611 B.R. 504
Bankr. S.D.N.Y.2020Background
- Debtor Christian Clavell (Chapter 7) filed an adversary proceeding seeking discharge of consolidated federal student loans evidenced by a 2013 promissory note; balance ≈ $96,485 as of Dec. 2019.
- Clavell is a sales employee (projected gross ≈ $77,818/year) who lives with his elderly grandfather and has a six‑year‑old son with special needs; court found child support obligations of $219/week (~$949/month).
- Loans have been in forbearance since consolidation; DOE contends debtor is eligible for REPAYE with initial payments of $492/month (or $436 if claiming dependent).
- Court found REPAYE calculations mechanically tied to AGI and not dispositive of ability to repay because they ignore non‑deductible burdens (e.g., child support).
- After adjusting income and necessary expenses, court found debtor’s monthly surplus is $172 now and $256 after short‑term 401(k) loan ends—insufficient to make the $492 REPAYE payment and to maintain a minimal standard of living.
- Court held all three Brunner factors satisfied (inability to maintain minimal living standard; likelihood that condition will persist; good faith efforts to repay) and ordered partial discharge: forgive accrued interest and reduce principal so a 25‑year standard payment would be $250/month; parties to agree on the amount.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether student loans are dischargeable for undue hardship under Brunner | Clavell: cannot maintain minimal living and repay; hardship likely to persist; acted in good faith | DOE: debtor can afford REPAYE or standard amortization; no undue hardship | Court: Brunner met — undue hardship established; discharge (partial) warranted |
| Whether REPAYE payment ($492) demonstrates ability to repay | Clavell: REPAYE is mechanical and ignores non‑deductible burdens (child support), so it does not prove ability to repay | DOE: REPAYE is available and yields affordable payment, so no undue hardship | Court: REPAYE calculations not dispositive; REPAYE payment exceeds debtor’s feasible surplus, so REPAYE does not negate undue hardship |
| Whether debtor acted in good faith to repay loans | Clavell: contacted servicers, entered forbearance, sought employment and economized | DOE: failure to make payments since consolidation shows lack of effort | Court: debtor acted in good faith (forbearance requested, job searches, economizing); third Brunner prong satisfied |
| Whether bankruptcy court may grant a partial discharge | Clavell: requests full or partial discharge; asks court to reduce principal to affordable level | DOE: concedes court may have power but urges denial of relief | Court: assumed power to grant partial discharge; ordered interest forgiven and principal reduced to yield $250/month payment under 25‑year plan |
Key Cases Cited
- Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (establishes three‑part undue hardship test for student loans)
- Ivory v. U.S. Dep’t of Educ., 269 B.R. 890 (N.D. Ala. 2001) (framework for minimal standard of living analysis)
- Saxman v. Educ. Credit Mgmt. Corp., 325 F.3d 1168 (9th Cir. 2003) (addresses availability of partial discharge under § 523)
- Alderete v. Educ. Credit Mgmt. Corp., 412 F.3d 1200 (10th Cir. 2005) (partial‑discharge principles and undue hardship analysis)
- Faish v. Pa. Higher Educ. Assistance Agency, 72 F.3d 298 (3d Cir. 1995) (discusses standards for persistence of inability to repay)
- O'Hearn v. Educ. Credit Mgmt. Corp., 339 F.3d 559 (7th Cir. 2003) (describes the "certainty of hopelessness" standard criticized by the court)
- McLaney v. Ky. Higher Educ. Assistance Auth., 375 B.R. 666 (M.D. Ala. 2007) (recognizes modest retirement and necessary living expenses in minimal‑living analysis)