UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
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.
By the Court -
Deborah Spring, Esq.
Diana L. Barber, Esq.