
Courts have held that debtors cannot create their own hardship through voluntary underemployment. See e.g., VerMaas v. Student Loans of North Dakota (In re VerMaas), 302 B.R. 650 (Bankr. D. Neb. 2003); Block v. U.S. Dept. of Educ. (In re Block), 273 B.R. 600 (Bankr. W.D. Mo. 2002); Lehman v. N.Y. Higher Educ. Servs. Corp. (In re Lehman), 226 B.R. 805 (Bankr. D. Vt. 1998). In a recent decision under § 523(a)(8), the Sixth Circuit reached this same conclusion while applying the second prong of Brunner. See Oyler, 2005 WL 241268, at *2 ("Choosing a low-paying job cannot merit undue hardship relief."). Consequently, the Court finds that the Debtor has not satisfied the second prong of the Brunner test.
II. Good Faith Efforts to Repay the Loans
The record does not reflect any voluntary payments by the Debtor. However, the failure to make any payments is not necessarily indicative of bad faith — particularly where a debtor simply cannot afford to make payments. Instead of looking to the payment history alone, courts look to several factors to determine — under the totality of the circumstances — the debtor's good faith. Such factors include:
(1) whether a debtor's failure to repay a student loan obligation is truly from factors beyond the debtor's reasonable control; (2) whether the debtor has realistically used all their available financial resources to pay the debt; (3) whether the debtor is using their best efforts to maximize their financial potential; (4) the length of time after the student loan first becomes due that the debtor seeks to discharge the debt; (5) the percentage of the student loan debt in relation to the debtor's total indebtedness; and (6) whether the debtor obtained any tangible benefit(s) from their student loan obligation.
Flores v. U.S. Dept. of Educ. (In re Flores), 282 B.R. 847, 856 (Bankr. N.D. Ohio 2002);
see also Afflitto v. United States of America (In re Afflitto), 273 B.R. 162, 171-72 (Bankr. W.D. Tenn. 2001).
Two of the foregoing factors weigh heavily against the Debtor. As discussed already, it can hardly be said that the Debtor has sought to maximize his earnings potential. Additionally, the Debtor's student loan debt represents 85% of his prepetition, unsecured debt. This Court has previously noted that "courts within this circuit have found a lack of good faith where the debtor makes nominal payments on a student loan that represents the majority of the scheduled debt in the bankruptcy case." See Ledbetter, 254 B.R. at 716.
In addition to these factors, the record also reflects that the Debtor has made no attempts to pursue any of the options in the Ford Program. The ICRP option, in particular, is so favorable to debtors that at least one court in the Norther District has concluded:
[T]he Income Contingent Repayment Program only requires a debtor to pay what they can and when they are able.
Consequently, while participation in the repayment program is not an absolute prerequisite, its equitable manner of handling student-loan debts means that a debtor who fails to pursue payment options under the program bears a heavy burden to show that they have [acted] in good faith as applied to the third prong of the Brunner Test.
Storey v. Natl. Enterprise Sys. (In re Storey), 312 B.R. 867, 875 (Bankr. N.D. Ohio 2004).
Based upon the foregoing, the Debtor has not satisfied his "heavy burden" under the third prong of Brunner where: (1) he has made no payments on the debt in question; (2) he has not maximized his income; and (3) his student loans represent 85% of his prepetition, unsecured debt. See Flores, 282 B.R. at 856 (debtor failed to demonstrate good faith effort to repay where debtor made no payments, was not using best efforts to maximize income, and student loans constituted large majority of unsecured debt).
CONCLUSION
For the foregoing reasons, the Debtor did not sustain his burden of proving undue hardship under 11 U.S.C. § 523(a)(8). Accordingly, the Debtor's student loan debts to Educational Credit Management Corporation are NONDISCHARGEABLE and the complaint will be DISMISSED. A judgment to this effect will be entered.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.