TIMOTHY A. BARNES, Judge.
Before the court is the Second Amended Adversary Complaint to Determine the Dischargeability of Certain Debts [Adv. Dkt. No. 47]
The federal district courts have "original and exclusive jurisdiction" of all cases under the Bankruptcy Code. 28 U.S.C. § 1334(a). The federal district courts also have "original but not exclusive jurisdiction" of all civil proceedings arising under the Bankruptcy Code or arising in or related to cases under the Bankruptcy Code. 28 U.S.C. § 1334(b). District courts may, however, refer these cases to the bankruptcy
A bankruptcy judge to whom a case has been referred may enter final judgment on any core proceeding arising under the Bankruptcy Code or arising in a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(1). Bankruptcy judges must therefore determine, on motion or sua sponte, whether a proceeding is a core proceeding or is otherwise related to a case under the Bankruptcy Code. 28 U.S.C. § 157(b)(3). As to the former, the bankruptcy judge may hear and determine such matters. 28 U.S.C. § 157(b)(1). As to the latter, the bankruptcy judge may hear the matters, but may not decide them without the consent of the parties. 28 U.S.C. §§ 157(b)(1), (c). Instead, the bankruptcy judge must "submit proposed findings of fact and conclusions of law to the district court, and any final order or judgment shall be entered by the district judge after considering the bankruptcy judge's proposed findings and conclusions and after reviewing de novo those matters to which any party has timely and specifically objected." 28 U.S.C. § 157(c)(1).
In addition to the foregoing considerations, the bankruptcy judge must also have constitutional authority to hear and determine a matter. Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Constitutional authority exists when a matter originates under the Bankruptcy Code or, in noncore matters, where the matter is either one that falls within the public rights exception, id., or where the parties have consented, either expressly or impliedly, to the bankruptcy judge hearing and determining the matter. See Wellness Int'l Network, Ltd. v. Sharif, ___ U.S. ____, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015) (parties may consent expressly or impliedly to a bankruptcy court's jurisdiction); Richer v. Morehead, 798 F.3d 487, 490 (7th Cir. 2015) (noting that "implied consent is good enough").
The Complaint is based on section 523(a)(8) of the Bankruptcy Code, which provides an exception to discharge for student loan obligations subject to a showing of undue hardship by the debtor. 11 U.S.C. § 523(a)(8). This adversary proceeding, concerning the dischargeability of a particular debt, is therefore expressly a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). Further, in accordance with Stern, 564 U.S. at 499, 131 S.Ct. 2594, the bankruptcy court has constitutional authority to decide matters of nondischargeability, as the debtor's discharge and the dischargeability of a particular debt necessarily stem from the bankruptcy itself. Parkway Bank & Tr. v. Casali (In re Casali), 526 B.R. 271, 274 (Bankr. N.D. Ill. 2015) (Schmetterer, J.) ("A bankruptcy judge has constitutional authority to enter final judgment as to dischargeability."); see also Bd. of Educ. of City of Chi. v. Monarrez (In re Monarrez), 588 B.R. 838, 845 (Bankr. N.D. Ill. 2018) (Barnes, J.). Each of the parties has also, in the Joint Pretrial Statement [Adv. Dkt. No. 66] (the "
As a result, the court has jurisdiction, statutory authority and constitutional authority to hear and enter final judgment on this matter.
The court has considered the evidence and arguments presented by the parties at
The court has also considered the procedural history and previous court filings in the Main Case, including:
The court has also taken into consideration all exhibits submitted with or in conjunction with the above and, as the above is not an exhaustive list of the filings submitted in this adversary proceeding, the court has taken judicial notice of the contents of the dockets in this matter. See Levine v. Egidi, Case No. 93C188, 1993 WL 69146, at *2 (N.D. Ill. Mar. 8, 1993) (authorizing a bankruptcy court to take judicial notice of its own docket); In re Brent, 458 B.R. 444, 455 n.5 (Bankr. N.D. Ill. 2011) (Goldgar, J.) (recognizing same).
