Lead Opinion
Reversed by published opinion. Judge DIANA GRIBBON MOTZ wrote the majority opinion, in which Judge KING joined. Judge MICHAEL wrote a dissenting opinion.
OPINION
In this Chapter 7 case, the United States Department of Health and Human Services (HHS) appeals the district court order affirming the bankruptcy court’s discharge of the Health Education Assistance Loans (“HEAL loans”) of Zane Todd Smit-ley. Because the district court erred in holding that nondischarge of the HEAL loans would be unconscionable, as is required by 42 U.S.C.A. § 292f(g) (West 2003), we reverse.
I.
From 1983 through 1985, Smitley obtained approximately $27,000 in HEAL loans in order to attend the Cleveland Chiropractic College. After Smitley grad
Smitley’s default resulted in assignment of the loans to HHS. In November 1991, HHS notified Smitley of the assignment, and the parties entered into a Repayment Agreement. At that time, the total debt amount equaled approximately $42,000. From March 1992 through August 1999, Smitley made monthly payments of $100, totaling $7,600. Despite his promise in the Repayment Agreement to “increase [his] monthly payment with the month following any increase in income,” Smitley did not increase the monthly payments, even though his income substantially increased over those years (to more than $80,000 in one year).
On October 26, 1999, Smitley and his wife filed a Chapter 7 petition in the bankruptcy court. On February 11, 2000, they received a general discharge of over $100,000. On February 7, 2000, Smitley filed the instant adversary proceeding against HHS, the Educational Credit Management Corporation (ECMC), and the Great Lakes Higher Education Corporation.
On April 12, 2001, the bankruptcy court held a trial on the adversary proceeding. The parties agree that the facts of this case are undisputed. At the time of trial, Smitley was 47 years old, in good health, and lived in Raleigh, North Carolina. He had received an undergraduate degree in secondary education and worked as a secondary school teacher prior to seeking his chiropractic degree. After chiropractic school, Smitley purchased a practice from another chiropractor and practiced for approximately 13 years. During that time, Smitley had a fire in his office, suffered an injury that kept him out of work for six weeks, and incurred medical bills of $22,000, which Mrs. Smitley testified had been paid off at the time of trial. In 1999, he closed his chiropractic practice because of financial difficulties.
Since closing the practice, Smitley has worked part-time as a carpenter. Smitley now works 30-38 hours per week as a finish trim carpenter, earning $15 per hour. He testified that he had not “explored the possible hours [he] could get from another finish carpenter” job.
Both his chiropractic and secondary education licenses had lapsed at the time of trial. Smitley has made a few attempts to obtain part-time or evening jobs at retailers and grocery stores. He also applied for a few teaching jobs at the university level and testified that people at his church had looked for management jobs for him. But Smitley did not seek teaching positions at the high school level, positions as a factory foreman (for which he had prior experience), positions in other geographic areas (except for a teaching position at a college in Ohio), or employment counseling of any kind.
In April 2001, the Smitleys had four children under the age of eighteen: 17-year-old twins and two other children ages 14 and 8. The children have health insurance through the State, but Smitley and his wife do not have health insurance.
From 1995 through 2000, the Smitleys reported the following annual income to the Internal Revenue Service: $83,064 (1995), $58,053 (1996), $63,691 (1997), $58,354 (1998), $40,675 (1999), and (approximately) $42,000 (2000). The Smitleys made substantial donations to their church during some of those years — $5,800 in 1995, $4,700 in 1996, and $3,000 in 1997. The family rents a two-story, three-bedroom house for $1,250 per month in Raleigh, North Carolina. Mrs. Smitley has a retirement account of approximately $10,000, consisting of her employer’s contributions. The family owns two automobiles, on one of which, a van, they owe a monthly payment of $434 per month.
Smitley stated the following basis for his “belief that the debt to the United States should be discharged based on unconscion-ability”:
We are both working 33 to 38 hours a week, continuing to pursue our jobs to be able to support ourselves and our family. We are both employed, have good jobs. We are unable to pay our regular bills. Our children must earn their own money to do activities. Our teenage daughters are unable to get a driver’s license because we cannot afford insurance. [We] cannot afford health insurance, and it is not offered by our employers. Therefore, we must pay all of our own medical bills. We have no way at this time to pay all of our bills, save for the future, or make plans for our children’s futures.
