Someone who depends on charity from her parents to pay rent and medical expenses is entitled to discharge her student loans, according to Bankruptcy Judge Russ Kendig of Canton, Ohio.
In other words, private charity is not considered to be part of a person’s income under the first part of the so-called Brunner test.
The debtor was single, 47 years old, with no dependents. She was diagnosed with Crohn’s disease in 1990 and ended up with an ostomy bag two years later. In 2007, she enrolled in an online program to obtain a chemical dependency certificate. She withdrew before completing the program because she determined that the certificate would not enable her to repay the almost $30,000 she had taken down in loans to cover tuition.
A year after taking down the loans, the debtor was diagnosed with thyroid cancer, which recurred in 2009 and 2012. The student loans went into default after the cancer diagnosis.
The debtor was employed almost 40 hours a week at a drugstore. Caring for her ostomy bag prevented her from working longer hours or obtaining more demanding employment.
The debtor’s net income was almost $1,400 a month. Her monthly expenses were some $2,300. To make up the difference, her parents gave her $1,200 a month to cover rent, car insurance, and the expenses of the ostomy bag.
Receiving a chapter 7 discharge in early 2019, the debtor file an adversary proceeding to discharge the student loans. Judge Kendig denied the lender’s motion for summary judgment in March. He held that “a debtor’s receipt of noncompulsory charity from a third party should generally be excluded when determining whether the debtor meets the first prong of the Brunner test.” Hutsell v. Navient, 18-06038, 2020 WL 1213600, at *6, 7 (Bankr. N.D. Ohio March 9, 2020).
The debtor had not cross moved for summary judgment, but she filed her own summary judgment motion after the decision in March. She won in Judge Kendig’s August 19 opinion.
Judge Kendig began by laying out the three parts of the Brunner test: (1) Can the debtor maintain a “minimal” standard of living on her current income; (2) are there additional circumstances indicating that the state of affairs is likely to continue for a significant time; and (3) did the debtor make good faith efforts to repay the loans? Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner), 831 F.2d 395 (2d Cir. 1987). Brunner was written before the current iteration of the student loan discharge statute. Section 523(a)(8) now renders student loans nondischargeable unless payment would cause “undue hardship.”
On the first Brunner test, Judge Kendig noted that almost half of the debtor’s monthly income came from her parents. In his prior opinion, he held that parental support “should generally be excluded” from the first test.
Without help from her parents, Judge Kendig said that her income was “plainly not enough to cover her rent, ostomy supplies, and auto insurance — essentials for a ‘minimal standard of living’ — let alone repay her student loans.” He therefore held that the debtor “cannot maintain a minimal standard of living if forced to repay her student loans.”
The lender also lost on the second test, sometimes referred to as “certainty of hopelessness.”
Judge Kendig ruled that the debtor’s medical problems “have largely prevented her from improving her lot in life.” Given how the medical problems were beyond the debtor’s control, he found that the debtor satisfied the second prong of Brunner.
The third test, good faith efforts to repay the loans, was a closer question because there was no evidence that the debtor had ever made any payments. In addition, she had not attempted to qualify for an income-based repayment program where she would not have been required to make monthly payments.
Judge Kendig said that the failure to make payments and to apply for the deferral program “cut against a finding of good faith. But neither of these facts are dispositive.”
Judge Kendig said that the loans “understandably went into default” after the cancer diagnosis. He decided that the debtor passed the good faith test because she “has attempted to maximize her income over the years by working as much as she physically can, yet she still must rely on her parents to pay for necessary expenses.”
Judge Kendig discharged the student loans. He ended his opinion with a memorable statement: “[T]he mischief Congress sought to prevent through § 523(a)(8) is plainly not present in this case.”
Someone who depends on charity from her parents to pay rent and medical expenses is entitled to discharge her student loans, according to Bankruptcy Judge Russ Kendig of Canton, Ohio.
In other words, private charity is not considered to be part of a person’s income under the first part of the so-called Brunner test.
The debtor was single, 47 years old, with no dependents. She was diagnosed with Crohn’s disease in 1990 and ended up with an ostomy bag two years later. In 2007, she enrolled in an online program to obtain a chemical dependency certificate. She withdrew before completing the program because she determined that the certificate would not enable her to repay the almost $30,000 she had taken down in loans to cover tuition.
A year after taking down the loans, the debtor was diagnosed with thyroid cancer, which recurred in 2009 and 2012. The student loans went into default after the cancer diagnosis.
The debtor was employed almost 40 hours a week at a drugstore. Caring for her ostomy bag prevented her from working longer hours or obtaining more demanding employment.