Ben Barry United States Bankruptcy Judge
Chapter 7 ORDER AND OPINIONPamela Monroe [the debtor] filed her chapter 7 bankruptcy case on March 20, 2013. She received her discharge on June 21, 2013, and her case was closed on July 15, 2013. On November 8, 2013, the debtor filed a motion to reopen her case for the purpose of filing an adversary proceeding to determine the dischargeability of nine student loans incurred during two separate periods of college attendance-from 2000 to 2005 and from 2009 to 2010. The Court granted the debtor's motion to reopen on December 4, 2013, and the debtor filed this adversary proceeding against the United States Department of Education [DOE] and Educational Credit Management Corporation [ECMC] on April 14, 2014. In her complaint, the debtor seeks a determination that seven student loans owed to DOE and two loans owed to ECMC are discharged pursuant to 11 U.S.C. § 523(a)(8). The Court held a trial on July 21, 2015. Forrest L. Stolzer appeared on behalf of the debtor. Deborah J. Groom appeared for DOE and Mac D. Finlayson appeared for ECMC. At the conclusion of the trial, the Court took the matter under advisement. For the reasons because the job entailed no more than 24 hours per week, the debtor left that position permanently in January 2013 to work for an attorney in Fort Smith as a paralegal. On March 20, 2013, the debtor filed her chapter 7 bankruptcy case, scheduling her nine student loans totaling $48,881.00 as unsecured debt and listing only one other debt-a credit card with a balance of $8822.00. The debtor's student loans comprised 85% of the debt listed in her schedules. The debtor received her discharge-exclusive of her student loan debt-on June 21, 2013.
ECMC is the successor in interest to the original lender of two loans obtained by the debtor from Oklahoma Student Loan Authority.
Unless otherwise stated, the facts in the background section were derived from the debtor's testimony on July 21 and were not disputed by ECMC or DOE.
The debtor testified that she would have relocated for a news anchor job. However, she was not willing to move to Little Rock and she confined her search for a news anchor position to Fort Smith.
At the July 21 trial, debtor's counsel identified Plaintiff's Exhibit 6 as a two-page document "showing some information on the loans held by ECMC." The second page of Plaintiff's Exhibit 6 reflects details of the two ECMC loans but contains no monthly payment amount for either loan. The first page of Plaintiff's Exhibit 6 reflects a monthly payment amount of $107.00. Despite appearing to reference only the ECMC loan disbursed on July 15, 2005, the debtor testified-and ECMC did not dispute-that the $107.00 payment reflected on the first page of Plaintiff's Exhibit 6 is a consolidated payment for both ECMC loans.
The amount of the DOE loans are stated as of the origination date of each loan pursuant to the parties' stipulation. At trial, the DOE introduced two certificates of indebtedness reflecting the updated balances of each loan as of July 13, 2015, as follows: September 8, 2008 loan, $2050.25; January 12, 2009 loan, $1149.24; second January 12, 2009 loan, $10,646.79; August 13, 2009 loan, $3197.53; second August 13, 2009 loan, $13,393.34; April 10, 2010 loan, $657.56; and August 13, 2010 loan, $5428.29. Plaintiff's Exhibit 5 furnished the monthly payment amount for each loan as of September 7, 2013.
The debtor testified that she was unemployed for four months in 2012 while she unsuccessfully sought disability benefits for "bilateral rotator cuff syndrome."
The debtor continued to work as a paralegal for two years, but after her repeated requests for a raise were denied, she left that position in February 2015 to take a job as a cosmetics sales representative at Dillard's department store in Rogers. To be closer to work, the debtor used her 2014 tax refund and money borrowed from her mother to move from Fort Smith to Rogers in March 2015, renting an apartment located four miles from Dillard's. She currently makes $13.00 per hour plus commission and is guaranteed a minimum of 37 hours per week. If she remains in her present position, she expects to make $26,000.00 to $27,000.00 in 2015-her highest annual income to date. At trial, the debtor introduced into evidence her amended Schedules I and J, stating her estimated average or projected monthly income and expenses, respectively. Schedule I reflects that the debtor's current gross income per month is $2275.00 with deductions of $452.00 for taxes and $68.00 for 401(k) contributions leaving her with a net monthly income of $1755.00. Her most recent Schedule J itemizes her monthly expenses of $1932.50 as follows:
The debtor acknowledges that she has held a number of jobs since obtaining her undergraduate degree. She testified that she voluntarily left each job in search of "the next best thing" in the form of a position that would allow her to make more money.
During the past five years, the debtor has consistently received tax refunds ranging from $575.00 to $1074.00 and testified that she expects to receive a refund for the current year. The debtor admits that she has never used any part of her yearly tax refund to make payments on her student loan debt.
