Sympathetic Judge Won’t Wipe Out Jobless Woman’s Student Debt

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By Daniel Gill

A 62-year-old unemployed woman suffering from diabetic neuropathy was unable to get her student loan debt discharged in a Texas bankruptcy court.

Judge Harlin D. Hale, of the U.S. Bankruptcy Court for the Northern District of Texas, expressed sympathy for Vera Thomas. But he noted that his hands were tied under the controlling law of the Fifth Circuit, and that she failed to satisfy the stringent test for discharging debt.

Thomas got a student loan for junior college and owes about $7,800 in principal and interest. She only made two $42 payments.

After losing her job as a customer service representative, Thomas has been unable to work full time because of her medical condition, the court said. Her only income is food stamps.

Thomas filed for Chapter 7 on March 24, 2017. In Chapter 7, assets are liquidated by a trustee for the benefit of creditors. After a fixed time frame, debtors get a discharge, wiping out their debt.

Some debts are not dischargeable, including most student loans. To get those wiped out, debtors have to sue to establish that requiring payments would inflict undue hardship on them and their dependents.

The test for discharging student loans in most of the country is the so-called Brunner test, coming from Brunner v. New York State Higher Educ. Services Corp.

While the Brunner test creates a standard that is very hard to meet, the way it is interpreted in the Fifth Circuit makes it even more difficult. That’s because in the Fifth Circuit, the debtor has to prove that the circumstances of the debtor’s hardship must result in a “total incapacity” to pay the debt now and in the future, the court said.

That requirement, coming from United States Dept. of Educ. v. Gerhardt (In re Gerhardt), creates “an incredibly high burden,” the court said. In fact, the court said that in 15 years, it had never seen a case that satisfied this high threshold.

Because Thomas wasn’t “totally incapacitated,” she couldn’t discharge her student loans, it said.

Noah Mariano Schottenstein, Baker Botts, Dallas, represented Thomas. The U.S. Department of Education was represented by Donna K. Webb, U.S. Attorney Office, Dallas.

The case is In re Thomas , 2017 BL 440019, Bankr. N.D. Tex., No. 17-03027-hdh, 12/8/17 .

To contact the reporter on this story: Daniel Gill in Washington at dgill@bloomberglaw.com

To contact the editor responsible for this story: Jay Horowitz at jhorowitz@bloomberglaw.com

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