573 B.R. 579
Bankr. E.D. Pa.2017Background
- Debtor Kristin M. Price (29, healthy) filed Chapter 7 and sought discharge of $25,971.85 in DOE student loans under 11 U.S.C. § 523(a)(8) claiming "undue hardship."
- She is a licensed vascular sonographer working part-time (~20 hrs/wk) at $34.22/hr; household includes three young children; separated from husband who provides substantial informal support.
- Net monthly household cash (wages + husband support) ~ $4,312; scheduled monthly expenses ~ $4,482, producing a shortfall; childcare costs will rise as children enter school.
- Debtor previously made payments, explored income-driven plans (IBR/REPAYE) but declined enrollment because payments or consolidation consequences were unaffordable; DOE did not contest prongs 1 and 3 at trial.
- Remaining contractual repayment term on DOE loans ≈ 7 years (to 2024); income-driven plans could extend term to 20–25 years but require consolidation and have adverse features (e.g., interest capitalization under REPAYE).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether debtor satisfies Brunner prong 1 (cannot maintain minimal standard of living while repaying) | Price: Current income/expenses leave no room for loan payments without falling below minimal standard | DOE: (conceded at trial) did not contest prong 1 | Held for Price — prong 1 satisfied (DOE waived; court independently finds inability to pay) |
| Whether debtor satisfies Brunner prong 3 (good-faith effort to repay) | Price: made payments, investigated IBR/REPAYE and reasonably declined as unaffordable | DOE: did not dispute good faith at trial | Held for Price — prong 3 satisfied (investigation but reasonable refusal to enroll is not bad faith) |
| Appropriate "repayment period" for Brunner prong 2 (contractual term vs. available extended income-driven term) | Price: Use remaining contractual term (≈7 years) because she chose in good faith not to enter extended plan | DOE: Use available extended income-driven term (20–25 years), which would make hardship less likely over a "significant portion" | Held: Use remaining contractual term when debtor in good faith declines extended plan; court adopts 7-year contractual period here |
| Whether debtor satisfies Brunner prong 2 (persistence/duration of hardship for a "significant portion" of repayment period) | Price: Market saturation in vascular sonography, childcare "squeeze," separation/divorce, and near-term increased expenses make inability to repay likely to persist for a significant part of remaining term | DOE: (argued for longer term; did not present rebuttal evidence on labor market) | Held for Price — debtor proved persistence; court applies a 5‑year look-forward (~70% of remaining 7-year term) and finds undue hardship under prong 2 |
Key Cases Cited
- Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (formulated three‑prong undue hardship test)
- In re Faish, 72 F.3d 298 (3d Cir. 1995) (Third Circuit adoption of Brunner test)
- Educ. Credit Mgmt. Corp. v. Polleys, 356 F.3d 1302 (10th Cir. 2004) (discussion of minimal standard of living and flexible application)