The Pretrial Order entered in this matter required the parties to file a pretrial statement with a list of witnesses and a list of exhibits that such party planned to offer into evidence at the Trial. Pretrial Order, at p. 1. The Pretrial Order also allowed each party to file objections to an opposing party's pretrial statement, with such objections, if any, to include objections to the opposing party's witnesses and exhibits in lieu of any motion in limine that the party wished to bring. Id. at pp. 1-2. The Pretrial Order stated that all exhibits to which no objections were raised in the pretrial statements would be admitted into evidence. Id. at p. 2 Under the express terms of the Pretrial Order, the failure to file an objection would result in the waiver of any pretrial or evidentiary objections that could have been raised by such deadline. Id. at pp. 1-2.
The Answering Defendants objected to Plaintiff's Exhibit Nos. 1 and 5 in the Joint Pretrial Statement. Joint Pretrial Stmt., at p. 6. These objections are moot, however, as neither party used or otherwise referenced these exhibits at the Trial and therefore, their relevance has not been demonstrated.
From the above review and the consideration of the procedural background, as well as of the evidence presented at the Trial, the court determines the salient facts to be and so finds as follows:
Section 523 enumerates specific, limited exceptions to the dischargeability of debts. See generally 11 U.S.C. § 523(a). Student loan debts are subject to one such
11 U.S.C. § 523(a)(8).
Section 523(a)(8) creates a presumption that student loans are nondischargeable, and the burden of challenging this presumption rests upon the debtor. United States v. Wood, 925 F.2d 1580, 1583 (7th Cir. 1991). Accordingly, a debtor must file an adversary proceeding against those creditors holding her student loan debt in order to show that the debt should be discharged. Clark v. U.S. Dep't of Educ. (In re Clark), 341 B.R. 238, 248 (Bankr. N.D. Ill. 2006) (Squires, J.) (citing Hanson, 397 F.3d at 484); see also Wood, 925 F.2d at 1583 ("[T]he statute was meant to be self-executing so that the creditor would not be required to file a complaint to determine the dischargeability of a student loan.").
"Undue hardship" is not defined in the Bankruptcy Code. The Seventh Circuit has adopted the well-known test for determining undue hardship first set forth by the Second Circuit in Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987). In re Roberson, 999 F.2d 1132, 1135 (7th Cir. 1993). Under the so-called Brunner test, an undue hardship exists where a debtor can establish the following three elements:
O'Hearn v. Educ. Mgmt. Credit Corp. (In re O'Hearn), 339 F.3d 559, 563 (7th Cir. 2003) (citing Roberson, 999 F.2d at 1135). The burden of proof is by the preponderance of the evidence. Id. at 565.
The Complaint, therefore, cannot succeed unless the Plaintiff establishes each element of the Brunner test by a preponderance of the evidence. Should the Plaintiff fail on any one element, the inquiry is at its end and the court must deny a discharge of the Student Loans.
The court will consider each element in turn.
The first prong of the Brunner test requires the Plaintiff to show that he would be unable to maintain a minimal standard of living for himself and his dependents at present if forced to repay his student debt. Roberson, 999 F.2d at 1135.
