603 B.R. 671
Bankr. N.D.N.Y.2019Background
- Debtor Timothy J. Shenk (pro se at trial) sought discharge of federal and state student loans under 11 U.S.C. § 523(a)(8); originally pleaded four counts but consented to dismissal of counts II and IV, leaving claims for undue hardship (Counts I and III).
- Federal loan: consolidated; large balance due to interest and defaults; as of Jan 2018 ~ $91,675 with interest accruing; total student-loan exposure estimated by the court at $110,000–$120,000 with compounding interest.
- State loan: judgment entered in 2004 for $4,643.55; no payments made and balance increased to over $10,000.
- Financial status at trial: age 59, unemployed since Dec 2018 (short-term unemployment benefits exhausted), limited VA disability ($144/month), girlfriend contributes to household; near-term increases expected—military pension (~$2,200/month beginning March 2020) and future Social Security.
- Employment history: steady blue-collar earnings (>$44,000 most years 2009–2014); earnings fell after 2015; actively seeking higher-paying work (interviews for veterans’ affairs director and other positions).
- Debtor made no voluntary student-loan payments (only garnishments and one-time garnished amounts credited); withdrew $10,000 from 401(k) in 2014 and did not apply it to loans.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtor cannot maintain a minimal standard of living if forced to repay (Brunner prong 1) | Shenk: current income/expenses make repayment impossible; household income was very low at trial | Defendants: debtor failed to consider income-based repayment options; repayment could be feasible | Court: Held prong 1 satisfied — current budget could not absorb repayment of the large loan while maintaining a minimal standard of living |
| Whether Debtor's inability to pay is likely to persist for a significant portion of repayment (Brunner prong 2) | Shenk: long-term hardship due to unstable work history and withheld degree preventing teaching income | Defendants: debtor is employable, expects pension and Social Security, and has realistic prospects for higher-paying employment | Court: Held prong 2 not satisfied — future pension, Social Security eligibility, and job prospects show hardship is not likely to persist |
| Whether Debtor made good-faith efforts to repay loans (Brunner prong 3) | Shenk: relies on military service and past hardships; argues circumstances (e.g., 9/11 service) impeded repayment | Defendants: point to absence of voluntary payments, discretionary spending (401(k) withdrawal), and failure to pursue repayment options as lack of good faith | Court: Held prong 3 not satisfied — debtor failed to make voluntary payments or demonstrate genuine effort to repay; spending of discretionary funds weighed against good faith |
Key Cases Cited
- Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (establishes three-prong undue-hardship test for student-loan discharge)
- Grogan v. Garner, 498 U.S. 279 (1991) (plaintiff must prove exceptions to discharge by preponderance of the evidence)
- Cruz v. Gomez, 202 F.3d 593 (2d Cir. 2000) (courts must accord deference to pro se debtors when evaluating claims)
- In re Bene, 474 B.R. 56 (Bankr. W.D.N.Y. 2012) (approach to minimal standard of living analysis; used as a comparatively generous benchmark)
- Easterling v. Collecto, Inc., 692 F.3d 229 (2d Cir. 2012) (applies Brunner standard within the Second Circuit)
Conclusion: The court denied discharge of Debtor's student loans, finding Debtor met only the first Brunner prong but failed the second and third prongs; the complaint was dismissed.