Smitley testified that he had not made any efforts since the bankruptcy filing to consolidate his loans in order to reduce the monthly payments.
On April 13, 2001, the bankruptcy court issued an order, finding that Smitley “is probably underemployed as a carpenter, but he has no prospects for other employment.” It stated that“[i]t is apparent to the court that Mr. Smitley cannot possibly repay his educational loans that total more than $170,000 [sic].”
After Smitley reported back that (based on a total loan amount of $135,000, an annual gross income of $42,000 and four dependents), the minimum payment under the lenders’ programs would be $327.67 per month, the bankruptcy court ordered both the $63,000 in HEAL loans and the $68,000 in ECMC loans discharged. Assuming an interest rate of 8.19%, the court believed that interest would accrue on both loans at $11,000 per year and the minimum payment would amount to just under $4,000 per year ($327.67 x 12). The bankruptcy court recognized the differing standards governing discharge of the HEAL and non-HEAL loans, but concluded that it would be “unconscionable” to refuse to discharge both loans. The court reasoned:
Even if Mr. Smitley were to make the payments according to the repayment schedule submitted, not only would he never fully repay the loan, but he would also never reduce the principal due. Instead, the amount would continue to increase. The prospects for Mr. Smitley to make higher payments in the future are not good, and if the balance continues to increase, the chances of his ever repaying the loans are nil. In the context of the bankruptcy proceeding, the court finds that requiring the debtor to continue to pay this debt for the rest of his life, with no hope of a final payment, is unconscionable. The HEAL loan, therefore, shall be discharged .... [and] Mr. Smitley’s loans from Educational Credit shall also be discharged.
The district court affirmed the bankruptcy court’s discharge order, holding that “[biased on the reasoning of the Bankruptcy Court, and this Court’s evaluation of Debtor’s dire financial situation, this Court finds that nondischarge of Smit-ley’s outstanding student loans would be unconscionable in this case.” It held that Smitley had met both the undue hardship and the unconseionability standards.
This appeal involves only discharge of the HEAL loans; ECMC did not appeal the discharge of its loans.
II.
The sole question before us is whether the nondischarge of Smitley’s HEAL loans would be “unconscionable” under § 292f(g)(2).
We begin with the standard of review. The determination of the meaning of “unconscionable” constitutes a question of law reviewed de novo. See, e.g., In re Ekenasi
In addition, both parties assert, and we agree, that application of the unconscionability standard to the facts of this case constitutes a mixed question of law and fact, requiring “a conclusion regarding the legal effect of the Bankruptcy Court’s findings as to [the debtor’s] circumstances.” In re Long,
We note that this approach accords with that of the only circuit to have passed on the question in connection with HEAL loans, as well as all of the circuits to have considered the lesser “undue hardship” standard for other educational loans under § 523(a)(8)(B). See In re Rice,
In the case at hand, the parties agree that the facts are undisputed. Thus, our task involves de novo consideration of two legal questions: the meaning of “unconscionable” under § 292f(g) and the application of that standard to the discharge of Smitle/s HEAL loans.
III.
A.
Congress has not defined “unconscionable” as used in § 292f(g), and we have not addressed the question in a published opinion. The Supreme Court has directed, however, that “[i]n the absence of an indication to the contrary, words in a statute are assumed to bear their ‘ordinary, contemporary, common meaning.’ ” Walters v. Metro. Educ. Enters., Inc.,
The dictionary defines “unconscionable” as “excessive;” “exorbitant;” “lying outside the limits of what is reasonable or acceptable;” “shockingly unfair, harsh, or unjust;” or “outrageous.” Webster’s Third New International Dictionary 2486 (1993); see also Matthews v. Pineo,
The unconseionability standard is stringent, demanding more than the “undue hardship” standard for the discharge of educational loans under § 523(a)(8)(B)
In determining whether nondischarge of a HEAL loan meets this stringent standard, a court must focus on the “totality of the facts and circumstances surrounding the debtor and the obligation.” Id.; see Malloy,
A court should determine if “the debtor’s current situation is likely to continue or improve,” including “whether the debtor has attempted to maximize his income by seeking or obtaining stable employment commensurate with his educational background and abilities” and whether he could supplement his income through secondary part-time or seasonal work, “[e]ven if the debtor is already employed full-time.” Rice,
Finally, the amount of the debt and the rate of interest are relevant. Id. at 1149. But when weighing these factors, a court must also consider the debtor’s role in accruing the amount of debt, including requesting multiple forbearances and making minimal repayments. See, e.g., Rice,
B.
