Bankrupt Single Mom Can Get Rid of Student Loans

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By Diane Davis

A single mother of three can discharge her student loan debt in bankruptcy because it would impose an undue hardship on her family, the U.S. Bankruptcy Appellate Panel for the Eighth Circuit held Feb. 7 ( Fern v. FedLoan Servicing (In re Fern) , 2017 BL 36128, B.A.P. 8th Cir., No. 16-6021, 2/7/17 ).

Typically, student loan debt can’t be discharged in bankruptcy unless the debtor can prove “undue hardship,” which isn’t defined in the Bankruptcy Code.

Although a 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), the Eighth Circuit follows a more “flexible approach” under a “totality of the circumstances test,” Judge Anita Louise Shodeen wrote.

The court looked at past, present, and reasonably reliable future financial resources, a calculation of reasonable living expenses, and any other “relevant facts and circumstances” involved in each case.

Evidence shows that outcomes don’t differ on the basis of the applicable test, which means that the totality of the circumstances test isn’t less rigorous than the Brunner test, according to Bloomberg Law: Bankruptcy Treatise, pt. II, ch. 63 (D. Michael Lynn et al. eds., 2016).

Debtor Sara J. Fern, 35, has $27,000 in student loan debt and has never made a payment. She initially took classes to become an accounting clerk, but didn’t finish the program and switched to training as an esthetician. Fern was never able to support her family with this line of work.

Fern receives minimal or no child support from the fathers of her children. Her monthly take-home pay from her current job is $1,506, and she receives food stamps and rental assistance. Fern’s income has been consistent and is unlikely to improve in the future, the court said.

Fern’s monthly living expenses are reasonable, necessary and modest, the court said. Her family monthly expenses are $2,475, and her monthly income from all sources is $2,413, resulting in a $62 per month shortfall.

The court rejected the Department of Education’s argument that Fern is qualified for a repayment program where her payment would be nothing , which wouldn’t affect her current standard of living.

A zero monthly payment obligation doesn’t automatically mean there is an ability to pay, the court said.

Judge Robert J. Kressel and Chief Judge Arthur B. Federman joined the opinion.

Stuart G. Hoover represented Sara J. Fern; US Attorney - CR represented U.S. Department of Education; United States Trustee Daniel M. McDermott.

To contact the reporter on this story: Diane Davis in Washington at

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

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