To satisfy the first element, a debtor has the burden to show that he has minimized his expenses and maximized his income. Murrell v. Edsouth (In re Murrell), 605 B.R. 464, 470 (Bankr. N.D. Ohio 2019). Turning first to the former, the Plaintiff has not minimized his expenses. The Plaintiff routinely spends hundreds of dollars per month on discretionary expenses for entertainment or recreational purposes, such as concert tickets, related travel expenses and regularly dining out. Tr. at pp. 66-68, 72-91; see also DX Nos. 4-5, 9. Such expenses include the regular, large ATM withdrawals of cash that the Plaintiff does not track or account for and uses for unknown, but likely recreational, purposes. Tr. at pp. 72-91. Similarly, the Plaintiff has spent $84.00 per month on multiple television and streaming services. Tr. at pp. 59-61; Scheds. I, J. Unexplained, generic expenditures combined with excessive entertainment or other unnecessary expenses show that "the Debtor does not lead a frugal lifestyle and that [he] spends improvidently." Clark, 341 B.R. at 250. While a debtor "does not have to `live in abject poverty[,]'" id. at 249 (quoting Faish, 72 F.3d at 305), a debtor is nevertheless expected to make some sacrifices and "live within the strictures of a frugal budget for the foreseeable future." Id. (citing Ritchie v. Nw. Educ. Loan Ass'n (In re Ritchie), 254 B.R. 913, 917-18 (Bankr. D. Idaho 2000)); see also Kehler, 326 B.R. at 147 (a debtor cannot succeed under the first prong by demonstrating the repayment of student debt would require major personal and financial sacrifices). The Plaintiff has not met his burden to show that repayment of the Student Loan Obligations would necessitate major personal and financial sacrifices on his part or that he has attempted to minimize his expenses.
In addition, some courts have looked at the national poverty guidelines as a measure to determine what constitutes a minimum standard of living for purposes of this first element. See, e.g., Elmore v. Mass. Higher Educ. Assistance Corp. (In re Elmore), 230 B.R. 22, 28 (Bankr. D. Conn. 1999) (holding that the analysis "begins, and ends," when the debtor earned over twice the federal poverty guidelines); Hart v. Educ. Credit Mgmt. Assoc. (In re Hart), 438 B.R. 406, 412 (E.D. Mich. 2010) (recognizing same). Given the amount of debt at issue here, however, this approach seems excessively harsh. This approach has not been adopted by courts in this jurisdiction, and the court declines to adopt it here. Nonetheless, it is worth noting at the outset that the Plaintiff earns almost five times the amount applicable under the federal poverty guidelines. See Annual Update of the HHS Poverty Guidelines, 84 Fed. Reg. 1167, 1168 (Feb. 1, 2019) (stating that the poverty guideline for annual income for a one-person household is $12,490.00).
In light of the foregoing, the Plaintiff has failed to show that he could not maintain a minimal standard of living if forced to repay the Student Loans and has, therefore, failed to meet his burden under the first prong. Such failure to succeed on the first element of the Brunner test, without more, means that the Student Loans cannot be discharged.
While the Plaintiff's failure to meet his burden with regards to the first prong alone renders the Student Loan Obligations nondischargeable, an examination of the remaining two prongs leads to the same result. The Plaintiff, for similar reasons applicable under the first prong, failed to meet his burden on the second and third prongs.
The second element of the Brunner test requires evidence "not only of a current inability to pay but also of additional, exceptional circumstances, strongly suggestive of continuing inability to repay over an extended period of time...." Roberson, 999 F.2d at 1136 (citing Brunner, 831 F.2d at 396). Historically, case law concerning the second element required a showing of circumstances that suggest a "certainty of hopelessness" that a debtor would be able to repay her debts, e.g. Roberson, 999 F.2d at 1135, a standard that grew to become more restrictive than the statutory text itself. The Seventh Circuit has since directed our courts "not to allow judicial glosses, such as the language in Roberson and Brunner, to supersede the statute itself." Tetzlaff v. Educ. Credit Mgmt. Corp. (In re Tetzlaff), 794 F.3d 756, 759-60 (7th Cir. 2015). Nonetheless, a debtor still must demonstrate that her present inability to repay the loans while maintain a minimal standard of living is likely to continue for a large portion of the repayment period based on the existence of additional circumstances, beyond the terms of the loans themselves. Id. at 759-60; Krieger v. Educ. Credit Mgmt. Corp., 713 F.3d 882, at 884-85 (7th Cir. 2013). Examples of such additional circumstances provided by the Seventh Circuit include "psychiatric problems, lack of useable job skills and severely limited education." Goulet v. Educ. Credit Mgmt. Corp. (In re Goulet), 284 F.3d 773, 778 (7th Cir. 2002) (citing Roberson, 999 F.2d at 1137).
