A debtor can wait more than six years after receiving a chapter 7 discharge before seeking a discharge of student loan debt, according to Chief Bankruptcy Judge Robert H. Jacobvitz of Albuquerque.
The debtor had scheduled about $77,000 in student loan debt and received a discharge of other debts in 2011. More than six years later, the debtor reopened his case and soon filed a complaint seeking to discharge the student loans as inflicting an undue hardship under Section 523(a)(8). By that time, the student loans had grown to more than $110,000.
The student loan lender filed a motion to dismiss the dischargeability complaint on a variety of grounds. Judge Jacobvitz denied the dismissal motion in a March 8 opinion.
The debtor’s income had ranged between $2,200 and $9,150 a year since 2009. He rented a room for $450 a month and made $326 a month in car payments. He also had sought deferments on his student loans since they became payable, Judge Jacobvitz said.
Judge Jacobvitz said that the debtor, age 63, had “minimized his expenses to the extent feasible” and did not have “realistic prospects” of finding a job enabling him to pay the student loans. Evidently relying on allegations in the complaint, Judge Jacobvitz said that the debtor had alleged a hardship “sufficient to withstand a motion to dismiss.”
Judge Jacobvitz analyzed and rejected several other arguments proffered by the lender in support of dismissal.
Because the student loan debt had grown by $33,500, the lender argued that the debtor was attempting improperly to discharge debt incurred after filing.
Judge Jacobvitz agreed that loans disbursed after filing cannot be discharged. Because the increase in the loan balance evidently resulted from interest accruals, and because the complaint did not allege that there were any disbursements after filing, the judge refused to dismiss the complaint based on alleged post-petition disbursements.
Judge Jacobvitz did agree with the lender on another proposition, however: The debtor must allege a sufficient hardship upon receiving his discharge in 2011. However, the complaint laid out a sufficient hardship at that time, the judge said.
The lender then argued that the hardship alleged at present must be “reasonably related” to the hardship he was suffering at the time of discharge. Judge Jacobvitz disagreed.
It is “irrelevant” to the Brunner test, Judge Jacobvitz said, whether the reasons giving rise to undue hardship “remain the same or are similar to the reasons for the initial hardship.”
Finally, the lender raised a laches defense based on the six-year delay in filing the dischargeability complaint. Although the statute of limitations can provide the basis for a motion to dismiss, laches requires findings of unreasonable delay and material prejudice that “may not be patently apparent from the complaint,” Judge Jacobvitz said.
Judge Jacobvitz disagreed with the notion that a six-year delay is always too long as a matter of law.
There “is no deadline expressly imposed by the Code or Rules for filing an adversary proceeding to determine whether a student loan debt should be excepted” from discharge, Judge Jacobvitz said. Because student loans do not fall under Section 523(c), Bankruptcy Rule 4007(b), governing the time for initiating dischargeability actions, says that a complaint may be filed “at any time.”
Judge Jacobvitz cited authority for the proposition that proceedings to discharge student loans may be initiated after discharge or the closing of the case.
In a footnote, Judge Jacobvitz intimated that the debtor could not discharge student loan debt if he were eligible to file another chapter 7 petition.