Bankruptcy Judge Elizabeth D. Katz gave some relief to an individual not entitled to discharge student loans.
Under Section 105(a), Judge Katz of Springfield, Mass., discharged whatever would be left after 25 years of participation in an income-based repayment program. Judge Katz made her ruling without prejudice to a renewed request to discharge the student loans if the debtor were found ineligible for the program.
The decision puts the onus on both sides. The government is encouraged to make the debtor eligible for a repayment program. To qualify for discharging hundreds of thousands of dollars at the end of the day, Judge Katz is persuading the debtor to pay what she can under the government formula.
Self-represented, the debtor was not an attractive candidate to discharge her student loans under Section 523(a)(8), where the debtor must demonstrate “undue hardship” if required to repay the loans. In Massachusetts, the bankruptcy courts employ a “totality of the circumstances” approach, Judge Katz said.
Fluent in four languages, the debtor was 51 years old with no dependents. She earned a bachelor’s degree, a master’s degree in public health and a medical degree. After finishing medical school, she was terminated in a residency program, thus derailing her professional trajectory as a medical doctor.
In all, the debtor had some $650,000 in student loans.
At trial, the debtor admitted that she did not attempt to maximize her income after washing out of the residency. Instead, the debtor taught, because that’s what she enjoyed and was good at. At the time of trial, the debtor was earning $3,400 a month as an adjunct professor in a school of pharmacy and health science.
Several other facts weighed against discharging student loans. The debtor had received a $100,000 inheritance but spent it all without making any payments toward the loans. Over the years, she had made no payments on the loans except about $4,000 that the government glommed in tax refunds.
In her May 12 opinion, Judge Katz said that the debtor had “not shown any effort to maximize her income based on her education and marketable skills. The Debtor may not have the willingness, but she certainly has the capability, to find a higher-paying job.”
Judge Katz determined that the debtor had sufficient discretionary income and was eligible for an income-based repayment program calling on her to pay $80 a month. At the end of the 20- or 25-year program, the remaining loans would be forgiven but might give rise to forgiveness of indebtedness income.
Under the totality of the circumstances, Judge Katz decided that the debtor was not entitled to discharge her student loans. However, Judge Katz found that the loan balance left over at the end of the repayment term “would undoubtedly constitute an undue hardship to the Debtor at that time,” when she would be in her mid- to late 70s.
Judge Katz therefore ruled that “any student loan debt remaining unpaid upon the Debtor’s completion of the [income-based repayment] program or any comparable program is deemed discharged as an undue hardship pursuant to § 523(a)(8).”
Judge Katz added a caveat. “In the event the Debtor is not eligible for the [income-based repayment program] or similar program, the judgment will be without prejudice to the Debtor’s right to file a renewed request for discharge of the student loans and a review of the Debtor’s situation.”
Bankruptcy Judge Elizabeth D. Katz gave some relief to an individual not entitled to discharge student loans.
Under Section 105(a), Judge Katz of Springfield, Mass., discharged whatever would be left after 25 years of participation in an income-based repayment program. Judge Katz made her ruling without prejudice to a renewed request to discharge the student loans if the debtor were found ineligible for the program.
The decision puts the onus on both sides. The government is encouraged to make the debtor eligible for a repayment program. To qualify for discharging hundreds of thousands of dollars at the end of the day, Judge Katz is persuading the debtor to pay what she can under the government formula.
Self-represented, the debtor was not an attractive candidate to discharge her student loans under Section 523(a)(8), where the debtor must demonstrate “undue hardship” if required to repay the loans. In Massachusetts, the bankruptcy courts employ a “totality of the circumstances” approach, Judge Katz said.