Opinion
Case No. 01-72117; Adversary No. 01-07147
April 23, 2002
OPINION
The issue before the Court is whether requiring the Debtors to repay two debts for student loans would impose an undue hardship on the Debtors and their dependants so as to render the debts dischargeable pursuant to 11 U.S.C. § 523(a)(8).
The Debtors, Roger and Cynthia Gill, filed a petition pursuant to Chapter 7 of the Bankruptcy Code on May 23, 2001. Both Debtors scheduled debts to the Defendant, Illinois Student Assistance Commission, on their schedules: $10,000 for Mrs. Gill and $14,807.71 for Mr. Gill. On June 6, 2001, the Defendant filed a claim in the amount of $6,525.61 for Mrs. Gill's student loan and a claim in the amount of $12,714.84 for Mr. Gill's student loan.
The Debtors scheduled a total of $55,015 in unsecured nonpriority claims. They do not own any real estate. Their main asset is a $27,000 company pension which is exempt under 735 ILCS 5/12-1006.
The Debtors received their discharge on August 22, 2001. Mr. Gill used his student loan to attend Lincoln Land Community College and Sangamon State University. He obtained a bachelors of sciences degree in social justice. He works for Central Illinois Access with the developmentally disabled as a case manager. He earns $26,000 per year. He testified that he has no opportunities for promotion. He is not in the process of looking for another job.
Mrs. Gill used her student loan to attend Lincoln Land Community College and Capitol Area School of Nursing. She was in a general studies program at Lincoln Land; she received her L.P.N. degree in March, 1985, from Capitol Area School of Nursing. She currently works a couple of jobs. She has a paper route in the morning that nets around $900 per month. In addition, she brings home another $1,000 per month from her nursing jobs through Anchor Home Health Care. She is not looking for additional work.
The Debtors have a total of five children: Judith, age 28, a school teacher and mother of 3; Roger, age 26, a janitor for the school district; Eric, age 21, a correctional officer; Glen, age 20, a graduate of Robert Morris College; and Jacqueline, age 18, a high school student. Only Glen and Jacqueline still live at home.
Glen was born with spina bifida and has had numerous surgeries. He paid for his college expenses with his SSI. He is not considered to be disabled by the government. The Debtors do not expect Glen to leave the house in the near future. Jacqueline is planning on going to college.
Both Mr. And Mrs. Gill have numerous medical problems. Mr. Gill's medical problems include asthma, high blood pressure, and a valve problem with his heart. Mr. Gill described his medical problems as chronic and testified that he spends $192 per month on various medications. Mrs. Gill's medical problems include two strokes, a brain aneurysm, blood clots, a temporary loss of vision, sarcoidosis, asthma, pernicious anemia, an edema problem, cataracts in her eyes, and a degenerative joint disease in her right knee.
She does not expect her medical problems to improve. She spends around $260 per month on various medications. Despite these various medical problems, both Debtors have been consistently and continuously employed.
In July of 2001, the Debtors withdrew $22,000 from Mr. Gill's pension plan. They used $7,200 to purchase a 1990 Toyota Corolla and a 1999 Buick LeSabre; Mr. Gill testified that he owns the Buick and his daughter has the Toyota. They used $1,200 for school tuition and school uniforms for Jacqueline. They used another $1,800 for car repairs and maintenance. Debtors' son Eric received $3,800 as a personal loan or to help with Eric's car payment, and $500 went to Roger as a gift. The Debtors used $3,000 for supplies for repair work on their new rented home. The Debtors used the balance of the money to pay bills or finance trips to Indiana and Ohio to see their grandchildren. Some of the bills paid were pre-petition debts. Mrs. Gill could not explain why they paid a pre-petition, unscheduled propane bill of $1,500. The Debtors did not use any of the money to make a payment on their student loans.
Mrs. Gill testified that she has paid about $1,100 towards her student loan debt over the years. Mr. Gill has paid $2,088 towards his student loan debt.
At the request of the Court, the Debtors filed a budget following the hearing on this proceeding. The Debtors show total combined monthly gross wages of $4,702.84 and a net of $3,364.78.
They show monthly expenses of $3,474.71. The expenses include $155 to Park Meadows Baptist Academy, an expense that the Court assumes will terminate next month with Jacqueline's graduation.
In determining whether a student loan is dischargeable under 11 U.S.C. § 523(a)(8), the Seventh Circuit Court of Appeals has adopted the Second Circuit's three-pronged Brunner test, see Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395, 396 (2nd Cir. 1987); Goulet v. Educational Credit Management Corp., 2002 WL 461390 (7th Cir.); In re Roberson, 999 F.2d 1132 (7th Cir. 1993). Under this test, the Debtors must demonstrate (i) that they cannot maintain, based upon current income and expenses, a minimal standard of living for themselves and their dependents if forced to repay the loans; (ii) that additional circumstances exist indicating that the state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (iii) that the Debtors have made good faith efforts to repay the loans. Roberson, supra, 999 F.2d at 1135. The Debtors have the burden of establishing each element of the test by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654 (1991). If the Debtors fail to establish any one of the elements, the test has not been met and the Court need not continue the inquiry. Roberson, 999 F.2d at 1135.
