Young Mom of Three Can Wipe Out Student Loan Debt

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By Diane Davis

A young mother of three small children who is separated from her husband and works in her chosen field part-time can get more than $25,000 in student loan debt wiped out in her Chapter 7 bankruptcy, the U.S. Bankruptcy Court for the Eastern District of Pennsylvania held ( Price v. Devos (In re Price) , 2017 BL 217546, Bankr. E.D. Pa., No. 16-0011, 6/23/17 ).

Kristin Price proved that her financial condition is unlikely to improve for a “significant portion of the repayment period,” which would enable her to repay her student loan while maintaining a minimal standard of living for herself and her family, Judge Eric L. Frank wrote June 23.

The case was “difficult” and a “close call,” but the “confluence and nature of these conditions lead me to conclude that the debtor’s financial situation will not improve materially over the next five years,” the court said.

Student loan debt is dischargeable in bankruptcy under Bankruptcy Code Section 523(a)(8) only if repayment of the debt would impose an “undue hardship” on the debtor and the debtor’s dependents.

Brunner Test Applied

The court applied the so-called Brunner test for determining undue hardship. It requires that the debtor prove she can’t maintain a minimal standard of living for herself and her dependents, that this state of affairs is likely to persist for a significant portion of the repayment period, and that she made a good faith effort to repay the loans.

The immediate cause of Price’s financial difficulties that led to the bankruptcy filing was separating from her husband and being the sole custodian of three children ages 3, 5, and 11. She has significant child-care costs.

Price, 29, graduated from Thomas Jefferson University and is a licensed vascular sonographer. Price is only working part-time because the market is overflowing with too many sonographers and she can’t get more work hours even though she is on-call.

The court concluded that if a debtor chooses not to enter an extended student loan repayment program in good faith, the “repayment period” under the Brunner test is the remaining contractual term of the debtor’s loan. That means that in this case, the repayment period is five years, not 20 or 25 years as argued by the Department of Education as part of an extended repayment program.

While some readers may find the court’s analysis “unorthodox,” courts need to take a fresh look at how the Brunner test is applied, the court said.

Section 523(a)(8) isn’t an “all or nothing” situation, the court said. “The real question is how long must the debtor’s circumstances appear unlikely to improve before the bankruptcy system gives the debtor relief from a burdensome debt,” the court said.

The court noted, however, that the outcome might be different in other cases in which the extended loan repayment programs present a better option.

Scott F. Waterman, Media, Pa., represented Price; Gellert Scali Busenkell & Brown LLC, Philadelphia, represented the trustee; Virginia R. Powel, U.S. Attorney’s Office Philadelphia, and Anthony St. Joseph, U.S. Attorney’s Office EDPA, Philadelphia, represented Secretary Arne Duncan and U.S. Department of Education; and Fox Rothschild LLP, Philadelphia, represented JP Morgan Chase Bank.

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

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