On January 14 2022, Judge Silverstein of the Bankruptcy Court for the District of Delaware issued a very thoughtful opinion, Wolfson v. DeVos, et al. (In re Wolfson), 19-11618, LSS (Adv. No. 19-50717), regarding the dischargeability of student loans for a disabled debtor who relied on the financial assistance of his parents. Debtor commenced his Chapter 7 in 2019 and brought an adversary proceeding to determine if his student loans were dischargeable pursuant to 11 U.S.C Section 523(a)(8), as imposing an “undue hardship” to repay. The adversary proceeding trial (“Trial”) was held on December 7, 2020. Contrary to counterarguments of the Defendants, the Court found that Debtor met his burden as required under the Brunner case (U.S. v. Brunner, 831 F2d 395 (2d Cir.1987)), which holding was later adopted by the Third Circuit. Note that there is a clear split in the Circuits as to the fairness of the Brunner standard.
The specific facts regarding Debtor were critical to the Court’s determination. Debtor was in his mid-thirties, not married and had no children. He had epilepsy. He graduated from Penn State in 2010 and held down part-time jobs while in college. From 2010-2016, Debtor had 30 job interviews with no real success. From 2014-2016, he was the full-time caretaker for his grandmother and then sporadically worked thereafter. In 2017, while working for a home renovation company he also did part time work as a driver. In August 2019, while working as a driver (Uber/Lyft), he suffered a grand mal seizure and totaled his car. Since then, he has been unemployable. He applied for more than 200 jobs over the next 10 months post- car accident with no success. Debtor moved back in with his father thereafter. He relied upon his father for financial support and had no health insurance for years.
In 2005, Debtor signed, inter alia, two Master Promissory Notes to finance college and then obtained a Federal Family Educational Loan which provided for repayment over a 10-year period after a 6-month grace period after graduation from college. As of the date of the Trial, the loan was due and owing. Other educational loans were also due and owing as of the date of the Trial (totaling almost $100,000.00). With the above history of illness and inability to work, he had a poor credit rating and could not repay the loan debt. Although his father made some of the minimum payments allowed under the loan, he could no longer do so.
The harsh three prong test for debtors under Brunner to allow for discharge are: (1) that the debtor cannot maintain a minimal standard of living for himself and dependents if forced to repay the loans based upon current income and expenses; (2) that the debtor’s financial situation is likely to remain the same for a large part of the repayment period; and (3) that the debtor has made a good faith effort to repay the student loans. The Court herein determined that it would not consider the parental support (referenced as the “third party charity”) as income for Brunner income testing purposes as there was no guarantee that debtor could rely upon receiving these voluntary gifts of funds from his father. Further, the Court found that Debtor’s long-standing, expansive and largely futile efforts since graduation in trying to find a job (1-2 hours per day on internet job boards) were important considerations weighing in his favor.
Defendants herein contended that the Debtor had not met his burden on any of the three Brunner elements. For example, they contended that only spending 1-2 hours per day looking for jobs was “barely looking for work.” The Court responded to this argument by saying that it was clear that Debtor was not avoiding work and that he was not “holding out” for a job. In fact, Debtor testified that he would take any job and that this has been “his way for about 5 years.” The record also showed that he had personally never made a payment on the student loans as he was never in a position to do so, and this convinced the Court that his continual search for gainful employment was enough to demonstrate his good faith. The Court noted the split in the jurisdictions as to the strict standards imposed upon a debtor as to proving “undue hardship” under by Brunner. The Court found the following as critical factors in concluding that this debt was dischargeable: Debtor was substantially supported by his family for his entire adult life (father gave him $1000-$2000/month) and that even without repaying these loans, his income was not sufficient to maintain a minimal standard of living, and more importantly since his family had no obligation to give him any money, this “support” is NOT income but rather “familial charity” which could cease at any moment. Based upon the foregoing, the first prong of Brunner is met. Brunner’s second prong as to whether his inability to pay will persist during the repayment period was clearly net. Herein, the repayment period had expired. This prong also requires an analysis as to whether “additional circumstances” exist indicating that Debtor cannot maintain a minimal standard of living if forced to repay the loans during the repayment period. The Court concluded that Debtor met the second test (also noting a paucity of caselaw on the issue of ability to repay when the repayment period has run). Finally, the third prong (good faith effort to repay the loans) encompasses the standard that Debtor did not willfully or negligently cause his own default, and that the default is due to factors outside of his control. Herein, Debtor has never been in a position to make loan payments and has shown good faith efforts to maximize his income and reduce expenses. The record at Trial made it clear that his low income will most likely be persistent for his lifetime, for which he cannot be faulted.
The Court went on to discuss the “policy considerations” of her decision. The “fresh start” policy behind discharging debts was a fairly strong factor. Debtor continues to struggle to make ends meet and has tried to turn the situation around, but to no avail or as the Court put it, this was “not for want of a work ethic.” Therefore, the Court determined that Debtor meets the burden that this debt should be discharged based upon the undue hardship upon him.