Easley v. Educational Credit Management Corporation

IN THE UNITED STATES BANKRUPTCY COURT FOR THE
WESTERN DISTRICT OF MISSOURI
IN RE: 	)
)
NINNIS EUGENE EASLEY and 	)
ANITA EASLEY, 	) 	Case No. 04-20221
)
Debtors. 	)
___________________________________ 	)
ANITA EASLEY, 	) 	Adversary No. 04-2017
)
Plaintiff, 	)
)
v. 	)
)
EDUCATIONAL CREDIT MANAGEMENT 	)
CORPORATION, et al., 	)
)
Defendant. 	)
MEMORANDUM OPINION
Anita Easley (“Debtor”) filed a complaint seeking a determination that her student loan debt
should be excepted from discharge pursuant to 11 U.S.C. § 523(a)(8) on the ground that repayment
of such debt would impose upon her an undue hardship, which allegations the defendant Educational
Credit Management Corporation (“Defendant”) denied. This is a core proceeding under 28 U.S.C.
§ 157(b)(2)(I) over which the Court has jurisdiction pursuant to 28 U.S.C. § 1334(b), 157(a), and
157(b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance
with Rule 52 of the Federal Rules of Civil Procedure as made applicable to this proceeding by Rule
7052 of the Federal Rules of Bankruptcy Procedure. For the reasons set forth below, I find that
Debtor’s student loan debt is dischargeable pursuant to § 523(a)(8).
I. FACTUAL BACKGROUND
Debtor incurred student loans to finance her education while attending Lincoln
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1Defendant’s Exs. 1, 2 & 4,
2Plaintiff’s Ex. 12.
3Plaintiff’s Exs. 3, 13.
2
University nursing school and the College of Health Careers. Debtor did not receive a degree
from Lincoln University but obtained a degree in EKG Technology in 1991 from the College of
Health Careers. The loan at issue was issued to Debtor to attend the College of Health Careers.
The original lender on Debtor’s student loan was Sallie Mae and the guarantor was the Illinois
Student Assistance Commission which assigned the loan at issue to Defendant.1 Debtor married
Ninnis Easley in 1992. They have three children. Debtor had several jobs from 1994-1997,
including working at a factory and a hospital. In 2000, Debtor obtained a job at the Mid-Missouri
Psychiatric Hospital as a nurse’s aid. A patient attacked her while she was employed there and
her back was injured. The Worker’s Compensation Board determined that she had a 5%
permanent partial disability and her doctor recommended a permanent 20 pound lifting
restriction. 2 In 2002, she was employed as a nursing technician at the University of Missouri
Hospital but was terminated from that job due to another back injury and her lifting restriction. 3
Debtor has applied for other jobs but has been unsuccessful in obtaining employment. Debtor
testified that she can only work a morning shift because she has to be at home when her children
are there as her husband is not able to care for them alone. She currently works part-time at a
restaurant owned by her brother.
Debtor’s husband was employed by Kraft Foods in Columbia, Missouri. In 2002, he
began having seizures which caused him to be unable to perform his job. Mr. Easley qualified
for disability insurance through his employer and has now qualified for social security benefits.
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Debtor filed a Chapter 7 bankruptcy petition on February 4, 2004, and filed this
adversary proceeding seeking discharge of her student loans due to hardship on May 14, 2004.
II. DISCUSSION
A. Undue Hardship
Debtor contends that it would be an undue hardship for her to repay the remaining
amount due. Under § 523(a)(8), certain student loans are nondischargeable unless repayment of
the loan would impose an undue hardship on the debtor or her dependents. The burden of
establishing undue hardship, by a preponderance of the evidence, is on the debtor. Andrews v.
South Dakota Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 704 (8th Cir. 1981);
Ford v. Student Loan Guarantee Found. of Arkansas (In re Ford), 269 B.R. 673, 675 (B.A.P. 8th
Cir. 2001). Unfortunately, the Code contains no definition of the phrase “undue hardship” and
interpretation of the concept has been left to the courts. In this Circuit, the applicable standard is
the “totality of the circumstances” test. Long v. Educ. Credit Mgmt. Corp. (In re Long), 322
F.3d 549, 554 (8th Cir. 2003); Andrews, 661 F.2d at 704. In applying this approach, the courts
are to consider: (1) the debtor’s past, current and reasonably reliable future financial resources;
(2) the reasonable necessary living expenses of the debtor and the debtor’s dependents; and (3)
other relevant facts and circumstances unique to the particular case. Long, 322 F.3d at 544;
Ford, 269 B.R. at 676. The principal inquiry is to determine whether “the debtor’s reasonable
future financial resources will sufficiently cover payment of the student loan debt – while still
allowing for a minimal standard of living”; if so, the indebtedness should not be discharged.
