645 B.R. 635
Bankr. D.N.D.2022Background
- Christine Haugen cosigned a $14,535 student loan for her mother in 2007; the loan went into default and, after guaranty/collection transfers, Haugen now owes $38,490.30 to Student Loans of North Dakota (SLND).
- Haugen received no educational benefit from the loan; her mother was ultimately discharged of the debt in bankruptcy, leaving Haugen solely liable.
- Haugen is 39, works full time from home as an operator/specialist (net ~$2,138/mo); her husband works full time; joint AGI ≈ $61k (2021); family of five with modest assets and one operable vehicle.
- Schedule J and bank records show household expenses meet or exceed monthly income (adjusted monthly deficit ≈ $300–$360); SLND refuses income-contingent options and requires roughly $450/month under its 10‑year repayment demand.
- Haugen sought discharge of the cosigned loan under 11 U.S.C. § 523(a)(8) as imposing an undue hardship; SLND/State argued she could afford payments and was not entitled to discharge.
- The Bankruptcy Court applied the Eighth Circuit totality-of-circumstances test and concluded SLND’s required $450/month payment imposes an undue hardship, and discharged the debt under § 523(a)(8).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cosigned student loan is dischargeable under §523(a)(8) as undue hardship | Haugen: household income and reliable future resources are insufficient to make SLND’s required $450/mo payment while maintaining a minimal standard of living | SLND: Haugen can tighten budget, pursue higher pay, and is not sufficiently impoverished; she failed to maximize income | Court: Granted discharge — finds reasonable and necessary expenses exceed income and SLND’s $450/mo demand imposes undue hardship |
| Whether Debtor’s decision to have a child (increased expenses) counts as a self-imposed limitation weighing against discharge | Haugen: Family choices are not proper grounds to deny undue-hardship relief; dependents are part of the analysis under §523(a)(8) | SLND: Increased expenses from newborn are within Debtor’s control and should weigh against discharge | Court: Rejected weighing family‑planning choices against Debtor; such life choices are not a basis to deny relief |
| Whether Debtor is underemployed or failed to maximize income (bar to discharge) | Haugen: Working full time in her field, used degree, schedule accommodates childcare; not voluntarily underemployed | SLND: Debtor left higher‑paid role, could seek better jobs or overtime — income limitations are self-imposed | Court: Found no persuasive evidence of self-imposed underemployment; Debtor’s work and constraints are credible |
| Whether settlement offers or failure to attempt payments defeat undue-hardship claim | Haugen: Offers show willingness to settle but not present ability to pay; she made attempts to negotiate | SLND: Offers and lack of payments to SLND show lack of good faith and ability to pay | Court: Settlement offers do not prove ability to pay; lack of prior payments mitigated by cosigner status and reliance on borrower; not dispositive against discharge |
Key Cases Cited
- Jesperson v. Educ. Credit Mgmt. Corp., 571 F.3d 775 (8th Cir. 2009) (articulates rigorous undue‑hardship burden and that if reasonable future resources will cover payments while preserving a minimal standard of living, debt should not be discharged)
- Walker v. Sallie Mae Servicing Corp., 650 F.3d 1227 (8th Cir. 2011) (endorses totality‑of‑circumstances test for §523(a)(8) undue‑hardship inquiries)
- Long v. Educ. Credit Mgmt. Corp., 322 F.3d 549 (8th Cir. 2003) (supports totality test and minimal‑standard‑of‑living concept)
- Conway v. Nat’l Collegiate Tr. (In re Conway), 495 B.R. 416 (B.A.P. 8th Cir. 2013) (explains student loans remain nondischargeable unless a bankruptcy court expressly finds undue hardship)