The debtor's tax returns reflect that she made $10,664.00 in 2010; $14,779.00 in 2011; $11,317.00 in 2012; $20,060.00 in 2013; and $20,800.00 in 2014.
Rent |
$535.00 |
Electricity |
$55.00 |
Water/Sewer |
$25.00 |
Home repairs |
$5.00 |
Food |
$400.00 |
Clothing |
$50.00 |
Laundry/Dry Cleaning |
$20.00 |
Medical/Dental Expenses |
$25.00 |
Transportation |
$400.00 |
Recreation |
$25.00 |
Life Insurance |
$6.00 |
Health Insurance |
$107.00 |
Auto Insurance |
$49.00 |
Personal Property Tax |
$4.00 |
Personal Care |
$60.00 |
Cleaning Supplies |
$35.00 |
Cell Phone |
$88.00 |
Internet |
$30.00 |
Lifelock |
$13.50 |
Despite having made none of the repairs, on May 20, 2015, the debtor spent $76.00 on floor mats that she ordered from the Toyota dealership.
The debtor's average monthly restaurant expense since moving to Rogers in March is likely higher than the $214.00 calculated by the Court because the July bank statement introduced at trial was a partial statement running through July 13.
When counsel for DOE asked the debtor to explain how she could maintain that she eats out at nice restaurants only once per month despite bank records showing that the debtor purchased four meals at The Olive Garden alone in a two-week period, the debtor responded by saying that she does not consider The Olive Garden to be a "nice" restaurant.
She testified that she stopped participating in the dance group because she moved to Rogers.
Findings of Fact and Conclusions of LawSection 523(a)(8) provides that student loans are not discharged in bankruptcy "unless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents." To obtain a discharge of student loan debt, a debtor must prove by a preponderance of the evidence that repayment constitutes an undue hardship. Parker v. Gen. Revenue Corp. (In re Parker), 328 B.R. 548, 552 (B.A.P. 8th Cir. 2005). Proving undue hardship requires more than a demonstration that it would be difficult for the debtor to repay the student loans. Id. at 553. The Eighth Circuit characterizes the debtor's burden under § 523(a)(8) as "rigorous." Educ. Credit Mgmt. Corp. v. Jesperson (In re Jesperson), 571 F.3d 775, 779 (8th Cir. 2009). Because § 523(a)(8) does not define undue hardship, "courts have devised their own methods of determining whether an undue hardship exists." Conway v. Nat'l Collegiate Trust (In re Conway), 495 B.R. 416, 419 (B.A.P. 8th Cir. 2013). The Eighth Circuit employs a totality of the circumstances test that requires courts to evaluate the debtor's "past, present, and reasonably reliable future financial resources, the debtor's reasonable and necessary living expenses, and 'any other relevant facts and circumstances.'" In re Jesperson, 571 F.3d at 779 (quoting Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554 (8th Cir. 2003)). "[I]f the debtor's reasonable future financial resources will sufficiently cover payment of the student loan debt-while still allowing for a minimal standard of living-then the debt should not be discharged." In re Long, 322 F.3d at 554-55. Generally, a minimal standard of living includes "the ability to pay for food, shelter, utilities, personal hygiene, clothing, medical and dental expenses, and recreation." Johnson v. Sallie Mae, Inc. (In re Johnson), No. 5:13-ap-7010, 5:13-ap-7011, 2014 WL 7011097, at *3 (Bankr. W.D. Ark. Apr. 30, 2014) (citing Shadwick v. U.S. Dept. of Educ. et al. (In re Shadwick), 341 B.R. 6, 11 (Bankr. W.D. Mo. 2006)). continued employment. Further, the Court finds that the instability in the debtor's work history arises not from the debtor being an unsatisfactory employee but merely from the debtor's desire to move on from each position in favor of something better. As for the security of her current job, the debtor testified that Dillard's is always looking for employees and-to the extent that the concept of job security applies to employees in an at-will state such as Arkansas-the Court finds that, absent the debtor voluntarily ending her tenure at Dillard's, it is reasonably certain that she will maintain her present level of income for the foreseeable future. As a result, the Court will evaluate the debtor's ability to pay her student loans while maintaining a minimal standard of living based upon her current income as reflected in amended Schedule I.
The debtor's bank statements support her testimony that she sees a podiatrist and other medical service providers on occasion, but no medical testimony or records were introduced at trial elucidating the nature or severity of the issues for which she currently seeks care.
