In the case of Conway v. Nat’l Collegiate Student Loan Trust (In re Conway), B.A.P. 8th Cir., No. 13-6016, a bankruptcy judge’s determination that a Chapter 7 debtor’s student loans were not an undue burden was clearly erroneous according to the U.S. Bankruptcy Appellate Panel (BAP) for the Eighth Circuit.
The BAP found that the debtor did not have reasonably reliable future financial resources and reversed and remanded the bankruptcy court’s decision that the student loans were not dischargeable.
Between 2003 and 2006, the debtor entered into 15 separate student loans with National Collegiate Student Loan Trust (NCSLT) with a total original balance of $70,100. The Bankruptcy Judge found that the debtor’s NCSLT loans were not an undue hardship pursuant to Section 523(a)(8) of the Bankruptcy Code and therefore they should not be discharged and the debtor appealed this ruling to the BAP.
Under Section 523(a)(8), student loans are not dischargeable unless they impose an “undue hardship” on the debtor, which the debtor bears the burden of proving by a preponderance of the evidence. While “undue hardship” is not defined by the Bankruptcy Code, the BAP said that in the Eighth Circuit, a “totality of the circumstances” test is used. The BAP said that this test has three factors, which are: (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) the debtor’s reasonable and necessary living expenses; and (3) any other relevant facts and circumstances.
The debtor stipulated that her income, which fluctuated due to seasonal hours of operation at one of her jobs, was between $1,379 and $2,040 in 2012. She argued that her income was unlikely to increase in the future and testified that despite sending out more than 200 job applications she had been unable to find full-time employment commensurate with her education level. However, the bankruptcy court found the debtor to be “articulate, poised, intelligent, and quite capable” and concluded that she had ample to time to find the financial resources to pay NCSLT in the future.
The BAP disagreed with the bankruptcy court’s assessment of the debtor’s reasonably reliable future income. The BAP said that it was clear from the record that the debtor had never made much more than $25,000 a year having graduated eight years prior and despite her “diligent efforts to find higher paying work.” The BAP also disagreed with the bankruptcy court’s conclusion that the debtor had $300 a month in disposable income. The BAP said that because Conway’s income fluctuates, she has as much as $300 of disposable income in some months, but none in others. The court also found that the $846 minimum monthly principal and interest payment due to NCSLT was substantially higher than the alleged $300 of disposable income.