Long, 322 F.3d at 554. The Court must determine "whether there would be anything left from
the debtor's estimated future income to enable the debtor to make some payment on her student
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loan without reducing what the debtor and her dependents need to maintain a minimal standard
of living." In re Andresen, 232 B.R. 127, 139 (B.A.P. 8th Cir. 1999); accord Long, 322 F.3d at
554-55.
The “totality of the circumstances” is obviously a very broad test, giving the Court
considerable flexibility. As a result, courts in the Eighth Circuit have looked to a number of
facts and circumstances to assisting them in making this determination including: (1) total
present and future incapacity to pay debts for reasons not within the control of the debtor; (2)
whether the debtor has made a good faith effort to negotiate a deferment or forbearance of
payment; (3) whether the hardship will be long-term; (4) whether the debtor has made payments
on the student loan; (5) whether there is permanent or long-term disability of the debtor; (6) the
ability of the debtor to obtain gainful employment in the area of the study; (7) whether the debtor
has made a good faith effort to maximize income and minimize expenses; (8) whether the
dominant purpose of the bankruptcy petition was to discharge the student loan; and (9) the ratio
of student loan debt to total indebtedness. Vermaas v. Student Loans of North Dakota (In re
Vermaas), 302 B.R. 650, 656-57 (Bankr. D. Neb. 2003); Morris v. Univ. of Arkansas, 277 B.R.
910, 914 (Bankr. W.D. Ark. 2002). Applying the totality of the circumstances test to the instant
case, the Court examines each factor separately.
B. Analysis of the Totality of the Circumstances
1. Past, Present and Reasonably Reliable Future Financial Resources
The first factor the Court must consider is Debtor’s past, present and reasonably reliable
future financial resources. The current monthly household income consists of $1,424.00
received by Debtor’s husband from a disability insurance policy maintained by his former
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4Def.’s Ex. 8.
5Plaintiff’s Ex. 10.
6Def.’s Ex. 9.
5
employer 4 and approximately $384.00 in wages she earns as a waitress. The total monthly
household income is $1,808.00. A food stamp benefit previously being received has been
discontinued5, as was an unemployment insurance benefit in the amount of $66.00 per week. At
the suggestion of the disability insurance carrier, Debtor’s husband applied for a social security
benefit which has now been approved and pursuant to which he will receive $1,108.6 That
benefit, however, substitutes for a portion of the disability insurance payment, which will now
continue but only as to the difference between the total amount previously paid by the disability
insurance carrier and the amount of the social security payment. Debtor testified that the total
monthly benefit received by Debtor’s spouse will still be $1,424.00.
Debtor works only part time, but has tried to obtain other employment both in the field
for which she was trained and outside of it. Debtor testified that few jobs are available for
persons trained solely as EKG technicians for the reason that hospitals are now training their
nurses to perform these tasks and are not employing people trained only in this area. Debtor
testified that she also sought and briefly took jobs outside of the health care field, including some
manufacturing positions. As discussed more fully below, Debtor is somewhat limited in her
ability to retain full-time employment as a result of her husband’s disability and her own 5%
disability and attendant restrictions on lifting. While she has been able to find jobs she is able to
perform despite her own disability rating, some limitations have been imposed on her as a result
of her husband’s condition and her inability to leave her three children alone with him for any
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7Plaintiff’s Ex. 1.
8Def.’s Ex. 12.
9Def.’s Ex. 13.
6
significant amount of time. Even while employed on a full-time basis in the health care field, as
she was in the year 2002, her income was only approximately $16,000.00 per year.7 On a
monthly basis, even assuming no deductions from her income for taxes or for any other purpose,
her monthly earnings based on such an annual salary would be $1,333.33. That amount,
combined with the disability insurance and social security benefit, would provide a total
household income of $2,757.00 per month.
