MEMORANDUM OPINION
Debtor, Wahid Elebrashy, filed his chapter 13 petition on June 5, 1991. His plan was confirmed on August 21, 1991; he made timely payments under the plan and received his discharge on September 2, 1994. Ele-brashy reopened his case on February 14, 1995 in order to file a complaint to determine dischargeability of two student loans aggregating nearly $80,000. He alleged that payment of these loans would impose an “undue hardship” on him under section 523(a)(8)(B) of the Bankruptcy Code. At the time he filed his complaint Elebrashy owed in excess of $35,000 plus interest to the United States on a loan he had obtained under the Health Education Assistance Loan Program (the “HEAL Loan”) and owed approximately $42,000 plus interest to United Student Aid Funds, Inc. (“USAF”) on a loan he had obtained under the Guaranteed Student Loan Program (the “GSL Loan”).
The trial on September 21, 1995 involved only the GSL Loan and whether its repayment would impose an undue hardship on Elebrashy. Prior to the trial, Elebrashy had conceded that 42 U.S.C. section 292f(g) prevented discharge of the HEAL Loan whether or not repayment of that loan would impose an undue hardship. On October 4, 1995, the Court entered a consent judgment fixing the amount owed on the HEAL Loan at $37,-807.93 plus interest from March 17, 1995. On October 11, 1995, the parties advised the Court that Elebrashy had agreed to repay the HEAL Loan at the rate of $200 per month. It will take Elebrashy nearly 40 years to pay the HEAL Loan, assuming an annual interest rate of 5.62 percent, the current rate under 28 U.S.C. section 1961.
I. Background
Elebrashy is a native of Egypt who intended to become a medical doctor. He attended medical school in Egypt but moved to the United States before completing his final year. He applied for admission to medical schools in this country but was unsuccessful. He completed his education and received an M.D. degree from CETEC University Medical School in the Dominican Republic in December 1981. Despite passing the equivalency exam for foreign medical students, Ele-brashy was unable to secure a residency at a hospital in the United States so as to obtain a license to practice medicine in this country.
After unsuccessfully pursuing his goal of becoming a medical doctor for several years, Elebrashy decided to become a podiatrist and enrolled at the New York College of Podiatric Medicine (“NYCPM”) in 1984. He withdrew from NYCPM after it appeared that he would not receive credit for his prior school work despite the fact that he had been admitted as a second year student. To pursue his goal of becoming a podiatrist, Ele-brashy moved to Cleveland in 1987 to attend the Ohio College of Podiatric Medicine (“OCPM”). His work at NYCPM and OCPM was financed by loans received under the HEAL and GSL programs.
Although his wife had moved with him to Cleveland, they were separated in 1988 and divorced in 1991. During that period Ele-brashy suffered an episode of acute depression and was diagnosed as suffering from bipolar disease. The onset of this disease appears to have been precipitated by his need to repeat classes he had already taken in New York, a failed marriage, and mounting debt from his education. He has been hospitalized at least twice for this condition and must take medication for the rest of his life to control it. Because of his medical and personal problems, Elebrashy requested a leave of absence from OCPM in 1988. His request was denied and he was dismissed from the school.
After being dismissed from OCPM, Ele-brashy concluded that he could not afford to continue his goal of becoming a podiatrist but would need to find a job, and he secured a temporary position as an unlicensed physician’s assistant with a Cleveland doctor. Because he was not licensed as a physician’s assistant and could not afford to pursue this
Elebrashy remarried in 1993. His wife, a 30-year old Egyptian national, moved to the United States in September, 1995. She is in the country on a conditional residency permit and is seeking permanent residency. Although she is healthy, her English skills are poor and she is currently unemployed.
II. Discussion
Section 1328 of the Bankruptcy Code states that:
(a) ... the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt—
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(2) of the kind specified in paragraph (5), (8), or (9) of section 523(a) ... of this title.
11 U.S.C. § 1328(a)(2).
Section 523(a) provides that a discharge does not discharge an individual debtor from any debt—
(8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless—
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(B) excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor’s dependents.
11 U.S.C. § 523(a)(8)(B)
Section 523(a)(8)(B) embodies Congress’ determination that the repayment of educational loans is in general more important than providing debtors a fresh start.
