593 B.R. 618
Bankr. D. Iowa2018Background
- Debtor Anthony Kinney, 52, cosigned three student loans for his niece in 2006; two loans (now held by National Collegiate Master Student Loan Trust I) have balances of ~$9,094 and ~$19,264.
- Debtor has worked steadily in the plastics industry for decades, earns about $37,000/year (take-home ≈ $2,160/month), and has limited education and minimal wage growth prospects.
- Debtor currently lives with elderly relatives, paying modest household contributions; projected independent housing will raise his monthly expenses from ≈$1,742 to ≈$2,432.
- Debtor has negligible savings (≈$3,000 in a 401(k)) and no realistic alternative income; he never made payments on the loans and received no educational benefit as cosigner.
- Procedural: Adversary proceeding to determine dischargeability under 11 U.S.C. § 523(a)(8); court treats undue hardship as dispositive and grants discharge of Debtor’s cosigner obligations on both loans.
Issues
| Issue | Plaintiff's Argument (Kinney) | Defendant's Argument (Trust) | Held |
|---|---|---|---|
| Whether §523(a)(8) bars cosigner discharge | §523(a)(8) does not apply to non‑student cosigners | §523(a)(8) applies to cosigners (majority rule) | Court did not decide; undue hardship dispositive |
| Whether repayment would impose undue hardship | Repayment would force Debtor below minimal standard of living given income, expenses, age, lack of assets | Repayment should not be discharged (Trust disputed some expenses) | Under the Eighth Circuit "totality of the circumstances" test, repayment would impose undue hardship; loans discharged |
| Whether partial discharge is permitted | N/A (sought full discharge) | N/A | Eighth Circuit treats student loan discharge as all‑or‑nothing, but court evaluates each loan separately and discharged both |
| Relevance of cosigner status to hardship analysis | Cosigner received no educational benefit, supporting discharge | Cosigner status does not change statutory applicability | Court considered lack of educational benefit as a factor favoring discharge but relied primarily on financial hardship |
Key Cases Cited
- Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (articulating the three‑part "Brunner" undue hardship test used by many circuits)
- Long v. Educ. Credit Mgmt. Corp., 322 F.3d 549 (8th Cir. 2003) (Eighth Circuit adopts the "totality of the circumstances" undue hardship test)
- Pelkowski v. Credit Bureau, 990 F.2d 737 (3d Cir. 1993) (rejecting the minority rule that §523(a)(8) excludes cosigners)
- Educ. Credit Mgmt. Corp. v. Jesperson, 571 F.3d 775 (8th Cir. 2009) (debtor bears the burden to prove undue hardship by a preponderance of the evidence)