To flesh out the unconscionability standard, we have canvassed the decisions of courts applying that standard to the varied financial situations faced by HEAL debtors. After analyzing the above factors, courts have found nondischarge of HEAL loans unconscionable only in rare cases. See id. (“Given the extreme nature of Congress’ chosen standard for the discharge of HEAL loans, we believe that in all but the most difficult cases the question of whether the debtor has satisfied that standard will be obvious.”).
Thus, courts generally have refused to hold nondischarge unconscionable even though the debtor earned only a modest income and the amount of the HEAL debt was substantial. For example, in Rice, the debtor owed $77,000 in HEAL loans and his family, which included three children (ages 10, 7, and 4), grossed $60,000 annually. Id. at 1147, 1150-51. Moreover, the debtor, age 41, was relatively young and healthy, and in all likelihood his income could increase in the future. Id. at 1147, 1150. The family owned a mortgaged home, an old automobile, and spent $200 per month for school tuition and $100 per month for recreation. Id. at 1147, 1151 n. 7. The court found repayment would not force the family to maintain a standard of living below or even near the poverty level. Id. at 1150. Furthermore, the substantial amount of the HEAL debt at the time of the petition “was largely [the debtor’s] own doing” because of his minimal repayments. Id. at 1150. For all of these reasons, the court held as a matter of law that nondischarge of this debt was not unconscionable. Id. at 1150.
Similarly, in Malloy, the district court denied a $62,000 discharge to the debtor, a thirty-nine-year-old man with no dependents, who had failed to graduate from medical school, but was college educated.
In re Pinkham,
In In re Barrows,
In In re Borrero,
Similarly, in In re Hines,
Conversely, In re Kline,
Similarly, in In re Nelson,
With this precedent and these principles in mind, we consider the instant case.
IV.
A.
We note at the outset that the reasoning of the bankruptcy court, which the district court largely adopted, was flawed in several respects.
First, although the bankruptcy court recognized that it must find nondischarge of the HEAL loan to be “unconscionable” in order to justify discharge, the court did not seem to appreciate the very demanding nature of that standard. Thus, in its brief opinions, the court did not define or even discuss the meaning of “unconscionable.” It did not mention a single case involving this standard or engage in any discussion of many of the relevant considerations set forth above.
Second, while the bankruptcy court recognized that differing standards govern discharge of the ECMC loans and the HEAL loans, its analysis improperly combined the loans. See J.A. 260 (“It is apparent to the court that Mr. Smitley cannot possibly repay his educational loans that total more than $170,000 [sie][.]”
Finally, the bankruptcy court misinterpreted the undisputed facts in concluding that Smitley would continue to pay the HEAL loans for the rest of his life. The Direct Loans Repayment Calculator Summary and Smitley’s letter, both in the record and submitted in response to the bankruptcy court’s order, indicate that the income contingent “plan has a maximum term of 25 years.” Moreover, at oral argument before us, Smitley’s counsel conceded that the plan would only require 25 years of payment, followed by forgiveness of the debt. Cf. http://www.ed.gov/direet-loan (Interactive Calculators/Description of Repayment Plans) (last visited July 7, 2003) (“If you haven’t fully repaid your loans after 25 years under this plan, the unpaid portion will be discharged. You will, however, have to pay taxes on the amount that is discharged.”). Thus, under the income contingent repayment plan, Smitley would only pay toward the HEAL debt for 25 years, and he would do so at a rate that would cover both the accruing interest and some principal.
If the bankruptcy court had applied the correct legal analysis to the undisputed facts, it could only have concluded that it would not be “unconscionable,” i.e. “shockingly unfair, harsh or unjust,” to deny discharge of Smitley’s HEAL loans.
