Austin v. U.S. Department of Education et al

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND
at Greenbelt
IN RE: :
:
ALEXANDRA CELIA AUSTIN : Case No. 04-29109PM
: Chapter 7
Debtor :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - :
ALEXANDRA CELIA AUSTIN :
Plaintiff :
vs. : Adversary No. 04-2214PM
U.S. DEPARTMENT OF EDUCATION : :
HELP SERVICE GROUP, INC. :
Defendants :
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - :
MEMORANDUM OF DECISION
Before the court is the Complaint filed by Debtor, Alexandra Celia Austin, pursuant to
§ 523(a)(8) of the Bankruptcy Code, whereby she seeks a ruling of this court that the debt owed
to the United States Department of Education in the sum of $102,564.24, and a debt owing to
HELP Service Group, Inc. (“HELP”), a Florida non-profit corporation, in the sum of $75,891.00,
should be discharged, as a ruling to the contrary would impose an undue hardship on the Debtor
and her dependents. Section 523(a)(8) provides:
11 U.S.C. § 523. Exceptions to discharge
(a) A discharge under section 727, 1141, 1228(a) 1228(b), or 1328(b) of
this title does not discharge an individual debtor from any debt--
* * * * *
(8) for an educational benefit overpayment or load made, insured,
or guaranteed by a governmental unit, or made under any program funded
Date signed November 22, 2005
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in whole or in part by a governmental unit or nonprofit institution, or for
an obligation to repay funds received as an educational benefit,
scholarship, or stipend,
unless excepting such debt from discharge under this paragraph
will impose an undue hardship on the debtor and the debtor’s
dependents.
Debtor resides with her fiance, Terris Bynum, and her daughters, Anna Bynum, born
March 22, 2005, and Olivia Bynum, born January 10, 2003, in public housing provided by
Calvert County, Maryland. She is not presently employed. Debtor’s education and work history
are set forth in her resume that appears as HELP’s Exhibit 6. That resume reflects that Debtor
obtained a Bachelor of Arts Degree from the University of Maryland in 1991, a Juris Doctor
Degree from St. Thomas University School of Law in Miami in 1995, and a LLM in Taxation
from Georgetown University Law Center in 1996. The student loans were incurred to finance
her legal education. Debtor was the Articles Editor of the St. Thomas University Law Review.
While Debtor has passed the Maryland Bar examination, she has not yet been admitted to the
Maryland Bar. Her application is pending.
After obtaining her master’s degree, Debtor returned to Florida, where she worked as an
associate attorney from 1997 to 1999, and then as a sole practitioner until 2001. Debtor left
Florida to come to this area to assist her mother. Debtor’s employment in the Metropolitan
Washington area appears to have been as a horseback riding instructor at the MerryMount
Equestrian Center in Upper Marlboro, Maryland, and as a stablehand. Debtor testified that she
has made numerous applications for employment in the Federal Government and elsewhere in
the legal field without success. The 4-person household depends almost entirely upon Mr.
Bynum for support, although the Debtor’s mother makes substantial contributions in the form of
food and clothing purchases, particularly for her grandchildren.
Debtor’s monthly financial statement reflects a very frugal budget. She is entirely
dependent upon Mr. Bynum. Mr. Bynum’s financial ability to support the Debtor and her two
children is hampered by a court order requiring him to support his son. He is employed as a
WalMart associate, although he is training to go into the healthcare field.
Debtor had three student loan accounts. One account owing to American Education
Services of Harrisburg, Pennsylvania, was paid off in full, primarily through a lump-sum
payment of $9,423.04 made on April 30, 1999. On the Department of Education loan, Debtor
has made total payments of $3,450.00 in the period July 16, 1999, through February 26, 2001, all
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but $327.49 being applied to interest. While Debtor’s Exhibit 12 is not entirely clear, it appears
that at least one payment was made on the principal of the HELP loan.
Debtor conducted the trial on her own behalf. Her performance in court was equal to that
of many attorneys who appear in this court and better than some. She was well prepared and
articulate. While Debtor testified that she suffers from Graves Disease and gestational diabetes,
there was no competent evidence presented as to the impact that these conditions will have upon
her future employment efforts.
