Bankrupt Caretaker of Son, Ex Can Wipe Out Student Loans

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By Daniel Gill

A 58-year-old part-time waitress who is caretaker of her disabled ex-husband and son had her student loans discharged, after a June 1 bankruptcy court ruling in New Mexico.

Patricia Murphy satisfied the “quite difficult” burden to establish that $126,000 of student loans creates an “undue hardship” warranting a discharge, Judge Robert H. Jacobvitz of the U.S. Bankruptcy Court for the District of New Mexico said.

The case is one of the rare instances where a debtor prevailed to have student loans discharged.

Murphy filed Chapter 7 bankruptcy in 2015. In Chapter 7, a debtor’s assets are liquidated by a trustee for the benefit of creditors, and the debtor receives a discharge of most debts.

But student loan debt is dischargeable only if repayment of the debt would impose an undue hardship on the debtor and her dependents.

In the Tenth Circuit, which includes New Mexico, courts apply the Second Circuit’s Brunner test to determine undue hardship. The test requires a showing that the debtor can’t maintain a minimal standard of living if she repays the loans, that the state of affairs is likely to persist, and that she has made a good faith effort to repay the loans.

The Department of Education and New Mexico argued that because she is eligible to pay zero dollars per month on an income-based repayment plan, Murphy can’t show an inability to maintain a standard of living if forced to repay the loan.

Jacobvitz found that Murphy satisfied each prong of the Brunner test.

Even with a no money payment plan, when the loan is forgiven in twenty or twenty-five years, Murphy would face significant tax liability. The entire loan, with twenty-five years of accrued interest, would be considered income when forgiven, the court said.

In addition, Murphy became her ex-husband’s main caregiver in 2013, after he suffered a severe, paralyzing stroke, Jacobvitz said.

Murphy also serves as caregiver to one of her sons, who suffers from mental illness and has attempted suicide four times.

She lives within a frugal budget, shopping for food with coupons and food stamps, Jacobvitz said. She tried to make payments on her student loans.

The lenders argued that Murphy was paying for her ex-husband’s phone and therefore had more than a “minimum” standard of living. But the expense was reasonable because it allowed him to reach Murphy in an emergency, the court said.

Murphy also rode her bicycle to work to keep down transportation and parking costs, it said.

Because of the needs of her son and ex-husband, and because of her age and physical condition, Murphy can’t find better-paying employment and ultimately will retire with nothing but social security to live on, it said.

Michael K. Daniels, Albuquerque, N.M., represented Murphy. The DOE and New Mexico Student Loans were represented by the U.S. Attorney’s office, Albuquerque, N.M.

The case is Murphy v. United States , Bankr. D.N.M., A.P. 15-1051, 6/1/18 .

To contact the reporter on this story: Daniel Gill in Washington at

To contact the editor responsible for this story: Jay Horowitz at

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