The Smitley family grossed $42,000 per year in 2000, the year immediately following the bankruptcy filing. This is not a substantial income, but, as in Rice,
Like debtors denied HEAL discharges in other cases, Smitley, age 47 at the time of trial, enjoys good health. See Rice,
Moreover, both Smitley and his wife have stable employment, another factor weighing against discharge. See Rice,
Even recognizing that Smitley’s chiropractic and teaching licenses had lapsed at the time of trial, Smitley’s underemployment is apparent. Additionally, we note that Smitley himself acknowledged in testimony before the Bankruptcy Court that he had not “explored the possible hours [he] could get from another finish carpenter,” made only a few attempts to obtain part-time or evening jobs at retailers and grocery stores, and did not seek positions as a factory foreman (for which he had prior experience), positions in other geographic
Furthermore, although the amount of the HEAL debt — $63,000—is significant, it is a good deal less than other HEAL debts that courts have refused to discharge. See Rice, 78 F.3d at 1147 ($77,000 in HEAL debt); Borrero,
In addition, like the debtor in Borrero,
Finally, although we have no wish to micromanage anyone’s life, we must also,
Given the totality of the undisputed facts and the stringent standard for discharge under § 292f(g), nondischarge of Smitley’s $63,000 HEAL debt would not be unconscionable. Moreover, at oral argument, HHS assured us that it remains willing to work with Smitley on a repayment program and that he would likely still be eligible for the income contingent repayment plan. In view of all of these facts, a court would be hard-pressed indeed to find it “shockingly unfair, harsh, or unjust” to require Smitley to make income-sensitive repayments toward his HEAL debt for the next 25 years. Rather, in this case, it would be unfair to require taxpayers, who paid for Smitley’s chiropractic degree, to bear the burden of discharge.
V.
For the foregoing reasons, the judgment of the district court is reversed.
REVERSED
Notes
. The Great Lakes Higher Education Corporation did not participate in the adversary proceeding because ECMC is its successor in interest.
. The record indicates that Smitley paid approximately $10,000 toward his ECMC loans.
. At the time of the trial, one of the vehicles needed repair work that would be delayed until the Smitleys had paid a $500 bill from their mechanic.
. Actually, the total loan debt (both the HEAL and ECMC loans) equaled approximately $131,000; it appears that the $170,000 figure was a typographical error, although it could have influenced the bankruptcy judge’s decision.
. In addition to the unconscionablity requirement, § 292f(g) also requires that a discharge be granted only after the expiration of the seven-year period beginning on the first date when repayment of such loan is required, exclusive of any period after such date in which the obligation to pay installments on the loan is suspended and upon the condition that the Secretary shall not have waived the Secretary's rights to apply subsection (f) of this section to the borrower and the discharged debt. See § 292f(g)(l), (3). The parties do not dispute that these requirements have been satisfied.
. Malloy received discharges of approximately $34,000 in other educational loans, rulings not appealed to the district court. Id. at 943, 944-45.
. In In re Soler,
. As noted above, the $170,000 figure is erroneous; the record is clear that the total due on the HEAL and non-HEAL loans approximated $131,000.
. Based on these figures, the record suggests that interest is only calculated on the stipulated $40,954 principal balance, which yields an annual interest payment of approximately $3,300 ($40,954 x 8.25% = $3,378). (The principal balance figure of $40,954 is the state court judgment amount obtained by Student Loan Marketing Association and assigned to HHS, and the remainder of the $63,000 total HEAL debt is $22,569 in accrued interest.) We recognize, of course, that 8.25% per year based on a total debt amount of $63,000 yields a larger annual interest accrual than $3,300 (i.e., $63,000 x 8.25% = $5,197). But at oral argument HHS counsel repeated the figure of $8.98 per day and roughly estimated an annual interest accrual of $3,300 — without challenge from Smitley’s counsel. We further note that this state court judgment set an interest rate of 8%, as did the Repayment Agreement between Smitley and HHS. At oral argument, HHS asserted, however, that interest is currently accruing at a lower rate (under 5%), given the historically low interest rates at the present time. We do not rely on the current lower interest rate because HHS pointed to no record evidence supporting it and the rate could presumably rise again in the future.
. Even if the annual interest accrual outpaced Smitley's annual income contingent payments, the fact that the debt would be forgiven after 25 years renders that point moot and certainly would not support a finding of unconscionability in this case.
. We accept the undisputed fact that Mrs. Smitley could not, at the time of trial, work more than 30-35 hours per week because of an undiagnosed problem with her hands.
