UNITED
STATES BANKRUPTCY COURT
EASTERN
DISTRICT OF KENTUCKY
PIKEVILLE
DIVISION
IN RE:
WILLIAM GROVER
CHILDERS
LISA DAWN CHILDERS
DEBTORS CASE NO. 93-70348
WILLIAM GROVER
CHILDERS and
LISA DAWN CHILDERS PLAINTIFFS
VS. ADV. NO.
93-7020
MOREHEAD STATE
UNIVERSITY;
GEORGETOWN COLLEGE;
EDUSERVE
TECHNOLOGIES; HIGHER
EDUCATION
ASSISTANCE
FOUNDATION, INC.;
KENTUCKY HIGHER
EDUCATION
ASSISTANCE
AUTHORITY; COMMONWEALTH
OF KENTUCKY; RICHARD
RILEY, SECRETARY,
U.S. DEPARTMENT OF
EDUCATION DEFENDANTS
FINDINGS
OF FACT AND CONCLUSIONS OF LAW
This matter came before the Court for trial
on January 11, 1994, on the plaintiffs' Complaint to Determine Dischargeability
of Student Loans. The Court having considered
testimony and written statements of witnesses, stipulations of fact, exhibits
and other pertinent documentary evidence of record in this proceeding, now, in
accordance with Federal Rule of Civil Procedure 52, made applicable herein by
Federal Rule of Bankruptcy Procedure 7052, makes the following Findings of Fact
and Conclusions of Law:
Findings
of Fact
The plaintiffs herein, William Grover
Childers ("William") and Lisa Dawn Childers ("Lisa"), filed
a Chapter 7 petition in this Court on August 13, 1993. On September 1, 1993, they filed their
Complaint to determine the dischargeability of unsecured debts owing to various
defendants for student loans. Defendant
Kentucky Higher Education Assistance Authority ("KHEAA") was the only
defendant to go to trial. Defendant
Eduserve Technologies assigned its claim to KHEAA on October 14, 1993. An Agreed Order Discharging Guaranteed
Student Loan was entered on November 5, 1993, disposing of William's debt to
defendant Higher Education Assistance Foundation. An Agreed Order dismissing the United States as a party to this
action was entered on January 13, 1994.
Default judgments were entered against defendants Morehead State University
and Georgetown College on March 9, 1994.
The plaintiffs and KHEAA entered into a joint
stipulation of fact prior to the trial of this matter. Therein they stated the following pertinent
facts:
1. William
received $1616.20 as a student loan which is now held by KHEAA.
2. William
has paid $638.55 in principal and $111.45 in interest on this loan.
3. William
now owes KHEAA $977.65 in principal and $69.93 in interest which continues to
accrue at the rate of $0.21 per day.
4. Lisa
borrowed $350.70 as a student loan which is now held by KHEAA.
5. Neither
Lisa nor KHEAA has been able to determine if any payments have been made on
this loan.
6. The
plaintiffs' daughter, Stephanie, age 2, has been diagnosed with Idiopathic
Thrombocytopenic Purpura ("ITP").
According to Dr. Jyothi Mettu, the physician who has been treating her since
April 20, 1993, Stephanie Childers' condition causes bleeding and easy
bruising. She has an increased risk for
bleeding from minor injuries, and any injury can cause excess and unusual
bleeding. Dr. Mettu states that
Stephanie's platelet count can fluctuate from normal to dangerously low levels,
that she requires frequent doctor visits and lab work, that her mother must
watch her at all times, and that there is no way to know when she will outgrow
this problem.
The schedules filed with the plaintiffs'
petition show that their net income, including $199.00 in food stamps, is
$1397.38 per month. Their monthly
expenses, which do not include any "luxury" items, total $1407.00. Their schedules further indicate that they
have a significant amount of other debt, including that incurred for medical
bills, in addition to student loan debt.
Conclusions
of Law
This Court has jurisdiction of this matter
pursuant to 28 U.S.C. '1334(b); it is a core proceeding pursuant to
28 U.S.C. '157(b)(2)(I). A debt for a student loan is nondischargeable pursuant to 11
U.S.C. '523(a)(8) unless "excepting such debt
from discharge under this paragraph will impose an undue hardship on the debtor
and the debtor's dependents." The
plaintiffs contend that they fit within this exception, and they bear the
burden of proof in establishing that undue hardship exists.
The classic test for discharge of a student
loan for undue hardship is a three-pronged test derived from In re Johnson,
5 B.C.D. 532 (Bankr.E.D.Pa. 1979). This
test is applied in making a factual analysis of each case by examining the
debtor's present and future needs, the debtor's good faith, and whether the
policy requirements of the Bankruptcy Code are met.
The plaintiffs herein have demonstrated that
they are unable to meet their obligations even without taking into account any
payments on student loans. Their
prospects into the foreseeable future do not look any better. They have demonstrated their good faith by
the fact that some payment on William's student loan obligation has been
made. In addition, they have apparently
minimized expenses and maximized income.
Their lifestyle appears Spartan at best, and William has two jobs. Finally, it does not appear that the
plaintiffs' primary reason for filing bankruptcy was to be relieved of their
student loan debt.
As concerns policy, the Court is required
to
determine whether allowing discharge of a given educational loan would further
the policy behind the enactment of '523(a)(8)(B). Congress' principal concern in this
regard was the perception that some debtors abused the bankruptcy process by
filing solely or primarily to discharge large government-incurred student loan
obligations when bankruptcy relief was not actually needed. H.R.Rep. No. 595, 95th Cong., 1st Sess. 133
(1977), U.S.Code Cong. & Admin.News 1978, p.5787. The Court also should consider as part of this test the amount
and percentage of the debtor's indebtedness which is represented by the subject
educational loan and the benefit derived from the education received. (Cite omitted).
In
re Evans, 131 B.R. 372, at
375 (Bkrtcy.S.D.Ohio 1991). This Court
can safely conclude that allowing the plaintiffs to discharge their student
loan obligations will not violate the policy behind the undue hardship exception.
Counsel for the parties are directed to
prepare a judgment in conformity with the foregoing Findings of Fact and
Conclusions of Law.
Dated:
By
the Court -
____________________________
Judge
Copies to:
Debtors
Deborah Spring, Esq.
Diana L. Barber,
Esq.