463 B.R. 586
Bankr. D. Mass.2011Background
- Ms. Stevenson seeks discharge of $114,680.69 in student loans under 11 U.S.C. § 523(a)(8) after trial proceedings.
- She filed a Chapter 7 petition in 2008 and was discharged of other debts in 2008; the adversary proceeding was docketed September 10, 2008.
- She is currently employed part-time at Walgreens (~$475/m) plus unemployment benefits (~$132/wk) and rental housing subsidy, totaling about $1,000 monthly income.
- Her housing costs are subsidized (rent $409 net) under a program intended for chronically homeless individuals; she has a long housing history including prior homelessness.
- ECMC contends she cannot show undue hardship; the Ford Direct Loan Program options (IBRP/ICRP) are argued as potentially reducing hardship but not discharging obligations.
- The court applies a totality-of-the-circumstances approach to § 523(a)(8) and ultimately permits partial relief under Ford/IBRP, with potential further discharge if conditions are met.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stevenson proves undue hardship under § 523(a)(8). | Stevenson cannot maintain a minimal standard if repaying loans in the foreseeable future. | Stevenson’s circumstances do not meet the standard for undue hardship under the chosen test. | Undue hardship not proven at trial under totality approach. |
| Role of the Brunner test versus totality of circumstances in this case. | Debtor should be evaluated under totality of circumstances to account for her unique situation. | Standard Brunner test should govern the inquiry. | Court adopts totality of the circumstances approach, discounting Brunner as overly rigid. |
| Whether § 105(a) equitable relief allows partial discharge when § 523(a)(8) is not satisfied. | Court may use § 105(a) to grant equitable relief short of full discharge. | Equitable relief cannot override § 523(a)(8) unless undue hardship is shown. | Court recognizes § 105(a) authority to fashion partial relief in appropriate cases. |
| Impact of Ford Program (ICRP/IBRP) on dischargeability. | Participation in Ford program could reduce or extinguish the debt at plan end. | Ford Program benefits must be weighed; tax consequences may offset relief. | Eligibility for ICRP/IBRP supports non-discharge; potential later discharge contingent on plan compliance. |
| What judgment should the court enter given the evidence and plan options? | Court should discharge outstanding loan debt after Ford/IBRP compliance if conditions met. | Discharge should be limited given program benefits and future risk to debtor. | Judgment for ECMC with proviso: if Stevenson commits to Ford/IBRP and adheres, partial discharge may be entered at plan expiration. |
Key Cases Cited
- Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987) (establishes the Brunner three-part test for undue hardship)
- In re Nash, 446 F.3d 188 (1st Cir. 2006) (votes against a single rigid standard; supports totality approach in First Circuit context)
- In re Bronsdon, 435 B.R. 791 (1st Cir. BAP 2010) (endorses totality of the circumstances; discusses ICRP considerations)
- In re Thomsen, 234 B.R. 506 (Bankr. D. Mont. 1999) (tax consequences and ICRP considerations in hardship analyses)
- In re Booth, 410 B.R. 675 (Bankr. D. Or. 2005) (discusses ICRP implications and long-term nondischargeability)