The Plaintiff has failed to demonstrate the existence of additional circumstances indicating that a present inability to repay the Student Loans will persist for
The Plaintiff testified that he performed poorly in law school, both while obtaining his J.D. and his L.L.M., Tr. at pp. 36-41, which may in part explain his inability to obtain full-time legal work in the period from 2008 to 2013. The Plaintiff, however, presented no other evidence regarding any circumstances underlying his inability to advance his career or his continued employment as a contract attorney over the past ten years or indicating that such inability is likely to continue. The only evidence that explains the Plaintiff's inability to secure better employment, at least in the four to five years before trial, is the Plaintiff's testimony that he has not attempted to apply for any other positions during such period. Tr. at p. 54.
Nor did the Plaintiff present evidence of any other additional circumstances impeding his ability to repay the Student Loans other than the recent birth of his child and his age. Courts regularly consider the existence of one or more dependents or non-dependent children, as well as a debtor's overall personal and familial circumstances, in conducting the analysis required under the second prong of the Brunner test. However, while the overall costs of raising a child can be high, absent more, the mere fact that a debtor is a father or mother will not by itself suffice to satisfy the Brunner test. See, e.g., Walker v. Sallie Mae Serv. Corp. (In re Walker), 650 F.3d 1227, 1229-30, 1234-35 (8th Cir. 2011) (first and second prong satisfied in part by high costs associated with long-term care of debtor's autistic twins who required, and would for the foreseeable future require, extensive in-home therapy and other related care); Tuttle v. Educ. Credit Mgmt. Corp. (In re Tuttle), 600 B.R. 783, 801-03 (Bankr. E.D. Wisc. 2019) (debtor with some education and work experience and an educated and employed wife, who served as the primary source of income for the family while the debtor had been a stay-at-home father, did not meet the second prong); Goodman v. U.S. Dep't of Educ. (In re Goodman), 449 B.R. 287, 294-95 (Bankr. N.D. Ohio 2011) (the existence of seven dependent children was sufficient for the first prong but not the second, because such children would all reach the age of majority well before the end of repayment period of the student loans).
Here, while the Plaintiff has no dependents, he has a six-month-old child who resides with his long-term girlfriend, Palmer. See Tr. at pp. 34, 48-49, 58. The Plaintiff contributes approximately $500.00 per month towards supporting the child generally and another $950.00 per month towards the child's daycare. Id. at pp. 59-61.
Finally, the Plaintiff's age and the possibility that the Plaintiff might not live to the end of the term of the Student Loans are not "dispositive factor[s]" under the second Brunner prong. See Bukovics v. Navient (In re Bukovics), 587 B.R. 695, 707 (Bankr. N.D. Ill. 2018) (Schmetterer, J.) (quoting Cavender v. Nat'l College of Naprapathic Medicine (In re Cavender), Case No. 16ap00657, 2017 WL 8218841, at *7 (Bankr. N.D. Ill. Nov. 27, 2017) (Hunt, J.)). The Plaintiff here is 41 years old and has at least two decades, if not longer, to continue to earn income before any potential retirement. Tr. at pp. 62-63; see Bukovics, 587 B.R. at 707 (second prong was not met as to a healthy 51-year-old debtor with a college degree and history of employment); Cavender, 2017 WL 8218841, at *7 (second prong not met as to a healthy, well-educated 67-year-old with earning potential).
