by The availability of an income-based repayment program is a factor to be considered in the totality-of-circumstances test for student loan discharge under section 523(a)(8). Kemp v. U.S. Dept. of Ed., No. 17-6032 (B.A.P. 8th Cir. Aug. 24, 2018).
The bankruptcy appellate panel affirmed the bankruptcy court’s denial of discharge of Erin Kemp’s student loans. The bankruptcy court had based its decision, in part, on the availability of an income-based repayment program when determining whether Ms. Kemp could make payments on the loan while maintaining a minimum standard of living. The panel, relying on the Eighth Circuit opinion in Educ. Credit Mgmt. Corp. v. Jesperson (In re Jesperson), 571 F.3d 775 (8th Cir. 2009), found that the existence of a repayment plan offering lower payments than those mandated by the lending agreement, while not dispositive, was a legitimate factor to be considered in the totality-of-circumstances test. Other factors also contributed to the bankruptcy court’s opinion, however, including the facts that Ms. Kemp had a history of successful employment, understated her income and overstated her expenses, was 36 years-old-at the time of her bankruptcy and could obtain better employment but chose not to in order to maintain a flexible part-time work schedule. As to her claim that she suffered from anxiety and depression, the court did not doubt her testimony but found insufficient evidence that those issues prevented full employment.
The court found that Ms. Kemp’s argument that the bankruptcy court improperly based its decision solely on the existence of an IBRP was simply inaccurate. Rather, the panel found that the bankruptcy court properly took the IBRP into consideration as one of many factors going into the totality-of-circumstances test. The panel rejected the contention that, when determining undue hardship, the court should look only to whether the debtor is able to maintain payments according to the lending agreement rather than taking into consideration reduced payment plans. It found that Jesperson endorses consideration of current payment demands.
Finally, the panel rejected Ms. Kemp’s argument that the bankruptcy court improperly calculated her income and expenses. To the contrary, the panel found that the bankruptcy court properly figured her income for her child care service according to actual money flow rather than income tax forms which allowed for deductions that would not necessarily impact her access to funds to repay her loans. In addition, the panel found that the bankruptcy court correctly considered the fact that certain expenses were likely to be reduced when her minor child left home, and that her reduced employment income was by her own choice.