McNemar v. Student Loan Servicing Center

1
THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
LOUAN KAREN McNEMAR,
and EARL KEMPER McNEMAR, II
Debtors.
___________________________________
LOUAN KAREN McNEMAR,
Plaintiff,
v.
STUDENT LOAN SERVICING CENTER,
Defendant.
___________________________________
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
Case No 05-03879
Adv. Proc. No. 05-00219
MEMORANDUM OPINION
Louan Karen McNemar (the “Debtor”) seeks to discharge a government-guaranteed education
loan owed to the Student Loan Servicing Center ( “SLSC”) on the grounds that repayment of the
education loan would constitute an undue hardship on her. For the reasons stated herein, the court
finds that repayment of the education loan does not constitute an undue hardship and the loan is
excepted from discharge pursuant to 11 U.S.C. § 523(a)(8).
BACKGROUND
The Debtor filed a joint Chapter 7 bankruptcy with her husband on September 8, 2005, and
initiated this adversary proceeding to discharge her student loan on December 15, 2005. The court
held a trial in this adversary proceeding on May 25, 2006, in Clarksburg, West Virginia.
Dated: Thursday, September 28, 2006 2:43:35 PM
Case 1:05-ap-00219 Doc 20 Filed 09/28/06 Entered 09/28/06 15:21:44 Desc Main
Document Page 1 of 4

1 Because the Debtor anticipates receiving a $3,000.00 federal tax refund, the court has
averaged it over twelve months in the income calculation.
2 The Debtor submitted an expenditure worksheet to the court, which lists all expenses for a
three-month period. The Debtor listed a state tax payment of $1,712.00 during one month. The court
deducted this amount from the worksheet and then averaged it over twelve months to reach the
Debtor’s total monthly expenditures.
3 At the time of trial, the Debtor was uncertain as to what portion of the $34,000.00 in medical
bills, if any, would be paid by their health insurance.
2
The Debtor is fifty-eight years old. Her husband is the same age. They have five sons, the
youngest of which is thirty-one years old. The Debtor is a homemaker and has not worked outside the
home. In 1991, the Debtor borrowed $3,607.60 under the Parent PLUS loan to assist her son, Daniel,
in paying for his education at the West Virginia Business College.
The Debtor’s husband supports the family, but recently had open-heart surgery, which reduced
his work to forty hours per week. The gross monthly income for the household is $3,002.13. After
accounting for the overwithholding of taxes, the Debtor’s household has a net monthly income of about
$2,288.15.1 The household expenses average $2,125.11 per month, exclusive of any education loan
payments, leaving approximately $163.04 in monthly disposable income.2
The Debtor has high blood pressure and does not anticipate earning any income in the future.
Although her husband is still able to work after his post-petition open-heart surgery, the household has
unpaid medical bills, which the Debtor anticipates will cost about $225.00 per month in addition to the
Debtor’s current expenses.3 The Debtor testified that she anticipates a monthly payment of $225.00
toward the medical bill, which has not been accounted for in the monthly expenses.
In total, the Debtor made nineteen payments on the Parent PLUS loan from 1991 to 1995.
During that time, she repaid approximately $950.00 of the obligation in nineteen installments of fifty
dollars. In an attempt to resolve a dispute with SLSC over prior loan credits, the Debtor agreed to
have the loan rewritten in 1995; however, the Debtor only made one or two payments on the loan after
it was rewritten and did not make any payments on the loan after 1995.
DISCUSSION
Case 1:05-ap-00219 Doc 20 Filed 09/28/06 Entered 09/28/06 15:21:44 Desc Main
Document Page 2 of 4

4 Whether the Debtor has satisfied the first and second prongs of the Brunner test is not
addressed because the court finds that she has failed to prove the third prong. Since the Brunner
factors are stated in the conjunctive, failure to establish even one factor means failure to pass the test.
3
In order to receive a discharge of an education loan, a debtor must establish an undue hardship
by proving each of the three prongs of the Brunner test by a preponderance of the evidence. Eddy v.
U.S. Department of Education and Educational Credit Management Corporation (In re Eddy),
No. 05-00210 (Bankr. N.D. W.Va. September 28, 2006). The Brunner test requires a debtor to
prove: (1) that the debtor cannot maintain, based on current income and expenses, a minimal standard
of living for himself and his 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. Brunner v.
N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2nd Cir. 1987).
The third prong of the Brunner test requires a debtor to demonstrate that she has made good
faith efforts to repay the loans.4 The good faith inquiry looks to a debtor’s “efforts to obtain
employment, maximize income, and minimize expenses.” In re Frushour, 433 F.3d 393, 402 (4th Cir.
2005). A debtor’s hardship must be a result of factors that are beyond the debtor’s control. Id. In
that regard, the court must examine whether the debtor has made the “requisite effort to repay her
loans.” Id. A debtor’s effort to seek out loan consolidation options that make the debt less onerous is
an important component of the good-faith inquiry. Although not always dispositive, it illustrates that the
debtor takes her loan obligations seriously and is doing her utmost to repay them despite her
unfortunate circumstances. Id. For instance, a debtor’s failure to seriously consider available
repayment options such as loan consolidation and an income contingent repayment plan is evidence of
lack of good faith by failing to exhibit a willingness to pay back the debt when reasonable alternatives to
discharge are available. (“Frushour’s only reasons for refusing that option [income contingent
repayment plan], however, were that it was not suited for her and she wanted a fresh start. It is hard to
see why these reasons are not simply shorthand for her lack of interest in repaying her debt.”). Id. at
403.
Case 1:05-ap-00219 Doc 20 Filed 09/28/06 Entered 09/28/06 15:21:44 Desc Main
Document Page 3 of 4

4
In the case at hand, although the Debtor testified that she made nineteen payments, totaling
approximately $900.00 toward satisfaction of the education loan beginning in 1991, she has not made
any payments on the obligation since 1995. The Debtor testified that she voluntarily ceased making
payments on the loan, not because of financial hardship, but because she disputed how SLSC applied
previous credits. However, despite being fully aware of her obligation regarding the loan, the Debtor
simply chose not to make any more payments. In fact, during her testimony, she characterized her
behavior in that regard as being, “really stupid.” Thus, she made a conscious decision beginning in
1995, which continued until 2005, at which time she filed her bankruptcy, not to render further payment
on the loan obligation; conduct that was entirely within her control. No evidence was presented by the
Debtor to suggest that during the bulk of the period of time preceding the filing of her bankruptcy
petition, she was without the financial wherewithal to make payments on the loan. The early payments
on the loan by the Debtor, while “commendable,” are not sufficient indicia of good faith under the facts
of this case. See Frushour, 433 F. 3d at 402. The Debtor’s failure to make any payments on the
obligation for over ten years, despite the financial ability to do so, demonstrates a lack of good faith
under the applicable Fourth Circuit jurisprudence. Consequently, the Debtor has failed to carry her
burden of proof as to the third prong. The Debtor is not entitled to discharge her student loans.
CONCLUSION
For the reasons stated herein, the Debtor’s education loan is excepted from her discharge
pursuant to 11 U.S.C. § 523(a)(8).
The court will enter a separate order pursuant to Fed. R. Bankr. P. 9021.
Case 1:05-ap-00219 Doc 20 Filed 09/28/06 Entered 09/28/06 15:21:44 Desc Main
Document Page 4 of 4