Overall, the Plaintiff here resembles the debtors in Tetzlaff and Tuttle, who both had an education and work experience, and were not faced with any extraordinary or unusual circumstances hindering their ability to obtain a job, or a higher-paying job, or otherwise improve their overall financial situation. See Tetzlaff, 794 F.3d at 759 (second prong was not met where the debtor was a smart individual with an advanced degree who was able to earn a living despite some psychological issues that were not severe); Tuttle, 600 B.R. at 801-03 (second prong not met where a debtor with multiple dependent children had advanced degrees, a history of employment, access to a good job market and a wife with her own advanced degree and a high earning capacity). As in those cases, the Plaintiff has failed to demonstrate the existence of additional circumstances indicating that the Plaintiff will likely be unable to repay the Student Loans for a significant portion of the repayment period and has, therefore, failed to satisfy the second prong of the Brunner test.
The final prong under Brunner requires a debtor to establish that he "made good faith efforts to repay the loans." Roberson, 999 F.2d at 1136. Good faith may be found where a debtor has consistently made at least some payments on the student loans in the past, has sought consolidation or forbearance, has made other efforts to increase affordability of the loan payments or has offered to compromise or settle the obligation in a meaningful manner. Tetzlaff, 794 F.3d at 760-61; Straub v. Sallie Mae Educ. Credit Mgmt. Corp. (In re Straub), 435 B.R. 312, 317 (Bankr. D.S.C. 2010). A debtor's efforts to "obtain employment, maximize income, and minimize expense" are also relevant to determining whether a debtor has made good faith efforts to repay student loans. Roberson, 999 F.2d at 1136.
Here, the Plaintiff argues that an unspecified number of amount of payments he has made on the Department of Education Loans, coupled with his participation
Further, the Plaintiff has yet to make any payments on either the ECMC Loans or the Access Loans or take any other meaningful steps towards satisfying his obligations thereon. Tr. at pp. 95-96, 101; Joint Pretrial Stmt., at pp. 3-4. While the failure to make at least some payment toward student loans does not automatically equate to a lack of good faith, Bard-Prinzing v. Higher Educ. Assistance Foundation (In re Bard-Prinzing), 311 B.R. 219, 228 (Bankr. N.D. Ill. 2004) (Schmetterer, J.), the Plaintiff offered no explanation for his failure to make any payments on the ECMC Loans or the Access Loans. Further, while the Plaintiff apparently investigated some repayment options for the ECMC Loans and Access Loans, he never actually applied or sought to consolidate such loans or enroll in any repayment plan with respect to such loans. Tr. at pp. 50, 95-96, 101. While the Plaintiff is not required to consolidate or to enroll in repayment plans, the lack of such efforts combined with the lack of any payments on the ECMC Loans and Access Loans weighs against a finding of good faith efforts to repay. See, e.g., Thoms v. Educ. Credit Mgmt. Corp. (In re Thoms), 257 B.R. 144, 149-50 (Bankr. S.D.N.Y. 2001). The fact that the Plaintiff has made some payments on the Department of Education Loans cannot serve to demonstrate good faith efforts to repay the remaining loans. Tetzlaff, 794 F.3d at 761.
Finally, as has already been discussed more fully above, the Plaintiff has not maximized his income or minimized his expenses and has not sought new or better employment in the four to five years before the Trial, all of which also counsels against a finding of good faith efforts to repay all of the Student Loans.
Accordingly, the Plaintiff has also failed to demonstrate that he has made good faith efforts to repay the Student Loans and has therefore failed on the third Brunner prong.
For the foregoing reasons the court finds that the Plaintiff has failed to carry his burden under section 523(a)(8). As a result, judgment in favor of the Answering Defendants will be rendered on the Count II of the Complaint and the Student Loan Obligations remain nondischargeable.
The matter having come before the court on the Second Amended Adversary Complaint to Determine the Dischargeability of Certain Debts [Adv. Dkt. No. 47] (the "
IT IS HEREBY ORDERED THAT:
Pursuant to Rule 54(b) of the Federal Rules of Civil Procedure, made applicable in this matter by Rule 7054 of the Federal Rules of Bankruptcy Procedure, final judgment is entered in favor of the Answering Defendants on Count II of the Complaint.
