Weller v. The Education Resources Institute, Inc. et al

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE
WESTERN DISTRICT OF MISSOURI

V.

IN RE: )
)
TINA MARIE WELLER, ) Case No. 03-46471-drd
)
Debtor. )
)
TINA MARIE WELLER, ) Adversary No. 04-4029
)
Paintiff )
)
)
)

TEXAS GUARANTEED STUDENT LOAN )

CORPORATION, et al., )
)
Defendants. )

MEMORANDUM OPINION

Debtor Tina Marie Weller (“Debtor”) initiated this adversary proceeding by filing a document
entitled Objection to Proof of Claim and Motion to Detemine Amount Due on Account (“Objection”)
seeking a determination that one or more claims filed by certain creditors holding student loans taken out
by Debtor had been paid infull. ‘The Objection wes subsequently amended ly intexlineation to seek, in the
altemative, a determination that her student loan debt should be excepted from discharge pursuant to 11
U.S.C. § 523(a)(8) onthe ground that repayment of suchdebt would impose upon heran undue hardship,
whichallegations the defendant Texas Guaranteed Student Loan Corporation (“Defendant’ or “TGSLC”)

denied! This is a core proceeding under 28 U.S.C. § 157(b)(2)(1) over whichthe Court has jurisdiction

'TGSLC is the only remaining defendant. The other named defendants have either been
dismissed or had a default judgment entered against them.

