Avellano v. Educational Credit Management Corporation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-1-	MEMORANDUM DECISION
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re 	)
)
SUZANNE AVELLANO, 	)
)
)
)
Debtor. 	)
)
SUZANNE AVELLANO, 	)
)
Plaintiff, 	)
)
vs. 	)
)
EDUCATIONAL CREDIT MANAGEMENT )
CORPORATION and UNITED STATES )
DEPT. OF HEALTH & HUMAN 	)
SERVICES, 	)
)
Defendants. 	)
______________________________)
SUZANNE AVELLANO, 	)
)
Plaintiff, 	)
)
vs. 	)
)
REGENTS OF THE UNIVERSITY 	)
OF CALIFORNIA, on behalf of 	)
UNIVERSITY OF CALIFORNIA 	)
SANTA BARBARA, 	)
)
Defendant. 	)
______________________________)
Case No. 01-30885 TEC
Chapter 13
Adv. Proc. No. 06-3145 TC
Adv. Proc. No. 08-3048 TC
MEMORANDUM DECISION
Signed and Filed: June 16, 2009
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
June 17, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 1 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-2-	MEMORANDUM DECISION
The court held a trial in this action on April 7, 2009. 	Ruth
Elin Auerbach appeared for Plaintiff-Debtor Suzanne Avellano
(Debtor). 	Miriam E. Hiser appeared for Defendant Educational
Credit Management Corporation (ECMC). 	The court hereby determines
that Debtor’s obligation to ECMC is dischargeable in its entirety
for the reasons set forth below, which shall constitute the court’s
findings of fact and conclusions of law.
FACTS
Suzanne Avellano tried very hard to become a college history
professor. 	She obtained a B.A. in 1980, an M.F.A. in studio art in
1982, an M.A. in Iberian and Latin American Studies in 1984, and
passed the qualifying exams for her Ph.D. in 1987, all from the
University of California Santa Barbara (UCSB). 	Her academic career
stalled, and her Ph.D. candidacy was cancelled, after she asserted
a sexual harassment complaint against her dissertation advisor.
Although she pursued her studies through 1995, she never obtained
her Ph.D. 	Until very recently she was unable to obtain university
records confirming her two masters degrees, because she was unable
to pay the large student loan debt that she accumulated during her
years of study.
Unable to obtain a job in her field of expertise, Ms. Avellano
has largely done clerical work for the past thirteen years. 	She
obtained a temporary position as a college instructor in 1995, but
was unable to qualify for a permanent position, because she was
unable to obtain her transcripts from UCSB. 	Ms. Avellano has
earned the following adjusted gross income since she stopped her
academic work at UCSB in 1995.
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 2 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28 1 Ms. Avellano’s average AGI over the last five years is only
slightly higher ($45,025).
-3-	MEMORANDUM DECISION
1996 	$14,730
1997 	$26,624
1998 	$14,730
1999 	$40,175
2000 	$46,410
2001 	$65,622
2002 	$64,429
2003 	$46,067
2004 	$17,181
2005 	$42,178
2006 	$64,253
2007 	$58,197
2008 	$43,318
13-year
average $43,394 1
Ms. Avellano recently negotiated a settlement with the
University of California, under which she released all claims
against the University and agreed that she would not be allowed to
finish her Ph.D. at the University, while the University agreed to
release her transcripts and forgive those student loans she owed to
the University. 	Ms. Avellano is now 56 years old. 	She testified
that even though she now has access to her academic records, she
will be unable to obtain her Ph.D., because she lacks sufficient
financial resources to start anew at a different university.
Ms. Avellano owes $126,053 in guaranteed student loans to
Defendant ECMC. 	The parties stipulate that, after consolidating
her student loans in 1995, Ms. Avellano voluntarily paid $815 in
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 3 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-4-	MEMORANDUM DECISION
1996, and $7,558 from 2001 to 2006 through her five-year chapter 13
plan. 	Debtor testified that both before and after the chapter 13
case, she offered to make payments that were the maximum she could
afford to pay, but were less than the scheduled amount, and that
ECMC refused to accept those partial payments.
