A bankruptcy court's determination that a Chapter 7 debtor's student loans were not an undue burden was clearly erroneous, the U.S. Bankruptcy Appellate Panel for the Eighth Circuit held Aug. 21 (Conway v. Nat'l Collegiate Trust (In re Conway), B.A.P. 8th Cir., No. 13-6016, 8/21/13).
Judges Thomas L. Saladino, Robert J. Kressel, and Anita L. Shodeen found that the debtor did not have reasonably reliable future financial resources and reversed and remanded the bankruptcy court's decision that the student loans were not dischargeable.
In 2005, Conway began working full time as a loan sales analyst, but was laid off in 2007 and began working part-time in temporary office positions. She obtained another full-time job in December 2007, but was laid off in 2008 and again began working part-time. By April 2009, she was working part-time as a waitress. Conway filed for Chapter 7 protection in December 2009 and received a discharge the following March. Then in December 2011 she moved to reopen her case and initiated an adversary proceeding against NCT, Key Bank, and Sallie Mae to have her student loans discharged.
Key Bank and Sallie Mae were dismissed from the proceeding after stipulating that their debts were dischargeable. However, the bankruptcy court found that Conway's NCT loans were not an undue hardship pursuant to Section 523(a)(8) of the Bankruptcy Code and therefore they should not be discharged. Conway appealed to the BAP.
Conway stipulated that her income, which fluctuates due to seasonal hours of operation at one of her jobs, was between $1,379 and $2,040 in 2012. She argued that her income was unlikely to increase in the future and testified that despite sending out more than 200 job applications she had been unable to find full-time employment commensurate with her education level. However, the bankruptcy court found the debtor to be “articulate, poised, intelligent, and quite capable” and concluded that she had ample to time to find the financial resources to pay NCT in the future.
The BAP said that while it was possible Conway would earn more income in the future, there was “no evidence to support that possibility” and the BAP said it would not “substitute assumptions or speculation for reasonably reliable facts.” Therefore, the BAP found that the bankruptcy court's determination that Conway had reasonably reliable future financial resources to pay off the debt was clearly erroneous.
The BAP noted that NCT had argued Conway's income was sufficient for at least a partial repayment of her loans. While there is no case law in the Eighth Circuit to support the partial discharge of a student loan, the BAP said that it might be possible to discharge some of NCT's 15 separate loans rather than all of them. The BAP said that under Andresen v. Nebraska Student Loan Program Inc. (In re Andresen), 232 B.R. 127 (B.A.P. 8th Cir. 1999), when there are multiple loans involved, a separate undue hardship analysis for each loan is “required.”
The BAP concluded that because the bankruptcy court had failed to do a loan-by-loan analysis, the case should be remanded to the bankruptcy court to determine if Conway's disposable income was enough to service any of the NCT loans.
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