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In re Hurst

United States Bankruptcy Appellate Panel of the Eighth Circuit

July 19, 2016

In re: Mary A. Hurst Debtor
v.
Southern Arkansas University; Renee S. Williams, Chapter 7 Trustee Defendants - Appellees Mary A. Hurst Plaintiff- Appellant

          Submitted: May 19, 2016

         Appeal from United States Bankruptcy Court for the Western District of Arkansas - El Dorado

          Before FEDERMAN, Chief Judge, SALADINO and SHODEEN, Bankruptcy Judges.

          FEDERMAN, Chief Judge.

         Debtor Mary A. Hurst appeals from the Bankruptcy Court's[1] order denying her request to discharge her student loan for undue hardship pursuant to 11 U.S.C. § 523(a)(8). For the reasons that follow, we affirm.

         FACTUAL BACKGROUND

         The Debtor obtained a $4, 000 federal Perkins student loan while attending Southern Arkansas University, majoring in education, for the 1994 - 1995 academic year. At the end of that school year, she traveled to Texas for a summer job and broke her ankle which, she testified, made it impossible for her to return to SAU for the following semester. She had two surgeries and therapy on the ankle, and was on crutches for a year and a half. While still in Texas recovering from the ankle injury, she was involved in a car accident and totaled her car, further preventing her from returning to SAU. The Debtor remained in Texas until about 2009, when she moved back to Magnolia, Arkansas, where she owned a home. She never returned to school.

         The Debtor is 66 years old, and plans to work to age 70. She has vision problems as a result of an unsuccessful cataract surgery, and hearing problems, as well as some occasional problems with her ankle. As discussed more fully below, the Debtor is employed, working part-time at SAU's cafeteria, and collects social security benefits. She has no mortgage on her home, although it took her some amount of time (and money) to repair vandalism damage which had occurred while she was away in Texas.

         Before the Debtor went into default on the student loan, the regular payment amount was $42. She never made a single voluntary payment on the loan, although - 3 -SAU intercepted approximately $600 in income tax refunds and applied that to the balance. As of the date of trial, the balance on the student loan was $7, 476.78.

         The Debtor filed a Chapter 7 bankruptcy case on February 11, 2011. She did not list SAU as a creditor, but reopened the case on November 25, 2014 to seek a discharge of her student loan as an undue hardship pursuant to § 523(a)(8) of the Bankruptcy Code. Following a trial, the Bankruptcy Court held that the Debtor failed to prove that her student loan debt should be discharged. The Debtor appeals.

         STANDARD OF REVIEW

         We review the Bankruptcy Court's determination of undue hardship de novo.[2]Subsidiary findings of fact on which the legal conclusions are based are reviewed for clear error.[3] We may affirm on any basis supported by the record.[4]

         UNDUE HARDSHIP DISCHARGE OF STUDENT LOANS

         Section 523(a)(8) of the Bankruptcy Code provides that student loans are nondischargeable "unless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor's dependents."[5] In the Eighth Circuit, courts apply a totality-of-the-circumstances test in determining whether a student loan should be discharged as an undue hardship.[6] Under this test, courts must consider the debtor's past, present, and reasonably reliable future financial resources; the debtor's reasonable and necessary living expenses; and any other relevant facts and circumstances.[7] The debtor has the burden of proving undue hardship by a preponderance of the evidence.[8] The burden has been described as "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."[9]

         The Debtor here expressly states in her Brief on appeal that she does not take issue with the Court's findings of fact, which were made on the record at the conclusion of the trial.[10] Rather, she contends that the facts lead to the inescapable conclusion that she will suffer an undue hardship if her student loan is not discharged. She asserts that, rather than focusing on her financial circumstances and ability to pay, the Bankruptcy Court focused too heavily on the fact that she has never made any attempt to repay the student loan. We disagree, but in any event, the Court made ample factual findings sufficient to support its conclusion that the Debtor has income sufficient to maintain a minimal standard of living while making payments on the student loan.

         The Debtor's Past, Present, and Reasonably Reliable Future Financial Resources

         As stated, the Debtor has the burden of proving that she does not have reasonably reliable current or future financial resources to make payments on her student loan. When a student loan dischargeability adversary proceeding is brought years after the bankruptcy discharge was entered, as was the situation here, a bankruptcy court should consider the debtor's financial circumstances between her Chapter 7 discharge and the trial date.[11] The Court found that the Debtor has resources sufficient to pay on her student loan, and that she plans to continue working for approximately four more years until retirement.