LEGAL STANDARD
Guaranteed student loan debts are excepted from the discharge
that a debtor receives in a chapter 7 case, unless such exception
from discharge “would impose undue hardship on the debtor and
debtor’s dependents.” 	11 U.S.C. § 523(a)(8).
To establish the requisite undue hardship, the debtor must
establish: (1) that she 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 she has made a good faith effort to
repay the loans. 	United Student Aid Funds, Inc. v. Pena (In re
Pena), 155 F.3d 1108, 1111 (9th Cir. 1998).
“Minimal standard of living” does not mean a middle-class
lifestyle, and contemplates that the debtor can be required to make
“major personal and financial sacrifices,” but it does not require
the court rigidly to apply Internal Revenue Service standards or
federal poverty guidelines. 	Education Credit Management Corp. v.
Howe (In re Howe), 319 B.R. 886, 889-90 (9th Cir. BAP 2005). 	The
court may consider such guidelines, but must make its determination
on the basis of the debtor’s individual circumstances, taking
account of all actual expenses reasonably necessary to the
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 4 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
2 Debtor in the recent past had purchased health insurance for
$500 per month. 	She does not currently have health insurance,
because she cannot pay for it while she is unemployed. 	I determine
that a minimal standard of living includes health insurance, and
that she should be entitled to include her historical cost of
health insurance in determining her expenses during time periods in
which she is employed.
-5-	MEMORANDUM DECISION
maintenance of a minimal standard of living by that debtor. 	Id. at
893-94.
DISCUSSION
1. 	Debtor has no disposable income over minimum living expenses
from which to repay her student loans.
Debtor was unemployed at the time of trial. 	Her adjusted
gross income (AGI) for 2008 was $43,318. 	Her average AGI over the
past thirteen years was $43,394, which would result in monthly
take-home pay of $2,753 (with no deductions for medical insurance
or for retirement other than Social Security).
At present, Debtor is actually incurring the following monthly
expenses.
Rent 	$1,567
Utilities 	90
Food 	500
Medical 	500 2
Phone 	110
Transportation 	50
Cleaning/Laundry 	90
Travel 	25
TOTAL 	$2,932
The expenditures shown above provide for Debtor’s minimum
expenses, rather than a middle-class lifestyle, as they provide
Debtor modest housing, no automobile, and a total of only $300 per
year to visit her daughter in Las Vegas and her parents in Southern
California. 	Indeed, the listed expenses probably understate
Debtor’s reasonable needs, as they include no allowance at all for
clothing, books, or entertainment. 	That Debtor’s claimed expenses
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 5 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
3 See IRS Collection Financial Standards (necessary living
expenses for a single person living in San Francisco County in 2009
is $2,820); cf. In re Voelkel, 322 B.R. 138, 148-49 (9th Cir. BAP
2005) (IRS standards represent a calculation of an individual’s
basic living expenses).
-6-	MEMORANDUM DECISION
are necessary to a minimal standard of living is supported by the
fact that they are very similar to the IRS guidelines. 3
So long as Debtor does not earn income materially above her
thirteen-year average, she has no income in excess of those
expenses reasonably necessary to maintain a minimal standard of
living, and cannot make any payment on her obligation to ECMC.
2. 	Debtor’s lack of disposable income is likely to persist for
the foreseeable future.
For the reasons set forth below, I determine that Debtor’s
average future income is not likely to exceed the average income
that she earned over the past thirteen years.
First, although Debtor is intelligent and well-educated, her
skills are not readily marketable. 	Debtor’s training is in art and
Latin American history, which would be utilized most fully in
college teaching. 	Debtor does not qualify for a tenure-track
teaching position, however, because she does not have a Ph.D. 	Nor
does she have the resources to obtain a Ph.D. 	Under her settlement
with the University of California, Debtor is precluded from
obtaining a Ph.D. at that school, and she does not have the
financial resources to complete a Ph.D. program elsewhere.
Gaining the ability to document her masters degrees will likely
help Debtor to obtain a lower-level teaching position and utilize
her skills more fully, but is not likely to enable her to increase
her income above her historical average.