The governing law in this Circuit regarding the dischargeability of student loans is found
in the case of In re Ekenasi, 325 F.3d 541, 546 (CA4 2003). In the Ekenasi case the Circuit
adopted the test set forth in the case of Brunner v. New York State Higher Educ. Services Corp.,
831 F.2d 395, 396 (CA2 1987) (Under this test, the debtor must establish (1) that he cannot
maintain a minimal standard of living for himself and his dependents, based upon his current
income and expenses, if he is required to repay the student loan; (2) that additional circumstances
indicate that his ability to do so is likely to exist for a significant portion of the repayment period
of the student loans; and (3) that he has made good faith efforts to repay the loans). In order to
sustain the Debtor’s burden that repayment of the loan qualifies as an undue hardship, a term not
defined in the Bankruptcy Code, the Debtor must show that:
“additional circumstances exist indicating that she cannot maintain a minimal
standard of living for a significant portion of the repayment period if forced to
repay her loans. This is a demanding requirement. As we indicated in Faish [72
F.3d 298 (CA3 1995)], it is not enough for Brightful to demonstrate that she is
currently in financial straits; rather, she must prove ‘a total incapacity . . . in the
future to pay [her] debts for reasons not within [her] control.’ Id. at 307 (quoting
In re: Brunner, 46 B.R. 752, 758 (S.D.N.Y. 1985). In other words,
‘dischargeability of student loans should be based upon the certainty of
hopelessness, not simply a present inability to fulfill financial commitment.’
Brunner, 46 B.R. at 755 (quoting In re: Briscoe, 16 B.R. 128, 131 (Bankr.
S.D.N.Y. 1981))); see also In re: Ballard, 60 B.R. 673, 675 (Bankr.W.D. Va.
1986) (explaining that ‘[a] finding of undue hardship is reserved for the
exceptional case and requires the presence of unique or extraordinary
circumstances which would render it unlikely that the debtor ever would be able
to honor his obligations’).”
In re Brightful, 267 F.3d 324, 328-29 (CA3 2001).
Getting back to the 3-part Brunner test, the court finds that Debtor sustained her burden
by a wide margin as to the first aspect of the test based on her current situation. No one contends
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that she can maintain a minimal standard of living for herself and her daughters if she is forced to
repay the loans at this time. It is not so clear as to the third aspect that she has made a good faith
effort to repay the loans. She received six forebearance or deferment letters from Sally Mae, now
the Defendant, HELP Service Group, Inc. She did pay some $3,450.00 over the entire term of
the loan to the Department of Education. What is very puzzling about her efforts is that she
repaid American Education Services in full, primarily with one lump sum payment made April
30, 1999, in the sum of $9,423.04. The source of this large sum of money is undisclosed. There
is likewise no explanation as to why this one loan in particular was singled out for special
treatment. Debtor has not sustained her burden with respect to this aspect of the Brunner test.
As to the second element, the court cannot find a total incapacity to repay the student
loans for indefinite period in the future. The Debtor has a master’s degree in taxation from the
Georgetown University Law Center. Graduates of this prestigious institution are generally well
compensated. Within the foreseeable future, the Debtor’s children will be in school; she will be
in a position to rejoin the workforce, having voluntarily elected to leave it. The court had the
opportunity to observe Debtor’s conduct in court and to make some appraisal of her legal ability.
Nonetheless, the court finds that some accommodation must be made to this Debtor.
Should she return to work, her eligibility for food stamps and rent assistance will cease.
Therefore, the court will cause, from the date of the entry of the Order herein forward, that the
interest rate on the educational loans owing to the two Defendants be reduced to the sum of 1%
per annum. An appropriate order will be entered.
cc:
Alexandra C. Austin, 8500 Stock Drive, Lusby, MD 20657
Larry D. Adams, Esq., Assistant U.S. Attorney
6625 U.S. Courthouse, 101 West Lombard Street, Baltimore, MD 21201
Allen F. Loucks, U.S. Attorney, 101 West Lombard Street, Baltimore, MD 21201
Thomas J. Sippel, Esq., 98 Church Street, Rockville, MD 20850
Merrill Cohen, 7910 Woodmont Avenue, Suite 760, Bethesda, MD 20814
End of Memorandum
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