Sederlund v. Educational Credit Management Corp. (In Re Sederlund)
440 B.R. 168
8th Cir. BAP2010Background
- Debtor Kellie K. Sederlund, age 42, has no disability and earned a psychology BA in 1992; she never worked in her field.
- She consolidated student loans in 1992 with Sallie Mae; last payment was in 2004, after which forbearances/deferments occurred.
- Educational Credit Management Corporation (ECMC) holds the consolidated loan, total about $47,000 at trial.
- Debtor's post-2004 income was sporadic and mostly below the poverty line; she lived with a boyfriend who paid most household expenses.
- Debtor filed Chapter 7 in 2008; discharged in 2009; pursued adversary to discharge student loans under § 523(a)(8).
- Bankruptcy Court denied discharge, finding no undue hardship; Debtor appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Should the boyfriend's income be considered in the hardship analysis? | Sederlund argues household income should exclude non-spousal contributions. | ECMC contends the boyfriend's contributions are part of the household income and relevant. | Yes; court properly considered boyfriend's contributions as household income. |
| Is Debtor voluntarily underemployed affecting hardship? | Sederlund claims economic distress justifies discharge due to underemployment. | ECMC argues she is voluntarily underemployed and can obtain better employment. | Debtor is voluntarily underemployed; burden not met for undue hardship. |
| Does eligibility for Income Contingent Repayment/Income-Based Plan affect hardship? | Sederlund alleges ICRP/IIRP options are not a factor. | ECMC asserts ICRP/IBR availability is a key factor in totality of circumstances. | ICRP/IBR availability is an important factor; repayment could be zero, undermining hardship. |
| Do potential tax consequences of loan forgiveness defeat dischargeability? | Sederlund argues tax liability from forgiveness could affect hardship. | ECMC contends tax issues are not controlling, citing Jesperson. | Tax consequences are not dispositive; Jesperson supports this weighting. |
Key Cases Cited
- Educational Credit Mgmt. Corp. v. Jesperson, 571 F.3d 775 (8th Cir. 2009) (totality-of-the-circumstances approach to § 523(a)(8) undue hardship)
- Walker v. Sallie Mae Serv. Corp. (In re Walker), 427 B.R. 471 (8th Cir. BAP 2010) (spouse income considered; ICRP as a factor in hardship analysis)
- In re Reynolds, 425 F.3d 526 (8th Cir. 2005) (income and capacity considerations in hardship determinations)
- In re Long, 322 F.3d 549 (8th Cir. 2003) (foundational articulation of the totality-of-circumstances test)