The first prong of Brunner requires the Debtors to show that they cannot maintain, based on current income and expenses, a minimal standard of living for themselves and their dependents if they are forced to repay their student loans. This analysis may be broken down into two parts: (i) an evaluation of the debtors' present standard of living based upon their lifestyle attributes which appear in the record, and (ii) whether the forced repayment of the student loan obligation will preclude the debtors from maintaining a minimal standard of living. In re Barron, 264 B.R. 833, 840 (Bankr.E.D.Tex. 2001). A debtor seeking to obtain an "undue hardship" discharge of a student loan does not have to "live in abject poverty." In re Faish, 72 F.3d 298, 305 (3rd Cir. 1995). Nevertheless, the debtors are expected to live within the strictures of a frugal budget for the foreseeable future. In re Ritchie, 254 B.R. 913, 917-18 (Bankr.D.Idaho 2000).
In deciding whether the Debtors can maintain a minimal standard of living if required to repay the student loans, the Court looks to the Debtors' monthly income and expenses. The post-trial budget submitted by the Debtors shows net monthly income of $3,364.78. They received a tax refund of $884 in 2000, which suggests that they are over-withholding approximately $70 per month. Adding this sum to the Debtors' figure of $3,364.78, the Court finds that their actual net monthly income is $3,434.78. The Debtors list their net monthly expenses at $3,474.71. (The Debtors' original Schedule J showed monthly expenses of only $2,587.00). The Debtors' spending cannot be described as extravagant, but neither is it minimal. They recently upgraded from a $375 per month rental home to a $520 per month rental home.
They spend $140 per month on telephone service ($55 for basic and $85 for long distance), and another $25 per month on their internet service. Their $540 per month grocery expense is reasonable for a family of their size. Their gasoline bill of $475 per month is high, but reasonable considering Mrs. Gill's rural paper route and Mr. Gill's commute to his job. Their budget includes $155 per month to the Park Meadows Baptist Academy, but this expense should soon end with their daughter's graduation. The balance of their budget consists of utilities ($245 for propane and $122 for electric), garbage ($14.50), insurance ($170) and various medical expenses. The Court is unclear as to why their budget lists a monthly expense of $55 for "Telephone-Verizon/Basic" and another monthly expense of $50 for "CCA-Old Verizon". The monthly expense of $100 to David Gieruts Mobile Repair is not explained. The Debtors' schedules suggest that the monthly expense of $25 to Check Brokerage Corp. is for dishonored checks. This does not appear to be a recurring monthly expense.
The above analysis of the Debtors' budget indicates that the Debtors have the wherewithal to maintain a minimal standard of living. The Court further finds that the Debtors can maintain a minimal standard of living while making payments on their student loans. While their budget is currently at a break even point without allowing for payments on their student loans, their daughter's graduation next month will free up over $100 per month which they can devote to their student loans.
The second prong of the Brunner test requires the Debtors to prove that a present inability to make payments on their student loans is likely to continue for the reasonably foreseeable future.
This second prong:
imputes to the meaning of the `undue hardship' a requirement that the debtor show his dire financial condition is likely to exist for a significant portion of the repayment period. . . . Accordingly, the dischargeability of student loans should be based upon the certainty of hopelessness, not simply a present inability to fulfill a financial commitment.
Roberson, supra, 999 F.2d at 1135-36.
The evidence in this proceeding did not establish that "certainty of hopelessness" or the "additional, exceptional circumstances" necessary to satisfy the second prong of the Brunner undue hardship test. Both Debtors appear to be bright and articulate. Both Debtors used their student loans to obtain their degrees. Both Debtors have usable job skills. While the Court recognizes that the Debtors have medical problems, the Court does not consider these problems to be "additional, exceptional circumstances" which would constitute undue hardship under § 523(a)(8). Both Debtors have been able to maintain their regular employment despite these medical problems. Moreover, the last of the Debtors' five dependents is set to graduate from high school this spring. Under these circumstances, the Debtors have not satisfied the second prong of Brunner.
Finally, the third prong of the Brunner test requires the Debtors to show that they have made a good faith effort to repay their outstanding loans. This prong looks at the Debtors' efforts to "obtain employment, maximize income, and minimize expenses." Roberson, supra, 999 F.2d at 1136. The Debtors have been consistently employed, they work as much as their medical conditions allow them, and they do not have extravagant expenses.
On the other hand, the Debtors have shown little inclination to make payments on their student loans over the years. The Court is particularly disturbed that they took a post-petition, pre-discharge distribution from a retirement fund and used part of the funds to pay discharged debts, but did not make any payments on their student loans. Nevertheless, the Court need not resolve this good faith issue, given the Court's conclusion that the Debtors have failed to satisfy the first two prongs of the Brunner test.
For the foregoing reasons, the Debtors have not demonstrated that the repayment of their student loans would constitute an "undue hardship" under 11 U.S.C. § 523(a)(8). Therefore, the debts to the Illinois Student Assistance Commission are nondischargeable.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that the debts to the Illinois Student Assistance Commission be and are hereby determined to be nondischargeable.