Opinion
No. 77-1921EG
December 18, 1978
Debts Not Affected By Discharge — Student Loans — Undue Hardship
The payment of from ten to twenty dollars a month on account of a debt a bankrupt owed on his student loan was not such "undue hardship" as would render the debt dischargeable.
A state education agency asked that a federally guaranteed loan to the bankrupt be declared non-dischargeable under Section 439A of the Education of Amendments of 1976, 20 U.S.C. ¶ 1087-3. The court found that the bankrupt was indebted to the education agency and that five years had not passed since the commencement of the repayment period. Thus, the essential elements of non-dischargeability were met. The bankrupt's sole defense was that of undue hardship. The statute provided that the loan could be released prior to the expiration of the five-year period if payment would "impose an undue hardship on the debtor or his dependents".
The bankrupt was a school teacher and his net monthly income was at least $800. On his schedule of anticipated expenses, the bankrupt listed a $75-$100 monthly contribution to various churches which he served as president of the board of ushers. However, a projected expense item of $96 per month for car payments was due to terminate. At the time of termination, the state would agree to accept monthly payments from the bankrupt as low as $10$20.
The appropriate legal standard against which to determine undue hardship was enunciated by the Bankruptcy Commission when it was considering the amendments to the Education Amendments of 1976. The standard is that the total amount of income, its reliability, and the periodicity of its receipt should be adequate to maintain the debtor and his dependents at a minimum standard of living within their management capability as well as to pay the educational debt.
Here, noted the court, the bankrupt need not terminate his religious or community service. Rather, he should merely reduce his voluntary contributions by the ten or twenty dollars a month necessary to liquidate the debt. Imposing this responsibility on the bankrupt would not institute excessive, unreasonable or immoderate deprivation or oppression. Thus, the court held that the debt was non-dischargeable. See Sec. 17a [§ 523] at ¶ 9226.