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 6 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-7-	MEMORANDUM DECISION
Second, although Debtor is a person who could readily learn
new skills enabling her to perform higher-paying jobs in the
business sector, her opportunity for acquiring such skills is
limited. 	She does not have the financial resources to pay for such
training herself and, at age 56, Debtor is also not the most
natural recipient of employer-provided training, as an employer
would have a limited number of working years to recover the cost of
such training.
Third, Debtor is currently unemployed. 	Newly armed with
records documenting her masters degrees, Debtor may be able to
obtain a job that pays $60,000 or more, but it is also possible
that she may remain unemployed for some time. 	The possibility that
Debtor may be able to find a job enabling her to earn income above
her thirteen-year historical average should be discounted for the
likelihood of periodic employment. 	In light of Debtor’s age and
the current uncertain status of the American economy, I determine
that it is more likely than not that Debtor’s average future income
will not materially exceed her thirteen-year historical average.
3. 	Debtor has made a good faith effort to repay her student
loans.
“Good faith is measured by the debtor’s efforts to obtain
employment, maximize income, and minimize expenses.” 	ECMC v. Mason
(In re Mason), 465 F.3d 878, 884 (9th Cir. 2006) (citation
omitted). 	Courts will also consider a “‘debtor’s effort-or lack
thereof-to negotiate a repayment plan’ although a history of making
or not making payments is, by itself, not dispositive.” 	Mason, 464
F.3d at 884 (citation omitted).
Since withdrawing from her studies in 1996, Debtor has worked
every year until February 2008, when she was laid off. 	After
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 7 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
-8-	MEMORANDUM DECISION
unsuccessful efforts in 1995 to obtain a permanent teaching
position, Debtor obtained various clerical jobs, earning a yearly
average of $43,394 from 1996 through 2008. 	Debtor was unable to
obtain employment in her area of expertise, due to UCSB’s refusal
to release her transcripts until three months ago.
Debtor lives frugally. 	As noted above, her monthly expenses
cover only her basic, necessary living expenses. 	Debtor has
voluntarily paid $8,373.47 to ECMC. 	The bulk of that amount was
paid pursuant to Debtor’s chapter 13 plan, which required Debtor to
commit all of her disposable income to payment of creditors for a
five-year period. 	Debtor made all the payments required under that
plan. 	Debtor’s unrebutted testimony established that both before
and after her chapter 13 case, she tendered partial payments to
ECMC, but that ECMC rejected those payments.
Because Debtor has worked diligently since 1996, because
Debtor lives frugally, because Debtor made two voluntary payments
to ECMC in 1996 and paid one hundred percent of her disposable
income towards debt repayment between 2001 and 2006, and because
before and after after completion of her plan, Debtor tendered ECMC
partial payments and ECMC refused such payments, I determine that
Debtor has made good faith efforts to repay ECMC.
CONCLUSION
I determine that Debtor has made a good faith effort to repay
the ECMC student loan, that Debtor cannot pay any amount on that
loan while maintaining a minimal standard of living, and that this
financial condition is likely to persist for the foreseeable
future. 	Accordingly, I determine that Debtor’s obligation to ECMC
is dischargeable in its entirety.
**END OF MEMORANDUM DECISION**
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 8 of 9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
MEMORANDUM DECISION
Court Service List
Ruth Elin Auerbach
Law Offices of Ruth Elin Auerbach
711 Van Ness Avenue, Suite 440
San Francisco, CA 94102
Miriam E. Hiser, Esq.
Law Offices of Miriam E. Hiser
550 Montgomery Street, Suite 650
San Francisco, CA 94111
Eric K. Behrens
The Regents of the University of Calif.
1111 Franklin Street, 8th Floor
Oakland, CA 94607-5200
Kevin V. Ryan, Esq.
Office of the U.S. Attorney
450 Golden Gate Avenue
Box 36055
San Francisco, CA 94102-3495
Case: 06-03145 Doc# 35 Filed: 06/16/09 Entered: 06/17/09 10:15:22 Page 9 of 9