2 Defendant’s Ex. 3.
3Def.’s Ex. 1.
4Def.’s Exs. 4, 9, 20 & 21.
2
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 has not paid her student loan debt in full to Defendant TGSLC and that
the remaining debt is not dischargeable pursuant to § 523(a)(8).
I. FACTUAL BACKGROUND
Debtor took out approximately 18 different student loans over a period from 1979 to 2001,
some of which were consolidated in 1996 into a loan held by Sallie Mae (“SLMA”) and subsequently
assigned to Defendant.2 Debtor completed an Application/Promissory Note dated July 31, 1996, and
listed several of her loans to be consolidated that totaled in excess of $48,000.3 It appears from the
evidence that on November 7, 1996, Sallie Mae disbursed $41,640.47 on behalf of Debtor to
consolidate the loans listed on the Application/Promissory Note at a fixed rate of interest at 8%.4 The
consolidation loan is the loan at issue in this Memorandum Opinion.
Debtor argues that Defendant has not properly credited her account and that the payments she
has already made were sufficient to pay the indebtedness owed to Defendant on the consolidation loan.
That position is predicated upon a disagreement both as to the beginning principal amount of the
indebtedness on the consolidation loan (i.e., which loans were consolidated and how much was
advanced on her behalf) and the application of payments made by her. Debtor also asserts that even if
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5Def.’s Exs. 4, 9, 19 & 20.
3
she does still owe some amount to Defendant, it would be an undue hardship for her to repay such
amount under 11 U.S.C. § 523(a)(8).
II. DISCUSSION
A. Amount of Debt
Debtor has essentially filed a declaratory judgment proceeding which seeks in part a
determination that she no longer owes a debt to Defendant. Bankruptcy courts have authority to issue
declaratory judgments where the matter in controversy involves the administration of a pending
bankruptcy estate. See Sears, Roebuck and Co. v. O'Brien, 178 F.3d 962, 964 (8th Cir.1999). The
party seeking a declaratory judgment must bear the burden of proof in these proceedings. See
Reliance Life Ins. Co. v. Burgess, 112 F.2d 234, 238 (8th Cir.1940); see also, Debold v. Case (In
re Tri-River Trading, LLC), 2004 WL 2382679 (Bankr. E.D. Mo. 2004). The declaratory judgment
will be determined by weighing the evidence of each party. Id. For all the reasons set forth below, the
Court does not believe Debtor has sustained her burden of demonstrating that Defendant’s accounting
is inaccurate and that she is entitled to credit for amounts she claims to have paid which were not
applied to the consolidation loan.
First, Debtor asserts that the amount advanced on her behalf on the consolidation loan was less
than the amount reflected in Defendant’s records. Defendant’s records clearly show in numerous
places that the amount disbursed on Debtor’s behalf for the consolidation loan was $41,640.47.5 The
amounts listed in the promissory note for the consolidation loan, all of which appear in Debtor’s
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6Def.’s Ex. 1.
4
handwriting according to her testimony, actually total somewhat more than that, in excess of
$48,000.00.6 Debtor alleges that the amount advanced on her behalf was $30,816.00, although she
provides no support for that contention. She also claims that Defendant’s own records appear to
indicate that the amount advanced on her behalf was $32,177.10, although that appears to be a
misinterpretation of Debtor’s Exhibit J, the last page of which is an incomplete copy of Defendant’s
Exhibit 8. As Defendant explained, Defendant’s Exhibit 8 is simply a listing of the amounts advanced
on Debtor’s behalf over time, and does not represent the balances on the notes consolidated as of the
date of consolidation.
Debtor’s theory about the discrepancy between the $32,177.10, which she believes is the
amount disbursed, and the $41,640.47 reflected on certain of Defendant’s records, is that the
difference is the approximate amount of the difference between the face amount of a note executed to
assist her in financing her law school education (the Law Access Loan or LAL) and the amount of
credit actually advanced to her on that note. The LAL note amount is $13,000.00, although it is limited
by its own terms to “the extent advanced” and the actual amount loaned to her for this purpose was
$5,000.00. Debtor believes that the LAL loan was included in the consolidation loan and was included
at the level of the face amount of the note rather than the amount of credit actually extended and that
this difference resolves the apparent discrepancy with regard to the original principal amount of the
consolidation loan. Debtor’s Exhibit J does in fact show that the amount advanced to debtor on this
loan was $4,956.00. That same evidence, however, also demonstrates that the loan was separate and
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7Debtor’s Ex. J (“In addition to your federal loans, you also pursued a loan from Law Access
Group.”)
8Debtor’s Ex. I.
5
distinct from Debtor’s federal student loans.7 There is no evidence that it was a part of the
consolidation note. There is, therefore, no evidence to support Debtor’s contention that the amount
advanced on her behalf was anything less than the $41,640.47 reflected in Defendant’s records. The
Court, therefore, finds that the weight of the evidence supports the contention that the original principal
amount of the consolidation loan was $41,640.47.
Next, Debtor claims that she paid more than she was credited on the consolidation loan and
more than she should have in order to have retired the indebtedness. Defendant’s records reflect, and
the parties agree, that Debtor was credited for having paid the sum of $53,658.11 on the consolidation
loan. Debtor claims she actually paid $65,825.11 and that amount should have been enough to pay the
consolidation loan in full. There are two problems with Debtor’s calculations. First, Debtor’s crude
calculations of the amount required to satisfy the debt owed on the consolidation loan all start from an
