There has been a definite change in the attitude of bankruptcy courts are taking towards the discharge of student loans in bankruptcy. I am reading cases throughout the nation that indicate a greater willingness of the Courts to discharge these debts. A case affecting debtors in Nebraska with student loan debt underscore this recent change in judicial attitude.
In the matter of Conway vs. National Collegiate Trust, 495 B.R. 416 (8th Cir BAP 2013), the Bankruptcy Appellate Panel for the 8th Circuit ruled that a single person with no dependants who graduated college in 2005 with a Bachelor of Arts degree in media communications was eligible to discharge her student loan debts even though she suffered from no physical or mental issues. The debtor was never able to find work in her field of media communications and she had wage income that varied between $22,000 to $25,000 per year in the eight years since she graduated college. She was employed in two part-time jobs as a server at local restaurants at the time her bankruptcy was filed. The case involved $118,579.66 owed on 15 private student loans. The debtor also owed another $18,000 of federally-guaranteed student loans that were not a part of this proceeding.
In the Eighth Circuit (which includes Nebraska), the courts utilize a Totality of the Circumstances Test to determine if a student loan may be discharged.
Reviewing courts must consider the debtor’s past, present, and reasonably reliable future financial resources, the debtor’s reasonable and necessary living expense, and “any other relevant facts and circumstances.” The debtor has the burden of proving undue hardship by a preponderance of the evidence. The burden is rigorous. “Simply put, if the debtor’s reasonable future financial resources will sufficiently cover payment of the student loan debt—while still allowing for a minimal standard of living—then the debt should not be discharged. Long. v. Educ. Credit Mgmt. Corp, 322 F.3d 549,554-55 (8th Cir. 2003)
The remarkable facts of Conway case is that the debtor was single, relatively young with no dependants, healthy, college educated and had only been out of school for 8 years. The court refused to consider the argument that the debtor had the “possibility” of earning higher income in the future. The court focused on her real income history and concluded that it was unlikely to change in the future. With the better part of 30 working years left in her career, the court focused on the actual income history of the past 8 years rather than a speculative future income. This represents a real change in how courts are to review student loan discharges in Nebraska.
The second remarkable feature of the Conway case is the court’s requirement that the lower court review each of the 15 student loans separately and complete a loan-by-loan analysis to see which loans should be discharged. Although the 8th Circuit does not permit a “partial discharge” of a single student loan (See Andresen v. Nebraska Student Loan Program Inc., 232 B.R.127 (B.A.P. 8th Cir 1999), the Andresen decision actually requires that each separate loan be reviewed for discharge independently.
It appears that the courts are taking a more realistic approach to the student loan problem these days. Debtors with multiple student loans, especially private student loans that do not provide for Income-Based Repayment plans (IBRs), should consider their rights to discharge these debts in bankruptcy.