Hlady v. American Education Services, 616 B.R. 257

Debtor/plaintiff Cherie Ann Hlady (age 48) filed Chapter 7 and brought an adversary proceeding seeking discharge of a consolidated FFELP student loan held/defended by ECMC under 11 U.S.C. § 523(a)(8).
Outstanding balance on the ECMC loan was about $140,772.91 (6.88% interest as of Jan. 23, 2017); Hlady obtained the loans to finance a J.D. from Hofstra (2006).
Hlady is a licensed New York attorney who operates a home-based solo practice with materially fluctuating income (tax returns show net profits: $6,188 (2011), $5,894 (2012), $559 (2013), $17,691 (2014), $12,784 (2015), $321 (2016)); 2016 AGI reported as $321.
Hlady has no dependents, lives in her mother’s house (pays alleged real‑estate taxes/rent inconsistently claimed), has discretionary spending (travel, gifts, purchases), and produced limited documentary proof of medical limitations she asserted.
She is eligible for income‑driven repayment (IBR/ICR/REPAYE) which, based on her 2016 AGI, would set her monthly payment at $0 for a 25‑year period; she declined those options.
At trial only Hlady testified; the court found gaps in documentation (payments history, cash reimbursements, medical evidence) and concluded Hlady failed to meet the Brunner undue‑hardship test; judgment for ECMC.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether repayment would impose an "undue hardship" under § 523(a)(8) (Brunner test)	Hlady: her current income/expenses and health make repayment impossible without falling below a minimal standard of living; inability will persist; she acted in good faith	ECMC: Hlady has fluctuating but viable legal income, discretionary spending, eligibility for income‑driven plans (monthly $0), and has not maximized income or minimized expenses	Court: Judgment for ECMC — Hlady failed to prove any Brunner prong by a preponderance of the evidence
Prong 1 — Can debtor maintain a minimal standard of living while repaying loans?	Hlady: current finances and chronic issues preclude repayment	ECMC: Hlady’s tax returns, bank statements, and eligibility for $0 IBR payments show she can avoid hardship; discretionary expenses undermine claim	Held: Hlady failed to show she cannot maintain a minimal standard of living; eligibility for $0 IBR dispositive here
Prong 3 — Did debtor act in good faith to repay?	Hlady: made some payments and sought deferments/forbearance; believes she repaid ~$5,000	ECMC: scant proof of payments, long gaps, refusal to enroll in income‑driven plans, discretionary spending, and failure to open loan mail show lack of good faith	Held: Hlady did not demonstrate good faith efforts to repay; declining $0 IBR for convenience was unreasonable

Brunner v. New York Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (establishes the three‑prong undue‑hardship test)
Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (burden of proof in dischargeability matters: preponderance of the evidence)
Easterling v. Collecto, Inc., 692 F.3d 229 (2d Cir. 2012) (student loans are presumptively nondischargeable)
Pa. Higher Educ. Assistance Agency v. Faish, 72 F.3d 298 (3d Cir. 1995) (failure of any Brunner prong ends inquiry)
In re Pincus, 280 B.R. 303 (Bankr. S.D.N.Y. 2002) (courts examine debtor’s income, expenses, and efforts to maximize income/minimize expenses under Brunner)
In re Lozada, 594 B.R. 212 (Bankr. S.D.N.Y. 2018) (requiring credible corroboration for medical/health claims affecting ability to work)