assumed principal balance which is less than the amount of credit originally extended to her and fail to
take into consideration that the loan was in deferment on several occasions during which period of time
the accrued interest was capitalized and increased the interest-bearing principal.8 Second, the Court
finds that Debtor’s allegation that certain payments were made by her which were attributable to the
consolidation loan, but not appropriately credited to that loan has not been substantiated.
Debtor’s Exhibit N contains a list of payments by date and amount which she alleges were not
credited to the consolidation loan on the Defendant’s records. These allegedly excluded payments
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9Debtor’s Ex. K14 (check no. 1057 in the amount of $614.73 made payable to Bank One
Visa).
10Compare Debtor’s Ex. K and Def.’s Ex. 4.
11Def.’s Ex. 4.
6
were examined in detail on cross examination. That examination causes the Court to conclude that
Debtor’s assertion that all the listed payments should have been credited to the consolidation loan is not
credible and is based on a misunderstanding by Debtor as to which loans were included in the
consolidation loan, who held her loans and who serviced them. She admitted on cross-examination that
one of the checks included on her list of allegedly excluded credits was a mistake.9 Contrary to
Debtor’s contention, every one of the checks made out to Sallie Mae or Sallie Mae Servicing Center
(“SMSC”) included in her Exhibit K is reflected on Defendant’s accounting.10 In each case, there is on
Defendant’s Exhibit 4 a credit in precisely the same amount as the check on Debtor’s Exhibit K
credited to her consolidation loan several days after the date the check was dated. Debtor’s assertion
that there is no way to verify that the credit is for the same check shown on her Exhibit K and that she
may have issued a second check in that same month in the same amount at approximately the same time
is unsupported by anything other than Debtor’s speculation and is not credible. Debtor’s Exhibit Q
reflects check no. 1170 dated June 30, 2003, made payable to “Sallie Mae/AES/GLC/SLSC” in the
amount of $23,500.00. Defendant’s records reflect a payment in the same amount being credited to
Debtor’s consolidated loan on July 9, 2003.11 Presumably, this credit is for check no. 1170. Debtor
argues that because she made the check payable to all of the separate entities that she had been sending
various student loan payments to that this is evidence that they are all one and the same and that all of
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12That check, made payable to “Bank One Trustee Key Corp.”, was check no. 1317 in the
amount of $2,500. Debtor’s Ex. K23. The Court notes that the majority of Debtor’s checks made
payable to “Bank One” appear to be payments on her credit card account as they all reference the
same 16 digit account number indicative of a credit card number, and check no. 1057 made payable to
“Bank One Visa” also references that same account number and Debtor admitted on cross-examination
that that check should not have been credited to the consolidation loan. See Debtor’s Exs. K7, K10B,
K14.
13Default judgment was entered against TERI for failure to respond to Debtor’s Objection and
Amended Complaint.
7
the other checks that she sent to AES or GLC individually should have been credited to her
consolidated loan. Standing alone, however, it proves no such thing. The Court could just as well
presume that the first entity listed negotiated the check and applied the payment and was the holder of
the loan to which the payment was credited, i.e., Sallie Mae, who held the consolidated loan.
Moreover, this check was sent in response to a request by Debtor for a payoff figure on the
consolidation loan.
Each of the other checks Debtor contends should have been credited to the consolidation loan
were not made out to Sallie Mae, but to some other entity. In one instance, the check was made out to
Bank One, as trustee for Key Corporation.12 The evidence indicates that plaintiff had a loan from Key
Corporation which is now held by The Education Resources Institute, Inc. (“TERI”), another defendant
in the case.13 This check quite obviously relates to that loan which is still held by another entity and was
therefore not part of the consolidation loan now held by Defendant. The amount of that payment,
therefore, was correctly not credited to the consolidation loan. In rebuttal, Debtor introduced into
evidence check no. 1169 in the amount of $1,500.00 dated January 3, 2003, and made out to Bank
One, Trustee for Key Corp. which she contends appears on Defendant’s exhibit no. 4 as a $1,500.00
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14The Court offered an opportunity for the parties to make post-trial submissions. Debtor took
this opportunity to submit to the Court entirely new evidence, including information from the back of
check no. 1169 which purports to support her conclusion that this check was processed through the
same SLMA account as were other payments she made on the loan. The Court refuses to consider
that evidence for the reason that these exhibits were not listed on Debtor’s original or amended exhibit
list and were not introduced into evidence at trial. Defendant has therefore had no opportunity to
address them. The Court’s offer of an opportunity to make post-trial submissions was intended to give
the parties a chance to address the legal significance of the evidence admitted at trial and submit legal
authorities, not to supplement the evidentiary record.
15Objection, ¶ 14.
8
credit on the consolidation loan. Debtor would have the Court draw the inference that if there is a
payment in that amount at the same time appearing as a credit on the consolidation loan, that previous
checks made out in this way should have been so credited. While the application of the proceeds of
this check to the consolidation loan may raise some questions, it does not affirmatively demonstrate that
a prior check made out the same way at a different time was necessarily attributable to the
