Marsh v. Moorehead State College (In Re Marsh)

Citations: 257 B.R. 569; 2000 Bankr. LEXIS 1628; 2000 WL 33121718Docket: 17-61220

Court: United States Bankruptcy Court, D. Montana; November 20, 2000; Us Bankruptcy; United States Bankruptcy Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Barbara Marsh, the Plaintiff/Debtor, seeks a determination from the U.S. Bankruptcy Court that her student loan obligations to Moorehead State College and the U.S. Department of Education should be discharged due to undue hardship, as provided under 11 U.S.C. § 523(a)(8). The trial occurred on November 7, 2000, where both Barbara and her exhibits were presented without objection. 

Barbara, age 50, lives in public housing with her 17-year-old son, while her 24-year-old son is independent. Employed as a dispatcher/secretary, she earns approximately $545 bi-weekly, translating to an adjusted gross income of $12,775 for 1999. Due to outstanding student loans totaling about $9,135.57, her 1999 tax refund of $2,573 was seized by the Department of Education. Barbara asserts that repaying her loans would impose undue hardship, as it would hinder her ability to maintain a minimal standard of living.

Her monthly income, excluding sporadic child support payments, is reported at $548, while her monthly expenses total $776, including $246 for rent. Although she claims her expenses are understated, no alternative figures were provided. After accounting for income and expenses, Barbara has a monthly excess of $314. Her only assets consist of a 1986 Chrysler LeBaron valued at $1,000 and $2,300 in a 401(k), all of which are claimed exempt. She has no secured debts and has listed four unsecured creditors, two of whom are defendants in this case.

Jurisdiction over this adversary proceeding is established under 28 U.S.C. §§ 1334 and 157, regarding the dischargeability of Barbara's student loan debts, specifically whether excluding these debts from discharge would create an undue hardship as defined in 11 U.S.C. § 523(a)(8). The Court's findings of fact and conclusions of law are presented pursuant to Federal Rules of Bankruptcy Procedure 7052. After reviewing the facts and applicable law, the Court rules in favor of the Defendants, DOE and Moorehead State College.

At the time of Barbara's Chapter 7 bankruptcy filing on February 11, 2000, 11 U.S.C. § 523(a)(8) stated that student loan debts are not dischargeable unless the debtor can demonstrate undue hardship. The term "undue hardship" is not defined in the Bankruptcy Code, but courts interpret it strictly and on a case-by-case basis, placing the burden of proof on the debtor to provide sufficient evidence. The Second Circuit has established the three-prong Brunner test for determining undue hardship, which requires the debtor to prove: (1) an inability to maintain a minimal standard of living if forced to repay the loans; (2) additional circumstances indicating this inability is likely to persist during a substantial portion of the repayment period; and (3) good faith efforts to repay the loans. The Ninth Circuit has adopted this test as well. The Brunner test is applied in this case, as supported by precedent, including In re House, which adheres to this established framework for evaluating undue hardship in the context of student loans.

Barbara failed to meet the Brunner test for discharging her student loan debts to the Department of Education and Moorehead State College. The Court assessed her financial situation and found that her monthly income exceeds her expenses by $314, and even with a 25% increase in expenses, she would still maintain a surplus of $120. Barbara's assertion that her expenses are artificially low lacked supporting evidence. Furthermore, the Court noted her employment status and lack of physical or mental barriers to full-time work, indicating that her financial circumstances are not likely to change significantly. The potential for child support and her son’s imminent employment were also considered, suggesting that her expenses could decrease. Although Barbara demonstrated good faith, this did not compensate for her failure to satisfy the first two prongs of the Brunner test, which require proof of inability to maintain a minimal standard of living and the persistence of her financial condition. The Court emphasized that mere financial difficulty is insufficient for a hardship discharge; extraordinary circumstances are necessary. Barbara's situation did not meet this higher threshold, leading to the dismissal of her complaint with prejudice. The Court has jurisdiction over the matter and has determined that Barbara did not prove undue hardship under 11 U.S.C. 523(a)(8). A judgment will be entered in favor of the defendants.