by In a compassionate and pragmatic opinion, a bankruptcy court in the Northern District of Georgia found that the debtor met the difficult burden of showing a “certainty of hopelessness,” and that she otherwise satisfied the Bruner test for a hardship discharge of her student loans. Hill v. Educ. Credit Mgmt. Corp., No. 17-56656, Adv. Proc. No. 17-5131 (Bankr. N.D. Ga. April 1, 2019).
Chapter 7 debtor, 46-year-old, Risa Rozella Hill, attended college intermittently between 1998 and 2011, for a social work degree. During that time, she accumulated the 23 student loans owed to ECMC which were the subject of this adversary proceeding. She never made any payments on the loans because, at all times, they were either in forbearance or deferment. Prior to trial, ECMC voluntarily reduced her debt from $127,000 to $70,000.
Ms. Hill was employed as a social worker from 2002 to 2013 when she began experiencing signs of psychosis including hallucinations, delusions and voices in her head. Her illness led to hospitalizations and a period of homelessness. She was diagnosed with “Bipolar Type I disorder with psychotic features and post-traumatic stress disorder (“PTSD”),” and was found to be depressed and dangerous to herself and others. She became dependent upon numerous medications with significant side-effects, and a host of medical and counseling professionals to regulate her mental illness. After the onset of her illness, Ms. Hill was no longer able to work and she began receiving Social Security Disability Insurance Benefits as her sole source of income. She obtained housing using a Housing Voucher through the Atlanta Housing Authority, received food stamps until she failed to fill out the forms to continue that benefit, and had Medicare for her medical expenses. A Representative Payee received her SSDI and paid her bills for her. In her bankruptcy schedules she listed excess income in the amount of $212.00 per month for unexpected expenses.
She sought discharge of the student loans as undue hardship under section 523(a)(8).
ECMC suggested, among other things, that rather than discharge, she enter an income-based repayment plan, “Revised Pay as You Earn” or REPAYE, under which she would pay nothing so long as she maintained the yearly recertification of her income, and her debt would be cancelled at the end of 20 years. Ms. Hill, however, feared that she would not be able to maintain the recertifications and the loans would go into default possibly leading to set-off of her disability benefits.
Applying the Bruner test for undue hardship, court began by looking at whether paying the student loans would prevent Ms. Hill from maintaining a minimal standard of living. There was no dispute that Ms. Hill could not pay her loans out of her surplus income even with the lowered amount determined by the ECMC. ECMC argued, however, that because she would pay nothing in the REPAYE program, she could not meet this first Bruner requirement. The court turned this argument on its head finding that the fact that under the REPAYE program Ms. Hill would pay nothing is simply further evidence of her inability to repay the loans. Furthermore, “[r]equiring Debtor’s participation in such a program will do nothing but impose an ongoing administrative burden on Debtor and create possible tax implications that may arise after the debt is cancelled subsequent to the repayment period.” Her SSDI benefits would also be at risk if, at the end of the twenty-year REPAYE program, she could not satisfy those tax requirements. The fact that Ms. Hill had recently failed to fill out the paperwork for her food stamp benefits and had earlier failed to follow through with the paperwork for an administrative discharge, was evidence that the administrative burden inherent in maintaining the REPAYE program would overwhelm her.
Importantly, the court went on to explain that the Bruner test required a finding that the debtor would not be able to maintain a minimal standard of living if she paid off the original loans, not loans subject to an income-based repayment plan. The court noted that a contrary finding would essentially put undue hardship discharge out of reach for student loan debtors in general.
The court turned to the second prong of the Bruner test. The Eleventh Circuit applies an onerous “certainty of hopelessness” to the question of whether the cause of a debtor’s inability to pay her student loans will persist. The court found that Ms. Hill met that test. Despite some progress in her treatment for PTSD, her other mental illnesses were unlikely to abate, and her need for medication with debilitating side-effects would prevent gainful employment into the foreseeable future. The court noted that Ms. Hill’s eligibility for SSDI was based on a finding of the persistent nature of her illnesses.
The court added that even if Ms. Hill were able to work at the income level she enjoyed prior to the onset of her illnesses, she would not earn enough money to pay off the loans and meet her daily needs. Moreover, employment would mean loss of SSDI, her housing voucher, Medicaid and other benefits that currently allow her to receive the treatment necessary to prevent further psychotic episodes. The court thus found her situation “hopeless.”
Finally, the court addressed whether Ms. Hill had made a good faith effort to repay her loans. ECMC argued that because Ms. Hill had never made any payments on her loans, nor had she taken advantage of the REPAYE program, she has not demonstrated good faith. The court disagreed based on the facts that at no time were Ms. Hill’s loans in default, and she was in school all but two of the years the loans were outstanding. Because Ms. Hill was never financially able to make payments on the loans, the fact that she did not do so does not constitute bad faith. Again, the court cautioned that a finding of bad faith based on failure to participate in an income-based repayment plan would graft a regulatory requirement onto section 523(a)(8) that Congress did not include in the provision.
The court was also unpersuaded by ECMC’s argument that the fact that her student loans comprised a disproportionate percentage of her debt in bankruptcy was an indication of bad faith. To the contrary, the court found Ms. Hill saddled with substantial non-educational debts that would have justified filing for bankruptcy in and of themselves.
The court thus found that Ms. Hill met the standard of undue hardship necessary to discharge of her student loans under section 523(a)(8).