2. Reasonable Necessary Living Expenses
The second factor the Court must look at is Debtor’s reasonable living expenses. The
total of the monthly expenses listed on Schedule J submitted at the time of filing was $2,444.25.8
In response to interrogatories submitted by Defendant, Debtor listed monthly household
expenditures totaling $2,959.00.9 Defendant has raised questions about some of the additions
and increased amounts reflected in the interrogatory answers. The Court agrees that there has
been no adequate explanation for certain of the increases from amounts shown on Schedule J. In
particular, Debtor could offer no good reason why the household’s expenses for food would have
increased $200.00 per month. She also admitted that the additional $42.00 for cable expenses
actually reflected expenses for two months because she sometimes misses a payment and pays
two at once. Obviously, however, the household’s average monthly expenditure for this item is
still $42.00. Deducting these two categories of expenses totaling $242.00 from the amounts
shown in the interrogatory answers yields monthly expenditures of $2,717.00. A similar result
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10 Def.’s Ex. 1.
7
would be achieved if the Court simply averaged the amount shown on Schedule J and the
amounts shown in the interrogatory answers. That average is $2,701.63.
The balance on Debtor’s consolidated student loans is approximately $24,000.00. 10
Specifically, the total amount owed as of July 5, 2004, was $23,389.56, with interest accruing
thereafter at the rate of $4.00 per day. Paid over a ten-year period, even without interest, retiring
this debt would require payments of $200.00 per month. Over 15 years, the monthly payment
would be $133.33, once again without factoring in any accrued or accruing interest. A longer
repayment period would take the Debtor, who was 46 years old at the time of trial, past ordinary
retirement age.
Based on these figures, it is apparent that the household lacks sufficient income to repay
the debt. Even assuming Debtor is able to obtain full-time employment in a capacity similar to
the job she obtained in 2002, the household’s monthly income is completely consumed by the
reasonable and necessary monthly expenses. There appears to be no room leftover for making
any payment on the student loan debt, let alone the amount that would be required to retire the
indebtedness plus interest over any reasonable period of time.
3. Other Relevant Facts and Unique Circumstances
As to the third factor the Court must evaluate, the Debtor has presented evidence of
unique facts or circumstances that the Court believes will cause an undue hardship for the Debtor
to repay the student loan. Debtor’s husband is completely disabled as a result of epileptic
seizures. He cannot work and his only contribution to the household’s monthly income is the
social security benefit he receives and the reduced disability insurance payment. There is no
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indication that this situation will improve. As a matter of fact, Debtor’s testimony, which is
uncontradicted, is that despite medications and one or more surgeries his situation has not only
not improved, but has worsened.
Debtor’s own ability to work is also somewhat circumscribed. Her disability places some
limitation on her ability to work. She testified, for example, that it made it impossible for her to
hold certain manufacturing jobs which she had obtained. The Court is not convinced that it
places a significant limitation on her ability to work in the health care field, as she was employed
full time as a nurse’s aide after suffering the injury for which she received the disability rating.
Her husband’s condition also places some limits on her ability to work. The couple has three
children who are still young and cannot be left alone with him for any significant period of time.
In response to a question from Defendant’s counsel, Debtor testified she could work an ordinary
shift. However, she had previously testified that she was limited to a morning shift as she has to
be available to care for the children when they return from school. The Court notes that her
current part-time employment only involves work during the middle of the day from
approximately 10:00 a.m. to 2:00 p.m. This may be partly a result of the fact that she works a
lunch shift at a restaurant and partly by design to make it possible for her to be with the children
when they return from school. Based on the evidence of Debtor’s husband’s disability in
conjunction with her own disability, these circumstances strengthen the Court’s decision that it
would be an undue hardship for Debtor to repay her student loan.
For all of the above reasons, it is
ORDERED that the indebtedness owed by debtor Anita Easley to defendant Educational
Credit Management Corporation be discharged pursuant to 11 U.S.C. § 523(a)(8).
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A separate Order will be entered in accordance with Bankruptcy Rule 9021.
Dated: December 17, 2004 	/s/ Dennis R. Dow
THE HONORABLE DENNIS R. DOW
UNITED STATES BANKRUPTCY JUDGE
Copies to:
Janice A. Harder
N. Larry Bork
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