. During the same period in which, notwithstanding the substantial increase in family income, Smitley failed to abide by his promise to increase his monthly HEAL repayment, the Smitley family made three annual contributions of $3,000 to $5,800 to charities of their own choosing. See Rice,
Dissenting Opinion
dissenting:
Todd Smitley, a Chapter 7 debtor who now works as a carpenter, has demonstrated that it would be unconscionable to deny him a discharge of his Health Education Assistance Loan (HEAL) debt. Smitley and his wife have no prospects for increasing their income, and their family’s bare-bones expenses exceed their total income. Smitley’s family will suffer if he is denied a discharge. He will be able to make payments on his HEAL loan only if he neglects some of the essential needs of his family. Accordingly, I respectfully dissent from the majority’s decision to reverse the discharge of Smitley’s HEAL debt.
The HEAL program allows graduate students in the health professions to finance their educations with federally insured loans. See 42 U.S.C. §§ 292, 292o. A HEAL debt may be discharged in bankruptcy, but the debtor must satisfy a strict standard. Discharge requires “a finding by the Bankruptcy Court that the nondis-charge of [the HEAL] debt would be unconscionable.” Id. § 292f(g)(2). The statute does not define “unconscionable,” and I accept the majority’s choice of the following dictionary definitions of the word: “ ‘excessive;’ ‘exorbitant;’ ‘lying outside the limits of what is reasonable or acceptable;’ ‘shockingly unfair, harsh, or unjust;’ or ‘outrageous.’ ” Ante at 116 (quoting Web
In an effort to impose some objectivity, the majority follows other courts and lists a number of factors that a court may consider in conducting the unconscionability analysis. These factors include the debtor’s (1) income, (2) age, (3) health, (4) earning ability, (5) educational background, including professional degrees, (6) prospects for increasing income, including efforts to make that happen, (7) dependents and whether they are able to contribute, (8) accumulated wealth, (9) total HEAL debt (the debtor’s role in accruing the debt, including forbearance requests and payment history, is relevant), and (10) expenses and ability to pay HEAL debt. See ante at 9-10.
I do not quarrel with the majority’s list of factors. The list should be used, however, as a general guide to the examination of the debtor’s overall circumstances and his efforts. As the majority points out, “a court must focus on the ‘totality of the facts and circumstances surrounding the debtor and the obligation.’ ” Ante at 117 (quoting In re Rice,
(1) Income. Smitley and his wife have a combined gross income of about $42,000 ($37,000 net of taxes). The majority counts this annual income level against Smitley, stating that “repayment of the HEAL loan would not force the family to maintain a standard of living below or even near the poverty level.” Ante at 122 (citing Annual Update of HHS Poverty Guidelines, 65 Fed.Reg. 7555 (Feb. 15, 2000) (quotation marks omitted)). Because the poverty threshold marks a point of desperation, I would not use the federal poverty guidelines to gauge when it becomes unconscionable not to discharge a HEAL debt. Recent studies indi*126 cate that the method currently used by the federal government to set poverty levels is “conceptually insufficient for measuring the basic income needs of a working family.” Jared Bernstein et al., How Much Is Enough? 1 (Economic Policy Institute, 2000) (see also studies cited therein); Measuring Poverty: A New Approach (Constance F. Citro & Robert T. Michael eds., National Academy Press, 1995) (proposal by National Research Council for developing new approach to official poverty measure in U.S.). A study commissioned by the Economic Policy Institute concludes that the average family requires income of twice the government-set poverty figure in order to maintain “a safe and decent standard of living.” Bernstein et al., swpra, at 1, 64. In 2000, shortly before Smitley’s trial, poverty level income for a family of six (the size of the Smitley family at the time) was $22,850. Doubling that to reach the “safe and decent” level would require $45,700, or $3,700 more than the Smitleys made. The Smitleys are definitely short of the income necessary to reach the minimum safety level, for they cannot afford health insurance. The Smitleys’ $42,000 gross income level is not adequate by any reasonable standard, and it should weigh in favor of discharge.