consolidation loan.14 It clearly does not demonstrate that Debtor’s consolidation loan has been paid in
full as she claims. As noted earlier, the Court believes the evidence shows a loan originated by Key
Corporation is now held by another entity. Debtor herself admitted the Key Corp. loan was not
included in the consolidation loan.15 Finally, this evidence could just as well indicate that the $1,500.00
payment was applicable to another loan, was erroneously credited toward the consolidation loan and
that the amount Debtor still owes on the consolidated loan is thus actually higher than the amount
claimed by Defendant.
The other checks which Debtor contends should have been applied to the consolidation loan
were in odd amounts, approximately half of the regular monthly payment to SLMA, and made out to
Graduate Loan Center (“GLC”). Debtor claims that GLC was “part of SLMA,” a speculation which is
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9
unsupported by any evidence. More importantly, there is no evidence that these payments were either
attributable to the consolidation loan or received by Defendant’s predecessor, SLMA. There are a
number of reasons to believe that they were not. As Defendant’s counsel pointed out on cross-
examination, the processing information reflected on the back of the checks, for those checks for which
it was available, shows that the checks to SLMA and the checks to GLC were processed in different
ways which reflected their receipt and application by different entities. In the case of each check made
out to SLMA, there was a notation in the upper right-hand corner of the back of the check – “SAL” –
indicating the check was received by SLMA. The checks made out to GLC all had a different notation
on the reverse side which did not in any way identify SLMA.
Other pieces of evidence are instructive on whether SLMA was involved in and received those
payments and, if not, who did and for what loan. At a later time, certain checks made out to GLC bore
a different processing notation indicating that the applicable loan was at that time being serviced by
SLMA. This evidence supports an inference that earlier in the process, SLMA was not involved in any
way in the GLC loan, but at some later time acted as servicer for the GLC loan. As Defendant’s
counsel pointed out, there is a difference between acting as servicer for the loan and holding the loan as
owner. SLMA acts as servicer for other entities on loans not held by it. Another exhibit, Debtor’s
Exhibit K28 and check no. 2053, was made out to “GLC-LAL.” The LAL loan was a loan taken out
by debtor to finance her attendance at Baylor Law School and was identified by the evidence as a
separate loan unrelated to debtor’s federal student loans. This suggests that the payments to GLC
were applicable to the law school LAL loan. Other facts about the payments represented by the
checks made payable to GLC indicate that they were not applicable to the consolidation loan. Debtor
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16Def.’s Exs. 4 & 9.
10
was on a level payment plan for the consolidation loan with monthly payments in a fixed amount. The
amount of the checks to GLC was consistently approximately half of that amount. It simply doesn’t
make sense that Debtor would issue two checks on one consolidation loan in two different amounts at
the same time each month to two different entities, the total of which is inconsistent with the amount of
the level payment on the consolidation loan.
Debtor claims that at some point she received from SLMA a check signifying that her account
was not only paid, but overpaid. She alleges that she received a check from SLMA in the amount of
approximately $2,000 with a notation that it was to “clear the account.” She could not produce a copy
of the check nor did she introduce into evidence any other documentation containing an
acknowledgment that the account was overpaid. Further, Debtor admits that the money never showed
up in her account although she claims to have deposited the check. Other evidence in the record
clearly shows that SLMA and Defendant have consistently acted on the belief that a balance is owed
by Debtor even after her substantial payment in July 2003.16 The Court does not find Debtor’s
testimony about this check to be credible evidence of an acknowledgment by SLMA that her
consolidated loan at issue was overpaid. In addition, such testimony cannot overcome the other
substantial evidence regarding the amount disbursed, interest accrued and amounts paid on the
consolidation loan as reflected by Defendant’s accounting and the examination of the allegedly excluded
payments, all of which point to the conclusion that the amount claimed by Defendant of $10,505.78
remains due.
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17See Def.’s Ex. 4.
18See Def.’s Ex. 4.
19Id.
20This is the amount claimed in Defendant’s proof of claim filed in Debtor’s bankruptcy case
No. 03-46471. Additional interest may have accrued since the proof of claim was filed.
11
Debtor requested a payoff figure on the consolidation loan in late June 2003.17 The figure that
she was given, effective until July 10, was $43,451.39. On July 9, in several checks of differing
amounts, Debtor paid the total sum of $33,451.39, precisely $10,000 less than the quoted payoff
figure. When asked why she paid less than the payoff figure given, Debtor testified first that that was all
the credit available to her on credit cards used to fund the payment. She also contended that she
protested that the balance was inaccurate and that the amount paid was the only amount due, but
produced no documentation to confirm that claim. Defendant’s records contradict that and suggest
Debtor requested a plan to payoff the remaining balance.18 Those records, which include a log of
events and communications on the consolidation loan, reflect a request by Debtor near the same time as
the payment for a new coupon book to pay off the remaining balance at the rate of $82.11 per month.19
Accordingly, the Court concludes that the evidence supports findings that the principal amount