II. Reasonable and Necessary Living ExpensesIn order for expenses to be reasonable and necessary in the context of a § 523(a)(8) analysis, they must be "modest and commensurate with the debtor's resources." In re Jesperson, 571 F.3d at 780 (citation omitted). "While the total amount of monthly expenses must be reasonable, courts also scrutinize specific expenses to determine whether those expenses are unnecessary and excessive to the extent that funds can be reallocated to pay for the student loans the debtor seeks to discharge." In re Johnson, 2014 WL 7011097, at *4. After reviewing the debtor's expenses as represented in both her original and amended Schedule J and supplemented by her bank statements, the Court finds that the debtor's expenses for rent, utilities, medical and dental care, insurance, and internet service are reasonable. However, the Court finds that several of the debtor's expenses are unnecessary or excessive. As a result, the Court has adjusted the expenses in the debtor's amended Schedule J-which currently states a monthly deficit of $177.50-for the reasons and in the amounts discussed below.
A. Lifelock The debtor pays $13.50 per month for Lifelock, a credit and identity-theft protection service. The debtor offered no explanation at trial as to why she believes that this monthly expense is necessary and the Court finds that it is not. Therefore, the Court adds $13.50 to the debtor's budget, reducing her monthly shortfall of $177.50 to $164.00.
B. Transportation When the debtor filed bankruptcy in 2013, she drove the same vehicle that she continues to drive currently-a 1999 Toyota Camry [the Camry]. In 2013, she stated in her original Schedule J that her transportation expenses were $250.00 per month. In her amended Schedule J, she listed her transportation expenses at $400.00 per month. She testified that this estimate includes gasoline, oil changes, and repairs that need to be done to the Camry. However, as stated above in the background section, the debtor admits that her gasoline expenditures are minimal-she lives only four miles from work and makes the trip to see her mother in Fort Smith one time per month. Based upon the Court's review of her gasoline purchases as reflected in her bank statements, the Court finds that since her move to Rogers, the debtor spends approximately $30.00 per month on gasoline. Accordingly, the Court sets the debtor's monthly gasoline budget at $50.00. The Court further allows an additional $35.00 per month for oil changes and other regular maintenance. The Court next turns to the future repairs to the Camry that comprise the largest component of the debtor's transportation budget. The debtor estimates that it will cost $3000.00 to rectify the Camry's body damage and mechanical issues. The estimate from Auto Appearance Group states that the Camry needs $1639.43 worth of body work; however, after reviewing the estimate, the Court concludes that it represents the cost of making repairs that would improve-as the name of the body shop suggests-only the appearance of the Camry. As a result, the Court finds that the repairs in the estimate are not necessary and deducts $1639.43 from the debtor's total repair estimation of $3000.00, leaving $1360.47 for mechanical repairs. Without more evidence, the Court cannot determine the urgency of the mechanical repairs to the Camry. Therefore, the Court budgets the mechanical repairs as a monthly expense of $113.37, which will allow the debtor to make all of the necessary mechanical repairs to the Camry over the next twelve months. Based upon the Court's review of the debtor's actual gasoline expenditures and the disallowance of strictly cosmetic repairs to the Camry, the Court adjusts the debtor's transportation budget from $400.00 to $200.00 per month. This adjustment eliminates the deficit in the debtor's monthly budget, providing her with a $36.00 monthly surplus.
The Court takes judicial notice that gasoline prices in Arkansas currently average $2.013 per gallon-making the Court's allowance of a $50.00 gasoline budget arguably too generous in relation to the number of miles that the debtor drives per month. However, in setting the debtor's budget at $50.00, the Court acknowledges the reality that gasoline prices are subject to sometimes drastic fluctuations, noting that just one year ago, gasoline cost $3.017 per gallon.
C. Cellular Telephone The debtor's original Schedule J filed in 2013 estimated her monthly cell phone bill at $48.00. Her amended Schedule J allocates $88.00 for her monthly cell phone bill. The debtor offered no justification for a $40.00 increase in this category and, in any event, the Court finds that $88.00 per month for cell service is excessive and reduces the debtor's monthly cell phone budget to $50.00. As a result of this adjustment, the debtor's monthly surplus is increased by an additional $38.00, bringing it to $74.00.
D. Food In her original Schedule J filed two years ago, the debtor listed her monthly food expense as $250.00, while her amended Schedule J estimates her current monthly food budget at $400.00. Because personal care items, cleaning supplies, and home repair items are undoubtedly encompassed in the debtor's purchases from various grocery stores, the $25.00 to the extent that "with tip, it might be $30.00." Because the debtor's bank statements plainly divulged the frequency and cost of the debtor's meals at Ruth's Chris, Bonefish, and similarly upscale restaurants, the Court found the debtor's adamant denials on this point to be puzzling, at best. Nevertheless, because a minimal standard of living includes recreation, the Court leaves undisturbed the debtor's allocation of $25.00 per month for recreational meals-noting that, in reality, the debtor will be compelled by the Court's adjustments to other areas of her budget to curb her penchant for routinely indulging in expensive meals.