         The Debtor testified concerning her employment history: While she was in Texas after leaving SAU, she worked at a convenience store for two years, earning $600 - $800 per month, and then for a limousine company, earning $1, 500 - $1, 600 per month. After she moved back to Magnolia, she worked as an advocate at an area women's shelter, earning $1, 000 per month. At some point after 2011, she left employment at the shelter and got a job with Aramark at the cafeteria at SAU, running the cash register, sweeping the floors, and cleaning tables. The cafeteria is not open during the summer months or Christmas break, but the Debtor testified she is able to occasionally work some hours on catering jobs through Aramark during those time periods. She also collects social security, as well as unemployment benefits during times of under-employment. The Court found that Debtor failed to offer any evidence showing that she attempted to find work during the summers or other school vacation periods. The Court also found that she made no effort to use income tax refunds toward payments on her student loan.

         The Debtor's schedules, which were offered as evidence at trial, showed that when the Debtor filed her bankruptcy case in 2011, she was earning $1, 000 a month in wages from the women's shelter, plus $818 in social security benefits, for total income of $1, 818.

         As stated, the Debtor stopped working at the shelter at some point after the bankruptcy filing and began working for Aramark at the cafeteria. She testified that, at the time of trial, she was earning around $600 - $700 per month from Aramark, pre-tax, during the school year. She testified she earns less during the summer months, but she also collects some unemployment benefits during those months. In addition, she testified she now receives about $1, 000 per month from social security. As a result, her testimony was that she receives a total of about $1, 600 - $1, 700 per month, pre-tax, during the school year, and less during the summer months. The Court found the Debtor's testimony overall to be credible.

         The documentary evidence admitted at trial further supports the Court's conclusion that she had income sufficient to make payments. The evidence shows that the Debtor actually earns about $1, 600 - $1, 700, on average, year-round. Specifically, the Debtor submitted her 2013 and 2014 income tax returns as evidence at trial. According to the tax returns, in 2013, the Debtor received $11, 250 in wages and $13, 365 in social security, for a total of $24, 615. In 2014, she earned $6, 320 in wages, $115 in unemployment compensation, and $13, 563 in social security, for a total of $19, 998. Thus, the tax returns showed Debtor earned an average of $2, 051.25 per month in 2013, [12] and $1, 666.50 in 2014.[13] Also, the tax returns indicate that modest amounts had been withheld from her paychecks for taxes, as the Court found.[14]

         The Debtor also submitted Aramark paystubs and her checking account statements for the three months from May 19, 2015 through August 17, 2015. The checking account statements showed deposits from paychecks and unemployment benefits totaling $754, $690, and $500 for those three months, respectively. These would, of course, be the net amounts after taxes were withheld. The Debtor testified that her social security benefits of approximately $1, 000 are deposited into a separate savings account.

         However, the tax returns showed the Debtor was in fact receiving $13, 300 to $13, 500 per year in social security in 2013 and 2014, approximately $1, 100 per month. Thus, based on her testimony and the documentary evidence, the Debtor's income totaled $1, 600 - $1, 854 per month in the summer of 2015, which is consistent with the 2013 and 2014 tax returns showing an average of $1, 666 - $2, 000 per month. The Court found that the Debtor has average income of $1, 818 per month, which is amply supported by the evidence.

          The Debtor's Reasonable and Necessary Living Expenses

         The second factor in the totality of the circumstances test is the Debtor's reasonable and necessary living expenses. "To be reasonable and necessary, an expense must be modest and commensurate with the debtor's resources."[15] "Simply put, if the debtor's reasonable 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."[16]

         SAU did not argue at trial, nor does it here, that any of the Debtor's particular expenses are unreasonable or unnecessary. Rather, the question is whether the Debtor has income remaining after paying those expenses with which to make her student loan payments.

         The evidence concerning current expenses was sparse at trial. The documentary evidence concerning expenses is limited to the Debtor's Schedule J from 2011. As the Bankruptcy Court found, Schedule J showed ...


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