553 B.R. 362
Bankr. D. Iowa2016Background
- Debtor Sara Fern (35), a single mother of three, has never made a payment on student loans totaling over $27,000 due to deferments/forbearances.
- Department of Education argued income-based plans could yield $0 payments and would not constitute undue hardship, with loans reported as current on credit reports.
- Trial held in Dubuque, Iowa; this is a core bankruptcy proceeding under 28 U.S.C. § 157(b)(1).
- Debtor testified her financial resources are minimal, with a take-home about $1,506.78 per month and limited access to credit or savings.
- Debtor’s education history includes two programs with balances around $7,069.47 and $19,848.20, none of which have been effectively paid, and she does not anticipate increased future income.
- The court ultimately held that discharging the loans would not impose undue hardship and that the student loans are dischargeable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether discharge of student loans would impose undue hardship under 11 U.S.C. § 523(a)(8) | Hoover argues resources and plans do not show hardship. | Department contends IBR/PAYE can render hardship moot. | Undue hardship shown under totality of circumstances; discharge granted. |
| Impact of income-based repayment plans on hardship assessment | Debtor would be current with $0 payments; hardship persists. | Availability of IBR/PAYE negates hardship. | Eligibility for IBR/PAYE is one factor; does not defeat hardship. |
Key Cases Cited
- Schulstadt v. United States Dep't of Educ. (In re Schulstadt), 822 B.R. 863 (N.D. Iowa 2005) (defines unduly hardship and informs totality-of-circumstances analysis)
- Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549 (8th Cir. 2003) (establishes totality-of-the-circumstances test for undue hardship)
- Andrews v. South Dakota Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702 (8th Cir. 1981) (earliest adoption of totality approach in the Eighth Circuit)
- Abney v. United States Dept. of Educ. (In re Abney), 540 B.R. 681 (Bankr. W.D. Mo. 2015) (recognizes hardships of IBR/PAYE, including accruing debt and emotional toll)
- Nielsen v. ACS, Inc. (In re Nielsen), 502 Fed.Appx. 634 (8th Cir. 2013) (confirms IBR/PAYE eligibility is a factor in the analysis)