The debtor's bank statements indicate that she was actually using most of her $400.00 "transportation" budget to fund additional restaurant expenditures rather than make repairs to the Camry. As a result, the Court's reduction of the debtor's transportation budget from $400.00 to $200.00 provides for the cost of necessary mechanical repairs to the Camry but effectively limits the debtor's budget for extraneous restaurant expenditures.
III. Other Facts and CircumstancesIn undertaking an undue hardship analysis, courts in the Eighth Circuit must consider all relevant facts and circumstances in addition to reviewing the debtor's current and future financial resources and expenses. In re Jesperson, 571 F.3d at 784. Additional circumstances considered in the determination of undue hardship include, but are not limited to:
(1) total present and future incapacity to pay debts for reasons not within the control of the debtor; (2) whether the debtor has made a good faith effort to negotiate a deferment or forbearance of payment; (3) whether the hardship will be long-term; (4) whether the debtor has made payments on the student loan; (5) whether there is permanent or long-term disability of the debtor; (6) the ability of the debtor to obtain gainful employment in the area of study; (7) whether the debtor has made a good faith effort to maximize income and minimize expenses; (8) whether the dominant purpose of the bankruptcy petition was to discharge the student loan; and (9) the ratio of student loan debt to total indebtedness.
Id. (quoting McLaughlin v. U.S. Funds (In re McLaughlin), 359 B.R. 746, 750 (Bankr. W.D. Mo. 2007)). The Court will briefly address the additional factors that it finds where debtors choose to incur educational debt later in life, the fact that they will reach retirement age during the loan repaying period is not alone enough to justify discharge under § 523(a)(8)." Id. Although a debtor's age is an appropriate consideration, "choosing to incur debt in pursuit of education later in life is a decision within the debtor's control, and simply because things do not work out as the debtor hoped does not make age alone a sufficient reason to discharge student loans." Id. at 213. "[I]f the leveraged investment of an education does not generate the return the borrower anticipated, the student, not the taxpayers, must accept the consequences of the decision to borrow." Goulet v. Educ. Credit Mgmt. Corp., 284 F.3d 773, 780 (7th Cir. 2002). Finally, the debtor stipulated that she qualifies for two income-based repayment programs-ICRP and IBR. A debtor's ability to participate in an income-based repayment program is a factor to be considered in an undue hardship analysis. Lee v. Regions Bank Student Loans (In re Lee), 352 B.R. 91, 95 (B.A.P. 8th Cir. 2006). She further stipulated that her payment would be zero under IBR, weighing in favor of non-dischargeability of the loans. However, the availability of income-based repayment options should not be misinterpreted to automatically foreclose the avenue provided by Congress in § 523(a)(8) for obtaining the discharge of student loan debts. Id. at 96. Therefore, although the debtor qualifies for both ICRP and IBR, the Court is not relieved of its duty to determine whether the debtor's student loans impose an undue hardship. See Limkemann v. U.S. Dept. of Educ. (In re Limkemann), 314 B.R. 190, 195 (Bankr. N.D. Iowa 2004). Conclusion
The Court's adjustments added $351.50 to the debtor's monthly budget, changing her stated deficit of $177.50 per month to a surplus of approximately $174.00 per month. However, the debtor's adjusted budget still falls short of the $503.87 needed to satisfy her monthly obligations on all nine student loans-the two ECMC loans now combined into a single payment and the seven DOE loans. Because the debtor has multiple student loans, the Court must separately determine the dischargeability of each loan. In re Conway, 495 B.R. at 423 (citation omitted). Generally, courts determine undue hardship 10, 2010 loan with a balance of $657.56. The Court will enter a separate judgment in accordance with this order. IT IS SO ORDERED.
The payments on the non-dischargeable loans total $175.35 per month rather than $174.00. However, the Court finds that it is not an undue hardship for the debtor to locate an additional $1.35 per month-equating to less than 5 cents per day-in her budget, particularly in the light of the fact that the Court allocated slightly more money than the debtor currently needs in certain areas of her adjusted budget. In addition, to the extent that the estimated monthly payments stated in Plaintiff's Exhibits 5 and 6 have changed since the exhibits were obtained by the debtor, the Court finds that the debtor's annual tax refunds are sufficient to offset the difference. --------
/s/_________
Ben Barry
United States Bankruptcy Judge
Dated: 09/22/2015
cc: Forrest L. Stolzer, attorney for the debtor
Deborah J. Groom, attorney for DOE
Mac D. Finlayson, attorney for ECMC
R. Ray Fulmer, II, chapter 7 trustee
United States Trustee
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