Conway v. National Collegiate Trust (In re Conway)

Citation: 489 B.R. 828Docket: Bankruptcy No. 09-52394-659; Adversary No. 12-4033-659

Court: United States Bankruptcy Court, E.D. Missouri; April 4, 2013; Us Bankruptcy; United States Bankruptcy Court

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Kathy A. Surratt-States, Chief Judge, addressed the Amended Complaint filed by Chelsea Conway on June 19, 2012, concerning the dischargeability of her student loan debt. A trial occurred on December 11, 2012, where Conway represented herself, and the creditors, National Collegiate Trust (NCT) and First Marblehead Corporation, were represented by counsel. The Court considered the complete record before issuing its findings.

Chelsea A. Conway, the Debtor, filed a Chapter 7 Bankruptcy Petition on December 7, 2009, receiving a discharge on March 16, 2010. She reopened her case on December 20, 2011, and initiated this adversary proceeding on January 24, 2012, primarily seeking to discharge her student loans from NCT, with disputes remaining only regarding loans serviced by First Marblehead.

Conway is a 32-year-old single woman with no dependents. From October 2003 to September 2006, she took out 15 loans totaling $70,100. The interest rates on these loans range from 3.25% to 5.150%. Since August 2005, she has utilized deferments and forbearances, repaying $5,734.48 by November 5, 2012. As of that date, the total outstanding debt, including principal and interest, reached $118,579.66.

Conway began her college education in Fall 1999 at Saint Louis Community College and transferred to Webster University in Spring 2003, incurring approximately $22,300 in expenses and borrowing $37,100 from NCT. She graduated in Spring 2005 and later returned to Saint Louis Community College, completing additional courses while borrowing $83,000 from NCT. 

Her employment history includes a full-time position at American Equity Mortgage starting in October 2005, followed by multiple temporary and part-time roles after layoffs in 2007 and 2008. Conway's adjusted gross incomes from 2008 to 2011 fluctuated between $16,127 and $25,390, with total tax refunds of about $3,000 during that period.

Debtor currently holds two part-time waitressing jobs, earning approximately $1,665.55 monthly at The Boathouse and $795.90 at P.F. Chang’s, resulting in fluctuating income due to seasonal hours. As of December 3, 2012, her monthly income was reported at $1,379.97. Additionally, Debtor received $625 from a car accident settlement and anticipates another $1,000. Her total monthly income is stated as $2,040.36 against expenses of $1,737.25, which include rent, utilities, food, transportation, and medical costs, yielding a net monthly income of $303.11. This reflects an increase from her initial Chapter 7 petition figures, where she reported a surplus of $47.17.

Debtor suffers from various health issues, including anxiety, depression, ADD, and chronic pain from past injuries, which limit her work capacity to less than 40 hours per week. Despite sending out over 200 job applications, she has struggled to secure full-time employment, attributing her difficulties to her degree in media communications, which she believes lacks marketable skills. Debtor cites legal precedents (Brunner v. N.Y. State of Higher Education Services Corp. and In re Andrews) to argue that her student loans are dischargeable under Section 523(a)(8) due to undue hardship, stating that repaying her $118,579.66 debt to NCT would prevent her from achieving a fresh start as intended by the Bankruptcy Code. She asserts that a sustainable income to manage both living expenses and loan repayments would require earnings of at least $100,000 annually.

Debtor claims that her loan obligations exceed $10,000 annually, which would reduce her income below the poverty line. She asserts that her education holds little value, warranting classification of the debt as ordinary unsecured debt. In response, NCT and First Marblehead argue that Debtor's inability to find employment in her field and potential future medical issues do not constitute undue hardship. They contend that Debtor, being intelligent, can increase her work hours and maintain employment, thus failing to demonstrate undue hardship.

The Court has jurisdiction under 28 U.S.C. §§ 151, 157, and 1334, and this matter is deemed a core proceeding. Venue is appropriate under 28 U.S.C. § 1409(a). According to Section 523(a)(8) of the Bankruptcy Code, a discharge does not apply to debts unless it would impose undue hardship on the debtor or dependents for certain educational loans. This provision aims to prevent student borrowers from evading repayment after benefitting from higher education.

The burden of proving undue hardship lies with the debtor, established by a preponderance of the evidence, and the Eighth Circuit employs a "totality of the circumstances" approach rather than the Brunner test. The Court will evaluate three factors: the debtor’s financial resources, necessary living expenses, and other relevant circumstances. If future income can cover the loan payments while allowing for a minimal standard of living, the debt should not be discharged. The Court will analyze these factors in detail.