(2) and (3). Age and health. Smitley was 47 years old at the time of the trial, so he has a good many years of earning capacity left. Smitley testified that his health is good, but he said that he had not had a physical examination for seven years. Smitley had a serious medical problem a few years ago when he ruptured an artery in his leg and was hospitalized for ten days. He did not return to full-time work for six weeks, and his uninsured status left him with $22,000 in medical bills that he had to pay. A comparable health problem in the future would likely send the Smitleys back into bankruptcy.
(4) (6). Earning ability; education; prospects and efforts for increasing earnings. The majority notes that “Smitley and his wife have stable employment” and weighs this against discharge. Ante at 122. Stable employment should not be an automatic penalty. As a general rule, it shows good faith and a sense of duty. What is more important is the earnings total (which I have already discussed) and whether sufficient effort has been made to increase the total. As for Mrs. Smitley, who works as a dental assistant, the bankruptcy judge found that “she has no real prospect for advancement” in her employment. Moreover, the majority accepts that Mrs. Smitley cannot work more than the weekly total of 30 to 35 hours she puts in at two part-time jobs. Ante at 123- n. 11. She cannot do more as a result of a hand problem that has not been diagnosed or treated because she cannot afford to see a doctor.
As for Smitley himself, the majority concludes that he “has not made substantial job search efforts” to find a position more appropriate to his level of education or to find part-time work to supplement his current wages. Ante at 122. This conclusion, which is key to the majority’s decision, runs head-on into the bankruptcy judge’s finding that Smitley has no prospects for improving his employment situation. Spe
Smitley once held a certificate to teach in secondary schools, but his certificate lapsed more than twenty years ago. His chiropractor’s license expired in 1999 because he could not afford to enroll in the required seminars for continuing education. Now, Smitley cannot afford the courses necessary to prepare for the state board examinations that would be a prerequisite for the reinstatement of his chiropractor’s license. Thus, although Smit-ley’s prior education as a teacher and a chiropractor make it appear that he is now underemployed in his job as a finish carpenter, the bankruptcy judge was correct in not holding this against him. Smitley simply lacks the money to be retrained and relicensed in his prior professions.
The majority concludes that even if Smitley cannot market himself as a licensed professional, he did not make substantial’ efforts to find either a better job or a supplemental part-time job. See ante at 123-124. I respectfully suggest that the record shows that Smitley has made an adequate, albeit unsuccessful, effort to find better work or more work and that the bankruptcy judge’s finding that he “has no prospects for other employment” is fully supported. First, Smitley registered with two employment agencies and followed up with inquiries. Second, he sought evening and part-time jobs with several grocery stores and retailers, including Target and Kmart. Third, he applied with Cisco Systems and got an encouraging response until the company imposed a hiring freeze. Fourth, he applied to several technical schools and colleges, including one out-of-state college, for teaching positions in the science and health care areas. Fifth, he told his current employer that he needs more hours. Sixth, he talked with members of his church who are in management positions, letting them know that he is looking for a better job. Finally, at the time of the trial he was still actively looking for a better position or part-time work. This effort, though wholly unsuccessful, is sufficient to support the bankruptcy judge’s finding that Smitley has no real prospects for a better job. In short, Smit-ley’s job search has been earnest and adequate, and his lack of success should not be held against him.
(7) Dependents and whether they are able to contribute to their support. The Smitleys have five children, four of whom were dependents on the date of the trial, April 12, 2001. The oldest of the dependents, twin daughters who were seventeen (juniors in high school) on the date of trial, worked part-time to pay for their activities. The other two dependents are a son who was around thirteen at trial time and a daughter who was around seven. The son should be old enough by now to find some way to contribute.
(8) Accumulated wealth. The Smitleys have no savings or investments, and they do not own a home. Mrs. Smitley has a $10,000 retirement account funded by employer contributions.
