UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
COVINGTON DIVISION
IN RE:
DELBERT LYNN SPIECE
DEBTOR CASE
NO. 97-21914
DELBERT L. SPIECE PLAINTIFF
VS. ADV.
NO. 98-2016
NEW JERSEY HIGHER EDUCATION
ASSISTANCE AUTHORITY DEFENDANT
MEMORANDUM OPINION
This matter is again before the Court on the parties
Motions for Summary Judgment to resolve the question of whether or not the
plaintiff should be discharged of his student loan debts to the defendant on
the basis of undue hardship. This
proceeding has had a longer and more torturous history than it should have on
account of the plaintiffs difficulty in providing the Court with definitive
information concerning his income and expenses. The plaintiff has experienced several changes in his situation
since he was last before the Court, most significantly having been
divorced. The Court will review the
record and evaluate the most recent information he has provided.
A debtor who files a complaint seeking to have a
student loan obligation discharged on account of undue hardship must show by a
preponderance of the evidence that he satisfies the test set out in Brunner
v. New York State Higher Educ. Services, 831 F.2d 395 (2nd Cir.
1987):
(1)
that the debtor cannot maintain, based on current income and expenses, a
minimal standard of living for herself and her dependents if forced to repay
the loans; (2) that additional circumstances exist indicating that this state
of affairs is likely to persist for a significant portion of the repayment
period of the student loans; (3) that the debtor has made a good faith effort
to repay the loans.
At
396. This test has not been
specifically adopted in the Sixth Circuit, although it has been approved and
employed. See In re Cheesman,
25 F.3d 356 (6th Cir. 1994); In re Dolph, 215 B.R. 832 (6th
Cir.BAP 1998). The Bankruptcy Code does
not define undue hardship.
Previously the plaintiff and defendant had submitted
Joint Stipulations (Doc. # 18) stating that the plaintiff owed the defendant
$19,449.72, plus costs and interest at the legal rate from December 31, 1996,
pursuant to a Judgment entered in favor of the defendant in New Jersey based on
the plaintiffs default on six separate student loan promissory notes dating
from 1990 to 1993. The plaintiff has
never made a payment to the defendant since the defendant acquired the
notes. The plaintiffs initial payments
on the student loans were through Sallie Mae Servicing and he believed that
he made approximately seven payments on these loans prior to their assignment
to the defendant.
They further stipulated that the plaintiff had not
used the education he received in any of his employment. He was married and supported his wife and
four children. He was grossing
approximately $776.07 per week for a 70 hour week as an independent
driver/carrier. He had to supply his
own transportation for this job. He
expended $409.26 per week for van payments, insurance and maintenance on the
van, gas, and transportation. He had to
pay for rent, utilities, food, clothing and other necessities for himself and
his family out of his net wages. He had
no medical or life insurance for himself or his family. His wife and children, especially one child,
were incurring ongoing medical expenses. The
plaintiffs wife was mugged in December 1996, and suffered many serious
injuries, including a back injury. She
had a claim pending for Social Security disability which if successful would
result in her receiving $400-$600 per month.
In addition to these Joint Stipulations, the plaintiff
had filed an Affidavit with his Motion for Summary Judgment (Doc. # 10) on June
4, 1998, which stated that his current take-home pay was $1,800.00 per
month. From this amount he stated that
he paid monthly expenses of $364.00 for rent, $500.00 for food, $150.00 for
clothing, $126.00 for gas and electric, $40.00 for water and sanitation, $70.00
for cable, $100.00 for medical expenses. $45.00 for telephone, $331.00 for van
payment, and $40.00 for credit card indebtedness. He stated that these expenses totaled $2,006.00 per month, an
amount which exceeded his take-home pay.
In fact, they totaled $1766.00, a difference of $230.00.
Since the plaintiff submitted this information for
consideration, he has experienced changes in his situation, as referred to
above. On December 21, 1999, the
plaintiff filed his verified Answers to Defendants Interrogatories and
Requests for Production of Documents.
(Doc. # 33) This filing reveals that the plaintiff and his wife were
divorced on September 20, 1999, having been married for less than two
years. As set out above, when this
proceeding was first filed they were married, and she had filed for Social
Security disability benefits on account of injuries received in a mugging
incident. Any award she received would
have supplemented their income. Now it
is not a factor. In addition, the four
children referred to above are his former wifes children, and he does not
support them. He does, however, now pay
support for an 11 year old daughter who did not appear as a dependent on his
schedules, his paternity apparently having been established after the filing of
his petition.
The plaintiff lists his current gross income and expenses
in his Answers to Interrogatories. He
states that he is a self-employed truck driver and that his gross monthly
income is $2,619.50. He lists the
following expenses:
Rent $350.00
Electric
140.00
Telephone 60.00
Food 400.00
Credit card debt 50.00
Child support 250.00
Auto payment 300.00
Transportation 100.00
Bush Trucking 400.00
Car insurance 200.00
Clothing 75.00
Medical expenses
100.00
Work expenses 300.00
$2725.00
He
shows the total as $2,665.00 which the record shows was taken from another
compilation which the plaintiff filed on October 12, 1999, in which several
items were different. Apparently no one
bothered to re-add the amounts set out above.
