Continuing the trend of discharging student loan debt in the Eighth Circuit, Judge Shon Hastings, sitting special designation for the Bankruptcy Court for the District of Nebraska, discharged $89,525.00 of student loan debt of the Debtor, Ms. Mudd noting that Debtor met her “rigorous” burden of establishing undue hardship by a preponderance of the evidence.
Analyzing the debtor’s undue hardship claim, the Court examined the unique facts and circumstances of the case and particularly assessed: (1) the Debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the reasonable living expenses of the Debtor and her dependents; and (3) any other relevant facts and circumstances surrounding the case utilizing a totality-of-circumstances test.
Debtor’s past, present, and reasonably reliable future financial resources
Ms. Mudd (50 years old) was working two jobs and supporting her grandson on income of around $29,000 a year. The evidence before the Court showed the Debtor had never earned more than $13 per hour, unless she received overtime or holiday pay. In the past five years, she had earned between $9.50 per hour and $13 per hour in food service and customer service jobs. During most or all of this period, Debtor had held more than one job to meet her basic needs. Further, while Debtor hoped to earn more and had tried to do so, her continued future earnings were limited by age / physical limitations. The evidence also show the Debtor had applied for a higher-paying position(s) but was not extended a job offer(s) “because of her age, education and/or credit history.”
The Court noted, while Debtor’s earnings increased between 2014 and 2019 from poverty level wages to an income that equates to roughly half of the median income for a household of one in Nebraska, this increase did not suggest earning capacity that may materially affect her financial situation in the future. The Court further found it unlikely the Debtor’s current income would increase significantly but that it might very well decrease due to age / health concerns.
The reasonable living expenses of the debtor and her dependents
The Court noted Debtor’s “minimal” standard of living. To make ends meet, Debtor had sought food and toiletries from local nonprofit organizations such as the Salvation Army, Good Neighbor Center, Catholic Social Services and Eastern Presbyterian Church. The Court further noted Debtor rarely buys new clothes for herself, she lives in a one-bedroom apartment and all of her furniture and electronics are used. Additionally, the Court pointed out that similar courts have routinely found limited funds spent on recreation expenses to be consistent with a minimal standard of living. Therefore, the roughly $112.00 Debtor spent monthly on such expenses was not inconsistent with a minimal standard of living.
Other relevant facts and circumstances
Looking at the particular circumstance of the Debtor’s case, the Court pointed to the Debtor’s efforts to care for her grandson, which were likely to continue into his adulthood because of his autism, and the expenses related to the same. Particularly, the Court noted Debtor’s care for her grandson affected her ability to repay her student loans and other debts. The Court was persuaded the evidence showed Debtor’s burden of caring for her grandson’s “unique needs weigh(ed) in favor of discharge.”
In addition, Debtor’s own medical expenses had proved higher than budgeted during the pendency of the case, and the Court found it likely Debtor’s health care costs will continue to rise due to high cholesterol and diabetes.
Certainly, the Eighth Circuit is one to look out for as the bankruptcy courts there continue to allow discharge of student loans following a more lenient standard than that followed by some of its sister courts across the country that apply the more stringent Brunner test.
If you need help understanding your rights in the complicated bankruptcy process, contact the experienced bankruptcy attorneys at Goosmann Law in our Sioux City, Sioux Falls, and Omaha offices.