United States District Court, D. Nebraska
MEMORANDUM AND ORDER
JOHN M. GERRARD UNITED STATES DISTRICT JUDGE
Antoinette Marie Harris appeals from the final judgment of the bankruptcy court that her student loans held by Educational Credit Management Corporation (ECMC) are not dischargeable. Harris filed a voluntary petition for Chapter 7 bankruptcy in October 2013 and received her discharge in January 2014. She filed this adversary proceeding to have her student loan obligations discharged for undue hardship pursuant to 11 U.S.C. § 523(a)(8). The bankruptcy court found there was no undue hardship and entered judgment against her. Harris appeals. ECMC timely elected to have the appeal heard in district court. Filing 2. The Court will affirm the bankruptcy court's judgment.
The facts of Harris' employment and payment history are largely undisputed. In October 1996, Harris obtained a student loan of $10, 804.20 to complete her bachelor's degree, which was awarded in 1997. The first year for which wage information is available in the record is 2004, when she was earning a $37, 920 salary. By 2009, Harris was earning over $55, 000 as a marketing specialist at the University of Nebraska Medical Center (UNMC). She lost that position in 2010 due to a reduction in force and was briefly unemployed, but accepted a temporary position with UNMC in 2011 and then accepted her current position as residency program coordinator for the plastic surgery department. Filing 1-2 at 2. At the time of trial, Harris' gross income was $38, 342.20 per year, and the bankruptcy court found her net monthly income to be $2, 101.84.Filing 1-2 at 3.
During the approximately 10 years between the date of the loan and September 2006, Harris made only three payments totaling $397.81. Harris asked for and received three deferments and eleven forbearances of repayment. Due to capitalization, the outstanding balance of the loan was approaching $23, 000 in 2006. Filing 1-2 at 2.
In 2007, Harris began a graduated repayment plan and started making payments of $160 per month. A graduated repayment plan involves low initial payments that increase over time. And over the next 3 years, Harris paid about $6, 000. But many of those payments were late, so some of the money went to late fees, and she made little progress at reducing the loan principal. Then, beginning in late 2009, Harris' payments became even more erratic, and she began missing payments. Harris' lender made a claim with the loan's guarantor, the National Student Loan Program (NSLP), adding collection costs to the debt. NSLP paid the original lender and began garnishing Harris' paychecks. The garnishment stopped when Harris began making voluntary payments of $250 per month. NSLP collected $5, 619.66 from garnishment and $2, 000 in voluntary payments, but most of that amount went toward interest and collection costs; only $511.96 was applied to principal. Filing 1-2 at 2.
Harris filed a voluntary Chapter 7 bankruptcy petition in 2013 (case no. BK13-41856) and received her Chapter 7 discharge on January 28, 2014. She filed this adversary proceeding (case no. A14-4001) on January 10, 2014 seeking to discharge her student loan debt. After the adversary proceeding was filed, NSLP transferred the loan to ECMC, which provides guaranty services for the Department of Education. Filing 1-2 at 3. At the time of the transfer, the outstanding principal balance of the loan was $24, 413.93, and interest of $550.78 and collection costs of $6, 085.52 were unpaid. At the time of trial, the total debt was $32, 643.73. Filing 1-2 at 3.
A Chapter 7 discharge does not discharge a debtor's educational debt unless excepting the debt from discharge "would impose an undue hardship on the debtor and the debtor's dependents . ..." 11 U.S.C. § 523(a)(8). But the bankruptcy court found no undue hardship here. The bankruptcy court found that Harris' salary of about $38, 000 per year "is probably on the low end of what she will reasonably expect to earn in the future." Filing 1-2 at 4. After conducting a detailed examination of Harris' expenses, the bankruptcy court found that several of Harris' expenses were temporary, and that when those expenses were no longer necessary it would "free up $600.00 per month in the foreseeable future." Filing 1-2 at 6. The bankruptcy court also noted Harris' eligibility for an Income Based Repayment (IBR) plan, which caps a debtor's monthly payment based on gross income and family size relative to the federal poverty guidelines, and provides for discharge of the remaining balance if the debtor makes the required payments for 25 years. Filing 1-2 at 6 (citing 34 C.F.R. § 682.215). And the bankruptcy court noted that as a public employee, Harris might also be eligible for the Public Service Loan Forgiveness Program (PSLFP), which provides for discharge of remaining debt after only 10 years. Filing 1-2 at 6 (citing 34 C.F.R. § 685.219). The bankruptcy court concluded:
Ms. Harris is an intelligent, articulate, and hard-working individual who has been employed full time since graduating college. It is very likely that she will continue to be employed at or above her current salary for many years to come. As discussed above, her monthly net income is actually somewhat higher than she represents due to the biweekly nature of her compensation. Further, it appears that she is over-withholding for federal income taxes, perhaps as much as $100.00 per month. In addition, many of her monthly expenses are relatively short-term obligations, ranging from a few more months to a few years. Accordingly, as more fully described above, her net monthly income after expenses is more than sufficient to cover an IBR payment, whether it is $76.58 or $154.70 or more. By participating in the IBR and the PSLFP, she could discharge her student loan debt in as little as 10 years by making payments calculated according to her income, all without adverse tax consequences. In fact, had she done so prior to commencement of this adversary proceeding, she would already be more than a year into the 10-year repayment term.
For the foregoing reasons, I find that Ms. Harris has not met her burden of proof for undue hardship under 11 U.S.C. § 523(a)(8), and her request for discharge of her student loan indebtedness is denied ....
Filing 1-2 at 7. Harris appeals.
ISSUES ON APPEAL
On appeal, Harris raises four points of error. First, she challenges the bankruptcy court's evaluation of her past, present, and reasonably reliable future earnings, arguing that the court failed to sufficiently consider the "cyclical" nature of her employment history. Second, she challenges the bankruptcy court's conclusion that her monthly expenses will be reduced by several hundred dollars in the foreseeable future leaving her with adequate surplus income to make monthly payments. Third, she contends that the bankruptcy court failed to give proper regard to her good faith efforts to repay the loan, and erred in suggesting that she ...