Perry v. Sallie Mae, Inc. et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
JULIE B. PERRY
Debtor. Case No.: 04-08454-8-JRL
JULIE B. PERRY
Plaintiff,
vs. Adversary Proceeding No.:
05-00099-8-AP
SALLIE MAE, INC., ET AL.,
Defendants.
____________________________________________________________________________
ORDER
The matter before the court is the plaintiff’s complaint to determine whether she is entitled to a
discharge of her student loan debt. On January 12, 2006, the court conducted a trial in Wilson, North
Carolina. Pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure, this Order contains
findings of fact and conclusions of law based thereon.
FINDINGS OF FACT
1. The plaintiff is a married, 33 year-old female who resides outside of Nashville,
Tennessee with her husband and minor child.
2. Neither the plaintiff nor her family suffer from any health problems.
3. The plaintiff obtained two student loans that allowed her to attend college at David
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Lipscomb University and graduate school at Vanderbilt University School of Nursing,
where she obtained her master’s degree.
4. The plaintiff is also a registered nurse.
5. ECMC is the current owner and holder of the plaintiff’s student loans (the “ECMC
loans”).
6. The plaintiff currently works as a nurse for American Mobile Healthcare for thirty six
hours per week at $26 per hour plus a monthly housing allowance of up to $1,100.
7. Her monthly net income is $3800 and her monthly expenses are less than $3000.
8. Her current rent is $925 per month and is covered by her housing allowance.
9. The plaintiff’s husband is currently enrolled in David Lipscomb University to obtain his
teaching degree and will be a full-time student for eighteen months; therefore, the
plaintiff is currently the only means of financial support for her family.
10. The plaintiff’s child is cared for by her father when the plaintiff is working so the family
does not incur child care expenses.
11. The balance on the ECMC loans as of January 10, 2005 is $133,635.83.
12. The monthly payment on the ECMC loans is $787.68.
13. ECMC is a private, non-profit corporation created to provide financial assistance to
and for the benefit of students enrolled for higher education and is a guaranty agency
under 34 C.F.R. § 682.200.
14. The ECMC loans are the type of loans contemplated by 11 U.S.C. § 523(a)(8).
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1The Fourth Circuit had previously applied the Brunner factors in the Chapter 13 context but in
In re Frushour, the Court applied the Brunner test in a Chapter 7 case. See 2005 U.S. App. LEXIS
29018 at *13.
2 A debtor that has cable or Internet connections does not automatically fail this test as the
transmission of information may be vital to a minimal standard of living. See id.
ANALYSIS
Under 11 U.S.C. § 523(a)(8), a discharge under § 727 does not discharge an individual debtor
from a debt “for an educational benefit overpayment or loan made, insured or guaranteed by a
governmental unit, or made under any program funded in whole or in part by a governmental unit or
nonprofit institution.” The only exception is if “such debt will impose an undue hardship on the debtor and
the debtor’s dependents.” See 11 U.S.C. §523(a)(8) (2005). The Fourth Circuit has expressly adopted
the Brunner test as the standard that “should guide the undue hardship analysis.”1 See Educ. Credit Mgmt.
Corp. v. Frushour (In re Frushour), Case No. 04-2553, 2005 U.S. App. LEXIS 29018 at *13-14 (4th
Cir. December 30, 2005).
Under this test, in order to prove an undue hardship, the debtor has the burden of proving three
factors by a preponderance of the evidence. The factors are: “(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; and (3) that the debtor has made good
faith efforts to repay the loans.” In re Frushour, 2005 U.S. App. LEXIS 29018 at *14.
The first factor requires a “case-by-case approach to determine whether certain expenses are or
are not essential for maintaining a minimal standard of living.”2 Id. at *15. The court must evaluate whether
the debtor has maximized her income and minimized her expenses. See Perkins v. Pennsylvania Higher
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3 As the plaintiff did not meet the first and second factors of the Brunner test, the court does not
need to reach the third factor.
Educ. Assistance Agency (In re Perkins), 318 B.R. 300, 305 (Bankr. M.D.N.C. 2004).
In this case, the court finds that the debtor’s net income of $3800 exceeds her monthly expenses
of less than $3000. The plaintiff contends that in the future, her income may be reduced and her expenses
may increase as a result of divorce or unemployment. The court finds, however, that the first factor of the
Brunner test is “based on current income and expenses.” Brunner v. New York State Higher Educ. Serv.
Corp., 831 F.2d 395, 396 (2d Cir. 1987). As such, the debtor does not meet the first factor as she is
currently able to make monthly payments on her ECMC loans and maintain a minimal standard of living for
her family. Additionally, if the debtor consolidates her loans under the William D. Ford Federal Direct Loan
Program, her monthly loan payments will be lower and afford her a better standard of living.
As to the second factor, it is “a demanding requirement” that necessitates a “certainty of
hopelessness” that the debtor will not be able to repay her loans. In re Frushour, 2005 U.S. App. LEXIS
29018 at *16. A debtor might meet this factor if she can show “illness, disability, a lack of useable job
skills, or the existence of a large number of dependents.” Id. The court finds that the debtor in this case is
a healthy young woman who graduated from one of the top universities in the country, with a degree in a
field with many employment opportunities, and is working at the top of her profession. In less than two
years, she will no longer be the sole wage earner in the family and it will not require much contribution from
her husband’s salary to make payments to ECMC. There is no certainty of hopelessness in this case, but
rather, evidence showing that the debtor and her family will achieve more financial success in the near
future.3
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CONCLUSION
Based on a preponderance of the evidence, the plaintiff has not met her burden of showing undue
hardship pursuant to 11 U.S.C. §523(a)(8). The ECMC loans remain nondischargeable. A judgment shall
be entered accordingly.
So Ordered.
Dated: January 24, 2006
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