Opinion
No. 78-687EG
March 20, 1979
Bankrupts — Debts Not Affected by Discharge — Student Loans — Hardship
A bankrupt's federally insured student loan was nondischargable where, within five years of the commencement of repayment of the loan, debtor had not made a good-faith effort to repay the loan and chose to spend a substantial portion of her income on rental payments.
Bankrupt was employed as a therapist receiving a net salary of $181 per week in addition to $150 per week in child support for one of her three children who resided with her. Amoung bankrupt's expenses were a $45 per session psychiatric bill, which was to be reduced by $12.50 through reimbursement from Blue Cross/Blue Shield, and a monthly rental expense of $545. The federally insured debt to the Pennsylvania Higher Education Agency was in the amount of $5350.00.
Under 20 U.S.C. § 1087-3, federally insured student loans are dischargeable in bankruptcy only after five years from the commencement of repayment of sooner if the court finds that repayment would create an undue hardship.
In refusing to discharge the bankrupt's student loan, the court noted that the creditor was willing to establish a repayment schedule which would constitute some type of deferment or small repayment plan geared to bankrupt's financial circumstances and ability to pay. The court found that $10 to $15 per month in repayment — the amount bankrupt expects to recoup from Blue Cross/Blue Shield — would not constitute an undue hardship on the bankrupt. In reaching its decision the court stated that the bankrupt's action in filing her voluntary petition in bankruptcy prior to the designated time for her to start repayment was "contrary to the philosophy of Section 439A of the Education Amendment Act according to the Senate Committee on Labor and Public Welfare" in that debtor had not made a good-faith effort to repay that loan. In addition, the court applied an objective standard in measuring bankrupt's ability to repay the loan. "The total amount of income . . . should be adequate to maintain the debtor and his dependents at a minimal standard of living . . . as well as to pay the educational debt." The fact that bankrupt's rental expense absorbed a substantial portion of her monthly income because she prefers the advantages of a better neighborhood over more budget-conscious lodging is one that is not taken into account in determining hardship for purposes of dischargeability under Section 17a. See Sec. 17a [§ 523] at ¶ 9226. Bankruptcy Rule 10-217 at ¶ 20,597.