Andrews University v. Merchant (In re Merchant),
Although the Sixth Circuit has not expressly adopted the
Brunner
test, the Court recently applied the
Brunner
factors with apparent approval in
Cheesman v. Tenn. Student Assistance Corp. (In re Cheesman),
A. Minimal Standard of Living
As noted above, the first prong of the
Brunner
test requires the debtor to show that he cannot maintain a minimal standard of living for himself and his dependents based on current income and expenses if forced to repay the loans.
Brunner,
Elebrashy earns $11.91 per hour and receives 26 biweekly paychecks. His gross earnings for each four-week period are about $1,905. His take-home pay for each four-week period is about $1,120 after his employer deducts from his paycheck for taxes, social security, medicare, health insurance, parking costs, and $100 paid biweekly to Elebrashy’s credit union account. On a monthly basis, his take-home pay after deductions is about $1,213. Elebrashy’s budget, dated May 18, 1995, shows expenses of $1,325. A copy of the budget is attached as Appendix A.
USAF did not challenge Elebrashy’s proof that, taken as a whole, his expenditures reflect a minimal standard of living for him and his wife. In fact, most of his budgeted expenditures on their face are low — probably unrealistically low for two people over the long term. Rent is $390 per month; utilities are minimal; nothing is budgeted for newspapers, entertainment, or education, except a $35 monthly cable television charge. There is nothing reserved for the unforeseen expenses that become a near certainty over a period of years except a $35 miscellaneous charge, which is earmarked for car expenses or repairs and holiday expenses, and the credit union payments. However, two budget items do appear to provide Elebrashy some additional flexibility: the $500 per month budgeted for food and household expenses and the $100 per month budgeted for phone expense. USAF questioned both items.
The budget was submitted while Ele-brashy’s wife was in Egypt. Now that she is here, the phone expense will be reduced. The $500 food and household item included $100 which Elebrashy sent to help support his wife while she was in Egypt. Although Elebrashy testified that these savings would be offset by his wife’s expenses now that she
Elebrashy’s monthly expenses must now be increased by $200 per month, apparently for the next 40 years, for payments on the HEAL Loan. This payment will probably absorb any surplus from his budget and eliminate any reserve for unforseen expenses. In fact, based on the evidence at trial, the HEAL Loan payment appears supportable only on the assumption that Elebrashy’s wife will in due course contribute to the family’s expenses. Athough the Court is unaware of the factors reflected in the parties’ agreement to make a $200 monthly payment on the HEAL Loan, the United States had the right to require payment in full of the HEAL Loan as soon as possible and was under no legal constraint to leave any surplus for USAF or for Elebrashy.
It appears from the record that the GSL Loan was to be amortized over 20 years at a floating rate that the parties agreed at the time of trial was approximately 10 percent. This would require monthly payments of about $400 for the next 20 years. Undue hardship must be viewed from the perspective of the duration of the hardship as well as its severity during any portion of the repayment period. Even if Elebrashy could squeeze enough from his living expenses for a year or two to pay something on the GSL Loan, committing him to that enterprise over the next 20 years would amount to an insupportable sentence of impoverishment and hopelessness unless, of course, his circumstances improve substantially and unforesee-ably.
B. Future Prospects
The second prong of the
Brunner
test requires the debtor to show that the circumstances that preclude payments on the student loan are likely to persist for a significant portion of the loan repayment period.
Brunner,
In this case, the evidence indicates that Elebrashy’s present circumstances are likely to persist for the foreseeable future. He has no apparent prospect for advancement or significant pay increase from his employer. Athough he did perform some overtime work in 1994, he did no overtime work in 1995 and he does not expect overtime work to be available in the foreseeable future because of Cuyahoga County’s current
Nothing in the evidence indicates that Ele-brashy could improve his employment situation by seeking a position other than the one he currently holds, whether in medicine or any other field. Elebrashy’s uncontradicted testimony was that his position with the Sheriffs Department was the best job he could find without being licensed as a medical assistant. To be licensed as a medical assistant, Elebrashy would need to attend school full-time for another two years, which appears impractical. The only possibility for Elebrashy to materially increase his income would be through a second job, if one were available. There is no evidence that he could find additional work or perform it without aggravating his medical condition. He appears fortunate that his current employer understands his condition and has taken steps to accommodate him. To require him to work a second job for the next 20 years to pay the GSL Loan would be more than undue hardship; it would, under his circumstances, be an invitation to disaster.