(9) Total HEAL debt; forbearances and payment history. Smitley’s total HEAL debt is $63,000, with interest currently accruing at the rate of 8.25 percent per year. I cannot argue with the majority’s statement that “Smitley bears responsibility for the [HEAL] debt’s escalation from the original $27,000” because he “received for-bearances for almost two years” and “then paid only $100 per month.” Ante at 123. Forbearances and small payments do not automatically prevent a debtor from obtaining the discharge of a HEAL debt,
(10) Expenses and ability to pay HEAL debt. The majority says that Smitley’s financial situation has improved because he has received a discharge of other debts. Yet the reduction of Smitley’s accumulated debt burden does not tell us very much about whether he can afford to make monthly payments of $827 against the HEAL debt for the next twenty-five years. We have to look at the family’s income and its reasonable expenses to determine Smit-ley’s ability to pay. The Smitleys’ income net of taxes is about $37,000 a year, or about $3,100 a month. The family has monthly living expenses — all of which appear to be reasonable — of about $3,700, or $600 in excess of income. Their living expenses include rent ($1,250), utilities ($340), car payment ($434), delinquent tax payments ($300), insurance ($93), clothing ($100), food (approximately $600), gasoline (approximately $200), and medical expenses ($355). The majority challenges these expenses by saying that as Smitley’s children reach age eighteen, he “could at least reduce his monthly shelter and transportation expenses.” Ante at 124. Although the twin daughters are now over eighteen, there is not much room for a reduction of these expenses. If the twins have moved out of the home, it would be reasonable for the Smitleys to retain the three-bedroom house so that the two remaining children could have separate bedrooms. Even if the twins are still at home and working, it is not realistic to expect that they are a long-term solution to reducing the Smitleys’ expenses for shelter. And, while the fact that the twins have reached majority might have brought a marginal reduction in Smitley’s transportation expenses, I doubt that this reduction would do much to make up the $600 gap between total expenses and available revenue. Simply put, the Smitleys do not have the extra money to pay $327 a month against the HEAL loan.
(11) Good faith. I sense that the majority has decided that Smitley has not tried hard enough; specifically, he did not try hard enough to pay down the HEAL loan while he had his chiropractic office open; he has not tried hard enough to find a better job or to find part-time work; and he has not tried hard enough to reduce family living expenses. Effort and good faith are important to be sure, and I believe that Smitley has exhibited both in sufficient measure.
Smitley went to chiropractic school, using a HEAL loan, in order to do better for himself and his family. After graduating in 1986, Smitley struggled for thirteen years to make a go of it as a chiropractor. Much went wrong. He attempted to get started in his new profession by buying another chiropractor’s practice. Smitley bought what he thought was a thriving practice, but it proved to be a marginal
The Smitleys have a lifestyle that is quite modest. They live in a rented house (for several years seven family members were crowded into their three-bedroom rental). They always buy used cars, and they do not take vacations. Most of the time they buy their clothing on credit. Smitley and his wife cannot afford health insurance. Their children have health insurance through a state public assistance program. The twin daughters did not get driver’s licenses because the Smitleys could not afford the extra auto insurance premiums required to cover young drivers. The Smitleys have no savings, and their three older children are not going to college. In 1999 Smitley cashed in his life insurance policy and applied the $9,500 in proceeds to pay the family’s bills. Both Smitley and his wife have worked steadily, and they have managed to provide just the basics for a large family. I believe they have acted in good faith.
* * *
The examination of the relevant factors reveals that the majority makes three fundamental mistakes in concluding that it is not unconscionable to deny Smitley a discharge of his HEAL debt. First, the majority relies too much on the poverty guidelines in denying the discharge. Requiring Smitley to repay the HEAL loan, the majority says, will not force the Smit-leys to live below or even near the poverty level. The uneonscionability threshold, however, is crossed well before the poverty line is reached. A family requires double the poverty guidelines figure to maintain a decent standard of living, and the Smit-leys’ income is short of the required level. Second, the majority concludes that Smit-ley has not made substantial efforts to find a better job or a part-time job that would supplement his current income. This conclusion is foreclosed by the bankruptcy judge’s finding that Smitley “has no prospects for other employment.” It is thus established as a fact that Smitley has no prospects for increasing his income. The same goes for Mrs. Smitley. Third, the majority suggests that Smitley could somehow reduce the family’s living expenses. As the bankruptcy judge found, the Smitleys’ “monthly expenses exceed their monthly income.” The Smitleys’ expenses are bare bones, covering mainly the essentials such as rent, utilities, food, clothing, and transportation. The expenses would have to be cut about ten
Todd Smitley has acted in good faith, and the other relevant factors establish that his family is barely getting by. It would be unconscionable to push Smitley any further and unconscionable not to discharge his HEAL debt. Because the majority reverses the discharge and reinstates the HEAL debt, I respectfully dissent.