Healy v. United States Department of Education et al

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-
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	) Bankruptcy Case
) No. 05-34722DM
MARGE E. HEALY, 	)
)
Debtor. 	) Chapter 7
___________________________________)
MARGE E. HEALY, 	) Adversary Proceeding
) No. 09-3033DM
Plaintiff, 	)
)
v. 	)
)
UNITED STATES DEPARTMENT OF 	)
EDUCATION, EDUCATIONAL CREDIT 	)
MANAGEMENT CORPORATION, JFK 	)
UNIVERSITY, and E.C.S.I., 	)
)
Defendants. )
___________________________________)
MEMORANDUM DECISION FOLLOWING TRIAL TO
DETERMINE DISCHARGEABILITY OF STUDENT LOAN
I. 	INTRODUCTION
On May 3, 2010, the court conducted a trial on the complaint
of plaintiff Marge E. Healy (“Healy”) against defendant
Educational Credit Management Corporation (“ECMC”). 	Healy
appeared and was represented by Cheryl C. Rouse, Esq. and Norman
P. Bahlert, Esq., her attorneys; ECMC appeared and was represented
by Miriam Hiser, Esq., its attorney.
For the reasons discussed below, the court concludes that
Healy is not entitled to discharge her debt to ECMC.
Signed and Filed: June 29, 2010
________________________________________
DENNIS MONTALI
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
June 30, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 09-03033 Doc# 19 Filed: 06/29/10 Entered: 06/30/10 14:10:47 Page 1 of 7

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 The following discussion constitutes the court's findings
of fact and conclusions of law. 	Fed. R. Bankr. P. 7052(a).
-2-
II. 	FACTS 1
Healy owes ECMC, the present holder of loans (the “ECMC
loans”), at least $141,534.92. 	The ECMC loans are educational
loans that are subject to a test for dischargeability under 11
U.S.C. § 523(a)(8), which presumes that such educational loans are
nondischargeable unless the debtor can demonstrate that the
payment would be an undue hardship.
Healy is almost seventy-four years old. 	She incurred ECMC
loans between June, 1990 and July, 1993; the principal amount
originally loaned was $45,749.
During 1996 and 1997, Healy paid approximately $1,700 on
account of the ECMC loans and more recently suffered a wage
garnishment in the amount of $677.70 and a social security offset
of $229.80 applied to the same loans. 	She also paid $854.61 in
respect of other educational loans not held by ECMC.
She made no voluntary payments on account of the ECMC loans
after 1997 and she filed Chapter 7 in this court on October 14,
2005. 	This adversary proceeding was commenced nearly 3-1/2 years
later, on February 23, 2009.
For the years 2007, 2008 and 2009, Healy’s adjusted gross
income (“AGI”) reported on her federal tax returns was $15,789,
$17,201 and $32,027, respectively. 	The increase in her income for
2009 is largely attributed to a nine month temporary employment
situation (through March 28, 2010) wherein she was able to earn
just under $20 an hour and worked thirty-five hours a week,
compared to $14.50 an hour for shorter work weeks in other periods
Case: 09-03033 Doc# 19 Filed: 06/29/10 Entered: 06/30/10 14:10:47 Page 2 of 7

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-
while working on an “on-call” situation. 	Healy expects that her
AGI for 2010 will approximate the amount she reported in 2007 and
2008.
After filing her Chapter 7 bankruptcy in 2005, Healy incurred
debt on four credit cards. 	She presently owes $7,512 on them and
budgets monthly payments on those four debts totaling $340. 	The
record does not reflect what Healy used the post-petition credit
card advances for, but the court presumes they were for Healy’s
routine living expenses or perhaps in connection with a small
business activity that she has operated at a loss for the last few
years.
ECMC argues that Healy should avail herself of either the
Income Contingent Repayment Program (“ICRP”) or a more favorable
Income Based Repayment Program (“IBR”). 	Based upon Healy’s AGI
for 2007 and 2008, her ICRP payments would be just under $103 and
IBR payments would be $10; for the 2009 AGI, her ICRP payment
would be $353.28 and her IBR payment would be $197.28.
III. 	DISCUSSION
The parties have throughly briefed, and are quite familiar
with the Ninth Circuit’s requirements set forth in the United
Student Aid Funds, Inc. v. Pena, (In re Pena) 155 F.3d 1108 (9th
Cir. 1998), namely that a debtor seeking to discharge an
educational loan under section 523(a)(8) must establish that she
cannot maintain a minimum standard of living, based on current
income and expenses, if forced to repay the loan; that additional
circumstances exist such that the state of affairs is likely to
persist; and that she has made a good faith effort to repay the
loan. 	All three elements of the Pena test must be proven.
Case: 09-03033 Doc# 19 Filed: 06/29/10 Entered: 06/30/10 14:10:47 Page 3 of 7