USAF argues that Elebrashy’s wife should contribute to the family’s future income. Although she was trained as a teacher in Egypt, it appears doubtful that she can obtain significant employment unless and until her English skills improve. Her employment prospects are, therefore, uncertain, although it appears that she will have to work if the couple is to exist at more than a subsistence level or if they have children. At this point, it is entirely speculative that she will be able to generate income over and above amounts required, after related expenses such as possible child care, to provide the family a minimal standard of living. Moreover, in an environment where about one-half of marriages end in divorce, there is no assurance that her earnings will be available to pay Elebrashy’s loan in the future. She is not obligated on the loan. To mortgage her future earnings to repayment of the loan rather than to an improvement in her standard of living would not only be unfair but would provide a powerful motivation for her to abandon the marriage.
C. Good Faith
The final inquiry under
Brunner
is whether the debtor made a good faith effort to repay the loan.
Brunner,
None of these factors is present in this case. Elebrashy did not file his petition immediately upon completion of his education. Although he did not make payments on the loans before filing his petition, such a failure to pay will not result in a finding of lack of good faith where the debtor has no funds to make any repayment.
Hawkins,
USAF points to several other factors which it argues show that Elebrashy lacks good faith in seeking discharge of this loan. USAF would have the Court find bad faith in Elebrashy’s answer to an interrogatory that asked him for his gross monthly salary. Elebrashy answered that his salary was $1,094 per month. Although this figure misstates Elebrashy’s gross income, it is about the same as his take-home pay of $1,120 every two pay periods as reflected in his pay statements. Moreover, Elebrashy gave his correct hourly income in answering the same interrogatory. Therefore it appears that he may have confused take-home pay with gross income. An intent to mislead is not consistent with providing the correct hourly rate from which his current gross income can be simply computed.
USAF argues that Elebrashy showed bad faith by misstatements in the income statement filed with his original chapter 13 plan. Although Elebrashy could not at trial reconcile his subsequent tax statements with his income as shown in his chapter 13 schedules, the evidence did not establish that Elebrashy understated his income in 1991 with the intention of lowering his plan payments. The fact that Elebrashy was confused by figures in four-year-old schedules is not surprising, especially since USAF had not previously put statements in Elebrashy’s chapter 13 schedules in issue in this proceeding. Moreover, USAF’s predecessor, Chase Manhattan, was a named creditor in the chapter 13 case. The time to have raised questions as to whether that case was filed in good faith was at its inception. Elebrashy’s chapter 13 plan was confirmed on August 21, 1991. Section 1330(a) limits any revocation of a confirmed plan to 180 days after the order of confirmation is entered. This 180-day period has long passed and USAF cannot now attack the terms of the confirmed plan.
USAF would also have the Court find a lack of good faith in Elebrashy’s answer to an interrogatory that asked whether Elebrashy or his spouse suffered “from any physical or mental disability or impairment.” Elebrashy answered “none” to this interrogatory despite the fact that he has bipolar disease. When questioned as to why he answered the question in the negative, Ele-brashy explained that he was ashamed of disclosing his condition and using it as an excuse for his inability to repay his loans. This explanation is credible and there appears to be no intent to mislead since his condition was elsewhere disclosed. In any event, his answer is probably technically correct. It appears from the evidence that with proper medication his condition is not disabling and does not impair his work performance.
USAF also argues that Elebrashy’s failure to qualify as a medical doctor or podiatrist was due to his own negligence or neglect, that he might in fact have qualified for a residency in a United States hospital, and that he could and should have completed his podiatry degree. There is, however, nothing in the record to support a holding that Elebrashy failed to pursue his goals of becoming a medical doctor or podiatrist sincerely. At most, USAF’s cross-examination indicated that, with other or additional actions, Elebrashy might have achieved these goals. But this is at best speculation and, even if true, in no way impugns Elebrashy’s good faith in contracting his student loans or in attempting to qualify for careers that would have enabled him to pay them in full. USAF’s argument amounts to an indictment of Elebrashy for incompetence which, if true, would merely reinforce the judgment that he may be unable to improve his circumstances in the future.
After considering the evidence presented, the Court finds that Elebrashy has established that repayment of the student loan to USAF would work an undue hardship on Elebrashy and his dependents within the meaning of 11 U.S.C. section 523(a)(8)(B) and that this loan should therefore be discharged.
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