594 B.R. 212
Bankr. S.D.N.Y.2018Background
- Plaintiff Rafael Lozada (age 67) filed a Chapter 7 adversary seeking discharge of ~ $338,000 in FFELP consolidation student-loan debt held by ECMC under 11 U.S.C. § 523(a)(8).
- Parties submitted a stipulated Pre-Trial Order covering most material facts; trial was held Aug. 21, 2018; court accepted additional testimony but found stipulations largely conclusive.
- Lozada is retired; his sole personal income is Social Security (~$1,296/mo); combined household income with his wife is at least $5,942/mo. Monthly expenses were estimated at $4,499, leaving ~ $1,400/mo surplus.
- Lozada has significant historical charitable giving (over $100,000 in five years before bankruptcy), paid regular transfers to family, took tax refunds and a $30,000 inheritance without applying them to the loans, and used deferments/forbearances extensively. He has not made payments since 2015.
- Parties stipulated Lozada is eligible for the Direct Loan Income Contingent Repayment (ICR) plan, with an estimated payment of $826.15/mo for 300 months.
- Court received no medical records or expert testimony supporting a disabling, persistent incapacity; ECMC’s vocational expert identified potential jobs (~$40,000 salary) Lozada could perform.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Lozada cannot maintain a minimal standard of living while repaying loans (Brunner prong 1) | Lozada: retirement, limited SS income, and medical issues make repayment impossible | ECMC: household income plus wife’s pension and Lozada’s surplus show he can afford ICR payments; some expenses are discretionary | Held: Lozada can maintain a minimal standard of living while repaying; many expenses (rent, dining out, donations) are excessive and he has monthly surplus |
| Whether Lozada’s adverse financial condition is likely to persist for a significant portion of repayment (Brunner prong 2) | Lozada: medical conditions limit ability to work; age inhibits re-employment | ECMC: lack of medical evidence and vocational expert testimony shows ability to work in at least sedentary roles | Held: Lozada failed to prove persistence; absence of medical records/expert evidence prevents finding of long-term unemployability |
| Whether Lozada made a good-faith effort to repay (Brunner prong 3) | Lozada: prior payments, deferments/forbearances, attempted IBR enrollment show efforts | ECMC: Lozada failed to maximize income, minimize expenses, use refunds/inheritance, or enroll in ICR since retirement | Held: Lozada’s earlier payments show some good faith but overall conduct (no job search since 2015, refusal to reduce discretionary spending or apply funds) defeats good-faith showing |
| Whether religious/charitable donations should be excluded as reasonable expenses in Brunner analysis | Lozada: tithing is a regular, sincere expense and should be considered in budget | ECMC: donations undermine ability to repay; some courts treat significant donations as improper expenses | Held: Court rejects per se rules; tithing is evaluated case-by-case — here large, sustained donations weighed against solvency and reduced Lozada’s ability to repay |
Key Cases Cited
- Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (articulating the three-part undue-hardship test applied under § 523(a)(8))
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (preponderance of the evidence standard governs dischargeability exceptions)
- In re Renshaw, 222 F.3d 82 (2d Cir. 2000) (Congress enacted § 523(a)(8) to protect student loan programs from abuse)
- O'Hearn v. Educational Credit Mgmt. Corp., 339 F.3d 559 (7th Cir. 2003) (student-loan discharges are rare and Congress intended narrow relief)
- In re Lynn, 168 B.R. 693 (Bankr. D. Ariz. 1994) (holding § 523(a)(8) application neutral to religious exercise in context of tithing analysis)