The defendant has argued that the plaintiff should not
be discharged of his debt to it because he has not proved what his income is,
pointing specifically to the plaintiffs failure to submit copies of tax
returns or, it alleges, any other documentary evidence. As a self-employed person, the plaintiff is
required to file quarterly estimated tax returns; however, there is no
provision for taxes shown on his monthly expense itemization, nor is it figured
into any other calculation of his expenses.
The Court would also note that the plaintiff does not show any
expenditures for recreation, charitable giving, or anything else that does not
constitute a basic necessity.
The tax return issue aside, the plaintiff has filed
verified statements (his Affidavit and two sets of Answers to Interrogatories)
in support of his Motion for Summary Judgment.
The plaintiff also filed copies of payment ledgers and receipts showing
what his business income and expenses were at the inception of this proceeding. These were attached to his first set of
Answers to Interrogatories and Request for Production of Documents (Doc. #
13). FRCP 56(e), made applicable in
bankruptcy by FRBP 7056(e), provides that when a motion for summary judgment is
supported by affidavits and supplemented .... by depositions, answers to
interrogatories, or further affidavits .... an adverse party may not rest upon
the mere allegations or denials of the adverse partys pleading, but the
adverse partys response, by affidavits or as otherwise provided in this rule,
must set forth specific facts showing that there is a genuine issue for
trial. The plaintiffs verified
filings establish that his income is barely sufficient to allow him to pay his
basic living expenses. While the
defendant has argued that the information provided by the plaintiff does not
prove his case, it does not offer any specific facts to contradict the
plaintiff.
The defendant did not contend earlier that the
plaintiff had disposable income available out of what he alone earned. Further, the defendants original argument
concerning the plaintiffs access to disposable income sufficient to make
payments on his student loans hinged on the possibility of his former wifes
success in her disability claim. Now that
they are divorced, her income is of no consequence here. However, even assuming the plaintiff has
demonstrated that, based on his current income and expenses, he cannot maintain
a minimal standard of living if forced to repay the student loans, he still
must show that he meets the other two prongs of the Brunner test.
The second
prong, as set out above, is that the debtor must demonstrate that additional
circumstances exist indicating that his inability to maintain a minimal
standard of living is likely to persist for a significant portion of the
repayment period of the student loans.
The plaintiff owes almost $20,000.00 plus interest calculated from
December 1996 and costs. The interest
continues to accrue. Even if the
plaintiff could afford to pay $100.00 per month or more on this debt, it would
take a significant period of time to pay it off. There is nothing to indicate that the plaintiff has any prospects
of doing better financially. He has an
associates degree in liberal arts from a community college, and spent less
than one semester at another institution.
He is marginally better off than a person with a high school
diploma. The Court expects that this
plaintiff will be scraping by well into the future, and certainly for the
duration of whatever period it would take to pay off the student loans.
Finally, there is the question of whether this
plaintiff made a good faith effort to repay these loans. The parties have stipulated that the
plaintiff made seven payments to Sallie Mae Servicing before the loans were
assigned to the defendant. He has not
made any payments to the defendant, but he apparently did make an attempt to
pay. Further, he filed his Chapter 7
petition in November 1997, and therefore did not attempt to discharge the loans
immediately after they became due. In In
re Dolph, 215 B.R. at 838, the panel discussed treatment of the good faith
prong by the Sixth Circuit:
In
Brunner, the court determined that the debtor had not made a good faith effort
at repayment when she sought discharge of her student loans within a month of
their becoming due and without even requesting a deferment of payment. Brunner, 881 F.2d at 397. In Cheesman, the Sixth Circuit noted that,
unlike Brunner, the debtor did not seek discharge of the student loans shortly
after they became due. Cheesman, 25
F.3d at 360 (citing Brunner, 831 F.2d 397.)
The Sixth Circuit also noted that [t]he Cheesmans made minimal payments
on their loans several years after their loans became due and at least a year
before filing for bankruptcy. Cheesman,
25 F.3d at 360.
The
plaintiff therefore seems to meet the criteria set by the Sixth Circuit for
finding that he made a good faith effort to repay.
In consideration of all of the foregoing, it is the
opinion of this Court that the plaintiff has established by a preponderance of
the evidence that it would be an undue hardship for him to be forced to repay
his student loans, and that he is therefore entitled to summary judgment that
they be discharged. Further, the
defendants Motion for Summary Judgment should be overruled. An order in conformity with this opinion
will be entered separately.
Dated:
By
the Court -
Judge
William S. Howard
Copies to:
Sally J. Herald, Esq.
James M. McDonough, Esq.