Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Diane Davis
July 22 — A 66 year old Chapter 7 debtor with vision and hearing problems and a sporadic minimum wage job must repay her $7,476 student loan debt because she can't prove it would be an “undue hardship” ( Hurst v. S. Ark. Univ. (In re Hurst), 2016 BL 230763, B.A.P. 8th Cir., No. 15-6031, 7/19/16 ).
Chief Judge Arthur B. Federman of the U.S. Bankruptcy Appellate Panel for the Eighth Circuit July 19 affirmed the denial of debtor Mary A. Hurst's request to discharge her student loans.
According to the BAP, the debtor with a variable income of $1,600-$1,700 per month has sufficient income to make the $42 student loan payment. The evidence showed that she had up to $300 per month in income available with which to pay the student loan payment, the BAP said.
To evaluate whether an undue hardship exists for the discharge of student loans, the majority of circuits follow the test adopted by the Second Circuit in Brunner v. New York State Higher Education Servs. Corp., 831 F.2d 395 (2d Cir. 1987), but the Brunner test has recently come under attack, according to Bloomberg Law: Bankruptcy Treatise, pt. II, ch. 63 (D. Michael Lynn et al. eds., 2016).
The Eighth Circuit has rejected the Brunner test in favor of a more flexible “totality of the circumstances test,” the BAP said. Under that test, a bankruptcy court looks at: “(1) the debtor's past, present, and reasonably reliable financial resources; (2) a calculation of the debtor's and her dependent's reasonable necessary expenses; and (3) any other relevant facts and circumstances surrounding each particular bankruptcy case.”
Looking at all of these factors, the bankruptcy court correctly determined that the debtor has the ability to make payments until her retirement at age 70, the BAP said. The BAP also noted that the debtor hadn't made a single voluntary payment or even made an attempt to address her student loan in the 20 years since she incurred them.
Judge Anita Louise Shodeen dissented, concluding that the majority's decision rested on an overly narrow application of the totality of the circumstances test. “The totality of the circumstances test is not a purely mathematical formula,” Shodeen said.
According to Shodeen, the majority should have weighed “non-pecuniary considerations” equally with pecuniary ones.
Judge Thomas L. Saladino joined the opinion.
David C. Graham, Jr., Graham Law Firm, Magnolia, Ark., represented plaintiff/appellant Mary A. Hurst; Patrick E. Hollingsworth, Assistant Attorney General, Attorney General's Office, Little Rock, Ark., represented defendant/appellee Southern Arkansas University; Chapter 7 Trustee/appellee Renee S. Williams, Hot Springs, Ark., represented herself pro se.
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