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-
Healy has established without serious debate that she has
satisfied the second prong of Pena based upon her age, her
deteriorating health, and a dismal prognosis for increased income
in the future. 	Unfortunately for Healy, the availability of the
IBR convinces the court that she has not satisfied the first prong
of the Pena test because, based upon her current income and
expenses, she would be able to make the IBR payments on her debt
to ECMC.
The court reaches this conclusion by declining to take into
account the $340 per month Healy is obligated to pay the issuers
of four post-petition credit cards. 	The court agrees with the
decision of the bankruptcy court in the Zygarewicz case (Case No.
05-31918-a-7 Bankr. (E.D. Cal.)), filed January 15, 2010, namely
that given such a long period of time between Healy’s petition
date and the date of this adversary proceeding, the post-petition
credit card debt may not be considered. 	Rather, the circumstances
of the debtor’s financial affairs must be taken into on or about
the time of entry of discharge. 	Applying that court’s reasoning,
to allow events that have occurred many years later would amount
to a “perpetual license to discharge student loan debts based on
events that occurred years after the bankruptcy discharge is
granted.”
Healy’s strongest argument about avoiding the IBR is that her
2009 AGI will force her into an impossible situation of requiring
payments of as much as $197.28. 	Her prior recent employment
history and likely future employment situation (AGI below $20,000)
will result in an IBR payment of $10.
Assuming that Healy could enroll in the IBR immediately and
Case: 09-03033 Doc# 19 Filed: 06/29/10 Entered: 06/30/10 14:10:47 Page 4 of 7

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
2If necessary, the court would consider staying the
effectiveness of the judgment of non-dischargeability in favor of
ECMC until the end of 2010.
-5-
thus would be required to submit her 2009 AGI as a starting point,
her current income and expenses suggest that $197.28 might be too
onerous. 	But that over states the problem and ignores reality.
First, Healy must go through several steps. 	As set forth in
ECMC’s post-trial brief, the ECMC loans, at present being in a
default situation, are not eligible for IBR. 	First Healy must
consolidate her loans through the William D. Ford Federal Direct
Loan Program. 	After that she can elect a repayment program under
the IBR.
Healy has not explained how long that will take and ECMC’s
counsel has pointed out in her post-trial brief that the process
was explained in a letter of November 9, 2009, that is not in
evidence. 	The court presumes that if Healy were to proceed to
consolidate through the Ford Program and then apply for IBR, by
the time she became fully qualified under IBR she would either be
obligated to pay the $197.28 figure for no more than two or three
months and then, upon submission of her 2010 federal tax return
with the expected lower AGI, she would qualify for a considerable
lower payment. 2
From the foregoing the Court concludes that with Healy’s
current and projected income, while modest, and her expenses,
while not unreasonable (except for the credit cards payments), she
could make the extremely small payments under IBR. 	Thus on the
record presented, Healy has not satisfied the first prong of
Case: 09-03033 Doc# 19 Filed: 06/29/10 Entered: 06/30/10 14:10:47 Page 5 of 7

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
3The court appreciates Healy’s counsel’s argument about the
reality that no matter what program Healy participates in, she
will never, ever pay down any of the principal on the ECMC loans.
While a novel argument, the law requires the court to consider
whether payments can be made, not how those payments will be
applied by ECMC.
4In making the foregoing point, the court does not attribute
to Healy any bad faith. 	In fact, the court is sympathetic to her
plight. 	The “bad faith” test in Pena is a legal term that simply
applies under these circumstances.
-6-
Pena. 3
Because the first prong of Pena has not been satisfied, the
court need not decide the third prong although Healy’s failure to
make any payments for over twelve years, and her failure to
consider the IBR, do suggest the good faith standard of Pena might
not have been satisfied. 4
Finally, the court is mindful of the fact that Healy’s
counsel has argued that even if she is able to live an additional
twenty-five years (certainly not within any reasonable actuarial
expectancy) and fully performs under the twenty-five year term of
the IBR, she will be saddled with either the remaining debt, or
some sort of a speculative tax on debt forgiveness that she will
carry to her grave. 	The court accepts ECMC’s argument that such
an outcome is highly speculative and not determinative of the
outcome reached here.
IV. 	CONCLUSION
Counsel for ECMC should submit a form of judgment declaring
the ECMC debt nondischargeable for the reasons stated in this
Memorandum Decision. 	Before doing so, counsel for both sides
Case: 09-03033 Doc# 19 Filed: 06/29/10 Entered: 06/30/10 14:10:47 Page 6 of 7

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-
should meet and confer about a consensual form of judgment that
stays the effectiveness of the judgment until January, 2011.
**END OF MEMORANDUM DECISION**
Case: 09-03033 Doc# 19 Filed: 06/29/10 Entered: 06/30/10 14:10:47 Page 7 of 7