Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Diane Davis
A couple in their 40s only have to pay the principal balance on their student loans because the debt had become an undue financial hardship, the U.S. District Court for the District of Kansas held ( Educ. Credit Mgmt. Corp. v. Murray , 2017 BL 336315, D. Kan., No. 16-2838, 9/22/17 ).
Requiring the debtors to also pay interest would “contravene the Bankruptcy Code’s purpose of providing a fresh start to honest but unfortunate debtors,” Judge Carlos Murguia wrote Sept. 22.
The bankruptcy court correctly allowed Alan and Catherine Murray to partially discharge their student loan debt, the court said. It’s extremely difficult to wipe out any part of student debt in bankruptcy due to the criteria debtors must meet.
Under Bankruptcy Code Section 523(a)(8), educational loans aren’t dischargeable in bankruptcy unless it would impose an “undue hardship on the debtor and the debtor’s dependents.” Educational Credit Management Corporation argued that the Murrays didn’t meet that burden.
But the National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys, as friends of the court, argued that the Murrays shouldn’t be required to participate in a program that ties repayment amounts to personal income as an alternative to bankruptcy when it was clear they’d never be able retire the debt in full.
After taking a “realisitc look” at their circumstances, the court found the Murrays met the hardship criteria laid out in Brunner v. New York State Higher Educ. Serv. Under the Brunner test, debtors must, among other things, prove they can’t maintain a minimal standard of living if required to repay student loans on top of basic expenses.
The Murrays have low earning potential, even with graduate degrees, and can meet some of the obligation. They are able to pay between $200 and $500 monthly toward their student debt based on their income, which doesn’t look like it will improve in the future, the court said.
Those payments, even under an income-based repayment plan, aren’t sufficient to stop the accrual of additional interest, and such payments contravene the purpose of bankruptcy, the court said. As a result, the Murrays can’t be required to participate in these programs, the court said.
N. Larry Bork, Goodell, Stratton, Edmonds & Palmer, LLP, Topeka, Kan., represented Educational Credit Management Corporation; George J. Thomas, Phillips & Thomas, LLC, Prairie Village, Kan., represented Alan and Catherine Murray; and Jill A. Michaux, Neis & Michaux, PA, Topeka, Kan., represented Amici National Consumer Bankruptcy Rights Center, National Association of Consumer Bankruptcy Attorneys.
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)