originally owed on the consolidation loan was $41,640.47, that Debtor has paid $53,658.11 towards
the consolidation loan and that a balance of $10,505.78 remains due on the consolidation loan after
accounting for interest and late charges.20
B. Undue Hardship
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12
Debtor also contends that even if there is a balance owed on the consolidation loan, 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 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
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21Def.’s Exs. 15 & 17.
13
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
The first factor the Court must consider is Debtor’s past, present and reasonably reliable future
financial resources. Debtor’s expenses are clearly modest and include nothing which is unnecessary or
unreasonable in amount. Her current income is low and clearly does not cover her expenses.21 At
present, Debtor lacks the ability to pay the balance due on the consolidation loan. The Court,
however, must look beyond the present to the foreseeable future and consider Debtor’s education,
training, employment history and ability to earn. Debtor is 44-years-old and thus has approximately 20
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22Def.’s Ex. 14.
23Def.’s Exs. 12, 13 & 14.
24Def.’s Ex. 13.
25Def.’s Exs. 12 & 14.
14
years of working life remaining until a standard retirement age. She is single and has no dependents.
Debtor has several advanced degrees, including a law degree.22 She also has an employment
history since her graduation from law school in 1994 which indicates that she does have the ability to
obtain positions in which she earns substantial income.23 After a rocky start, she did have several
positions in which she earned substantial income, including one in which she earned more than $40,000
per year.24 She was employed as an assistant city attorney in Corpus Christi, Texas from March 1996
through July 1997 and earned $27,599 and $34,832 in those years, respectively.25 From July 1998-
2001 she was employed as in-house counsel for the Texas Department of Protective and Regulatory
Services and earned $36,779 in 1999 and $42,144 in 2000. In 2001 she earned $25,707. The Court
recognizes that since 2001 Debtor has had difficulty finding and maintaining a good paying job.
However, based on her past employment and earning history, as well as her qualifications, the Court
finds that Debtor has the ability to find employment with a salary similar to those that she has earned in
the past. Debtor’s average yearly income from 1996 through 2001 was $30,322.50. If Debtor found
income at that level, she would enjoy a monthly income (without allowance for taxes) of $2,526.87.
The second factor the Court must look at is Debtor’s reasonable living expenses. Debtor’s
Schedule J lists her monthly expenses at $2,055. Defendant does not take issue with any of Debtor’s
listed monthly expenses and the Court finds that they are not in any respect unreasonable. That figure,
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26Debtor testified that her monthly expenses were approximately $900-$1,200.
15
however, does include the sum of $189.00 per month for payments to student loan creditors, only
$109.00 of which, being paid to the Department of Education, Debtor will be required to continue to
pay subsequent to her discharge on loans other than the one at issue. The figure also includes $704.00
per month for payment to credit card debt which was discharged in Debtor’s bankruptcy.26 The
resulting expense level of just under $1,271.00 easily provides Debtor with room to make a modest
payment on the consolidation loan owed to Defendant which, as noted below, would be less than
$100.00 per month.
As to the third factor the Court must evaluate, the Debtor has presented no evidence of unique
facts or circumstances that the Court believes will cause an undue hardship for the Debtor to repay the
balance owed on the consolidation loan. She has no significant health problems. Although there is
testimony about health issues that Debtor has had, none of that testimony indicates a continuing problem
which interferes with her ability to earn or imposes a significant financial burden. Debtor testified that
she had a kidney stone some time ago, but that problem has been resolved and the expenses of that
medical treatment were either covered by insurance or included in her discharge. There is no evidence
that that problem has any continuing effect on her. Debtor also testified that she recently had basal cell
carcinoma and had a cancerous growth removed. Once again, however, there is no evidence that this
is a debilitating condition or has any significant impact on her ability to work. Neither is there any
evidence that the previous or ongoing expenses related to follow-up treatment will impose a significant
financial burden on her.
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27Def’s Ex. 4, pp. 3-4.
16
Thus, based on the Court’s evaluation of all of the evidence presented in conjunction with the
totality of the circumstances, the Court believes that Debtor’s reasonably foreseeable financial
prospects include the ability to earn a salary similar to the salaries that she has earned in the past. The
monthly payments on the remaining balance will be approximately $82-85 per month.27 Based on
Debtor’s ability to substantially increase her monthly income in the foreseeable future along with the fact
that Debtor has over 22 years remaining before she reaches retirement age, the Court concludes that it
will not be an undue hardship on Debtor to pay the remaining amount owed on the consolidation loan.
It is therefore
ORDERED that the indebtedness owed by debtor Tina Marie Weller to defendant Texas
Guaranteed Student Loan Corporation is non-dischargeable pursuant to 11 U.S.C. § 523(a)(8).
A separate order will be entered in accordance with Rule 9021.
Dated: November 2, 2004
/s/ Dennis R. Dow
THE HONORABLE DENNIS R. DOW
UNITED STATES BANKRUPTCY JUDGE
Copies to:
Tina Marie Weller
N. Larry Bork
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