A debtor's future financial resources and expenses are assessed based on evidence and testimony presented at a hearing. The evaluation considers the debtor's current employment, financial situation, assets, expenses, earnings, and potential future changes. A debtor's inability to repay a debt alone does not constitute undue hardship, and general economic conditions do not establish unique circumstances for hardship claims. In this case, the debtor has stable economic resources, having secured full-time employment despite layoffs, with an average gross income of $21,972 from 2008 to 2011, and additional income from tax refunds and settlement proceeds. Although her income is currently lower due to seasonal hours, it is expected to increase. The debtor's claims about her inability to secure better-paying employment lack evidentiary support, and her past performance indicates she possesses strong skills and education that could facilitate future employment opportunities. Furthermore, the debtor's assertion that her student loan debt should be discharged because she cannot earn a sufficient income overlooks her history of excessive borrowing, which contributed to her debt level.

Debtor borrowed approximately $33,000 to attend Saint Louis Community College, with tuition and fees significantly lower than the loan amount. While Debtor desires an annual salary of $100,000 to repay her debt to NCT, the Court evaluates the reliability of her future financial resources for repayment. Debtor has around 30 years to participate in the job market and is deemed to have reasonably reliable financial resources for repaying NCT.

The Court examines the reasonableness and necessity of Debtor's living expenses, which must be modest and aligned with her financial resources. A student loan cannot be discharged if the debtor can maintain a minimal standard of living while repaying the debt. Debtor reports a monthly income of $2,040.36 against expenses of $1,737.25, with the only excessive expense being $158 for cell phone service. By choosing a more affordable phone plan and anticipating reduced out-of-pocket medical costs upon securing full-time employment with benefits, Debtor can manage a frugal lifestyle and make some loan repayments while maintaining a minimal standard of living.

The Court also considers additional relevant facts regarding undue hardship. Debtor has repaid $5,734.48 to NCT since 2005 and has received various deferments and forbearances on her loans. She claims future employment challenges due to physical and mental health issues, including scoliosis, back arthritis, ADD, anxiety, and depression. However, medical records suggest her conditions are moderate and improving, with no evidence supporting her claims of severe impairment affecting future work capabilities. Additionally, her mental health evidence is limited to counseling, lacking documentation from healthcare professionals indicating an impact on her work functionality.

The Court concluded that the Debtor did not provide sufficient evidence to demonstrate that her mental health significantly restricts her ability to work and repay student loans totaling $118,579.66 owed to National Collegiate Trust (NCT). The Court noted that there was no indication of a permanent or long-term disability affecting her employment capacity. The Debtor is described as a young, intelligent individual without dependents, capable of pursuing a lucrative career. The Court determined that with some expense reductions and leveraging her demonstrated talents, the Debtor could repay the loans while maintaining a reasonable standard of living. Consequently, the Court found that the Debtor failed to establish that repaying the loans would cause undue hardship, leading to the denial of her request to discharge the loans. A judgment was entered in favor of the Defendants, confirming the nondischargeability of the student loan debt. Additionally, various exhibits from both parties were admitted into evidence, and prior stipulations regarding the discharge of educational loans with other creditors, such as Sallie Mae and Key Bank, were noted. The document outlines specific loan amounts and tuition costs incurred by the Debtor during her education, as well as income tax refunds received in subsequent years.

Debtor's financial situation is outlined, showing a monthly income of $1,397.67 and expenses totaling $1,350.50, resulting in a net income of $47.17. Monthly expenses include rent ($257.50), utilities ($98.00), cell phone service ($110.00), food ($168.00), clothing ($50.00), laundry ($30.00), medical care ($25.00), transportation ($152.00), insurance ($32.00), personal property taxes ($5.00), car payments ($184.00), personal care ($142.00), and pet care ($97.00). Additionally, Debtor's medical records, comprising her chiropractic history, prescriptions, counseling bills, and dental reports, were admitted as evidence. Tuition fees at Saint Louis Community College for the 2012-2013 academic year were noted as $93.00 per credit hour for in-district students and $139.00 for out-of-district students, reflecting a $5.00 increase from the previous year. Debtor took a total of twenty-seven credit hours from Fall 2005 to Spring 2007, with estimated total charges for tuition and fees being under $5,000.00, assuming consistent yearly rate increases.