An opinion by a district judge in Easton and Philadelphia, Pa., demonstrates the virtual impossibility of discharging student loans, even when the bankruptcy judge has made seemingly airtight findings of fact concluding that the debtor’s penurious financial circumstances are likely to persist for an extended period.
In June 2017, Chief Bankruptcy Judge Eric L. Frank of Philadelphia discharged a debtor’s $26,000 in student loans, finding that the obligations constituted an “undue hardship” under Section 523(a)(8).
Separated from her husband, the debtor was a 29-year-old woman who was the primary caregiver for her three young children. Although educated, healthy and licensed to be a vascular sonographer, the field was saturated, Judge Frank found, allowing her to work only 20 hours a week at about $35 an hour.
Judge Frank found that if she took a second job, her hourly wage would be so low that additional income would be eaten up by higher child care expenses. As it was at the time of trial, Judge Frank found that the debtor had a monthly deficit of some $170 that the debtor’s mother covered with loans. For housing, she was paying her mother $1,400 a month in rent, which was below market.
To read ABI’s coverage of Judge Frank’s opinion, click here.
Without explicitly saying that the bankruptcy judge’s findings of fact were clearly erroneous, District Judge Edward G. Smith said in his Jan. 24 opinion that the record did not contain sufficient facts to support the factual conclusions.
The Department of Education conceded that two prongs of the 1987 Brunner test were satisfied. In both the bankruptcy and district courts, the case turned on whether the debtor had shown proof of additional circumstances showing that her state of affairs was likely to continue for a significant portion of the repayment period on the student loan.
Without regurgitating Judge Smith’s entire opinion, suffice it to say that he found the debtor’s evidence insufficient. For instance, the bankruptcy judge concluded that the debtor’s profession, vascular sonography, was saturated and that the debtor could not expect full-time employment from her current employer until the incumbent sonographer was scheduled to retire in eight years.
Judge Smith said there should be evidence about the ability to find full-time employment from another employer, on top of evidence in the record about saturation in the market. Also, there was no evidence to show that the current saturation in the market was likely to continue, the district judge said.
The bankruptcy judge had faulted the government for the shortfall in evidence, but Judge Smith said that the burden of persuasion was on the debtor. Evidently, Judge Smith believes that an appellate court can second-guess the trial court’s determination of whether the debtor carried her burden.
The bankruptcy judge also found that the debtor had a “childcare squeeze” because increased childcare expenses would offset rising income if she were to obtain additional employment at a lower hourly salary. Judge Smith wanted the bankruptcy court to weigh the cost of additional child care in two years when the debtor’s two younger children would enter school.
The bankruptcy judge found that the debtor’s expenses would rise when she divorced, because, among other things, she would lose the health care insurance provided by her husband. Judge Price said that the debtor could obtain health care coverage from Main Line Health, a nonprofit health system that serves portions of the Philadelphia area. The district judge said there was no evidence in the record about the cost of coverage through Main Line Health or whether the husband would continue providing health care coverage as part of a divorce decree.
Judge Smith did not resolve the question, discussed extensively by the bankruptcy judge, of whether the seven years remaining on the debtor’s loan or a possible 25-year extension would be the appropriate period for deciding whether financial troubles are likely to continue.
Judge Smith reversed and remanded the case for further proceedings, leaving open the possibility that the debtor still might succeed in discharging the student loans. His opinion, however, does not seem to appreciate how a chapter 7 debtor lacks the resources to hire experts or provide testimony foreclosing every conceivable argument the lender might make, when the lender has not offered contrary evidence of its own.