BRUCE A. HARWOOD, Bankruptcy Judge.
Dendra L. Abdinoor (the "Debtor" or "Plaintiff") filed a complaint under 11 U.S.C. § 523(a)(8) seeking to discharge her student loan debt. The Debtor borrowed money from numerous lenders in order to fund her college education. The promissory notes are currently held and/or serviced by the Defendants, Navient Solutions, Inc. ("Navient"); Granite State Management & Resources and New Hampshire Higher Education Loan Corporation (collectively, "NHHELCO"); Affiliated Computer Services ("ACS"); and the U.S. Department of Education ("USDE"). The Debtor contends that continuing to pay her student loan debt would impose an undue hardship on her.
The Court conducted a trial of this matter on June 9, 2015, and took the matter under advisement. This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and Local Rule 77.4(a) of the United States District Court for the District of New Hampshire. This is a core proceeding in accordance with 28 U.S.C. § 157(b).
The Debtor attended Suffolk University from 2006 to 2008 and then transferred to the University of New Haven where she obtained a Bachelor's Degree in Criminal Justice in May 2010. In order to fund her college education, the Debtor obtained grants and scholarships; worked part-time; participated in work study; and obtained several student loans, which are the subject of this adversary proceeding. The Debtor borrowed money as follows:
The loans became due and payable in November 2010, six months after the Debtor's college graduation. At that time, the total amount due on all notes was $108,716.38; the Debtor's payments on all notes totaled $998.00 per month.
Since graduating, the Debtor has held a variety of jobs. From July 2010 through July 2012, the Debtor worked part-time 20-25 hours per week as a retail sales associate earning $12.00 per hour. From January 2011 through June 2012, she also worked part-time as a private investigator for a company that had a contract with public defenders in New Hampshire and Massachusetts. She earned $12.00 per hour as an investigator. In July 2012, the Debtor obtained a part-time position as a court assistant with a New Hampshire state court. In April 2013, she started working full-time for the court and, in September 2013, received a promotion. The Debtor was earning $15.50 per hour when she left her court job in early 2015. On March 30, 2015, the Debtor began working at a Nashua law firm as a legal assistant to a criminal defense attorney. She currently earns $16.75 per hour.
According to the Debtor's tax returns, since her college graduation, she has earned the following amounts and received the following tax refunds:
At the time of trial, the Debtor was earning $2,903.33 per month (or $34,840.00 per year) working at the Nashua law firm. She testified that she may be eligible for bonuses as the law firm has paid bonuses to its employees in the past. Since the Debtor obtained her degree in 2010, her earnings have increased nearly every year, with her income increasing over the last three years by 41% in 2013, by 28% in 2014, and by 21% in 2015.
In her current position, the Debtor works from 8:00 a.m. to 4:30 p.m. Monday through Friday. She does not work nights or weekends. She testified that she is actively looking for another job that might pay more money and recently interviewed for a position with another criminal defense attorney. She indicated that she expects to continue working as a legal assistant as she is qualified for such a position and it uses her college degree. She further testified that her current salary is on the low end of the scale for legal assistants, and that experienced legal assistants in a large law firm could presently earn as much as $65,000.00 to $70,000.00 per year.
After graduating from college, the Debtor returned home to New Hampshire where she first lived with her father in the family home in Salem, and then with her father at his girlfriend's home in Windham until August 2012. The Debtor did not pay rent to her father or to her father's girlfriend. In August 2012, the Debtor moved to her then-boyfriend's parents' home in Nashua where she paid $100.00 per month for rent. In December 2013, her relationship with her boyfriend ended and she moved to a friend's home in Derry. The Debtor paid her friend $250.00 every few months for rent. When her friend advised her that he was selling his home and she should look for alternative housing, the Debtor moved into her current boyfriend's home where she presently resides. The Debtor testified that she is unsure how long this living arrangement will last, that her relationship with her boyfriend is "day-to-day," and that her boyfriend has indicated to her that he is not interested in marriage. At the time of trial, she was not paying any rent or utilities at her boyfriend's home. She testified that she has been unable to pay much money for rent since her college graduation due to her limited income, which has resulted in her so-called "room surfing" since graduation. She further testified that she has looked into public housing but that the waiting period is measured in years.
In addition to her housing issues, the Debtor has also experienced transportation issues since her college graduation. At the time of her graduation, she owned a 2005 Hyundai Sonata, which her mother purchased for her in December 2009. In August 2012, the transmission in that car broke down, and she sold the car to a junkyard. For several months thereafter, the Debtor's only mode of transportation was a bicycle that she had purchased earlier that summer. The Debtor rode that bicycle to work until the beginning of November 2012. At that time, she used money she had solicited from friends and family to purchase a salvaged 2000 Dodge vehicle. By the summer of 2014, that car had a myriad of problems including issues with its cooling system and body problems. After receiving a flyer in the mail for a "second chance car loan," the Debtor proceeded to purchase a 2014 Kia Rio for approximately $17,000.00. The Debtor was able to pay $2,500.00 toward the purchase price with funds from her tax refund and with money she received as Christmas and birthday gifts; she financed the balance of approximately $14,500.00 at 10.65% interest, which requires a $277.63 monthly payment.
The Debtor filed for bankruptcy on March 27, 2014. She listed no secured debt or priority debt on her bankruptcy schedules. On Schedule F, she listed five unsecured obligations, including her student loan debt and two credit cards. The Debtor's credit card debt totaled $1,078.60. The student loan debt totaled $105,938.17.
Prior to bankruptcy, the Debtor made payments toward her student loans as follows:
Since November 2010, the Debtor has sought various forbearances and deferments from the Defendants. She testified that she made payments in the months that she did not have forbearances or deferments. She also applied for an income based repayment plan with the USDE which resulted in a complete elimination of her USDE payments for several years. In addition, she received assistance from Navient's predecessor-in-interest in the form of a reduction in her interest rate. ACS also agreed to lower her monthly payments. The Debtor contends that she paid an average of $385.65 per month (or more than $4,600.00 per year) on her education loans in the three-and-a-half years prior to her bankruptcy filing.
At the time of trial, the Debtor was a twenty-seven year old unmarried woman with no dependents, and with no responsibility for the care of any family members. The Debtor testified that she is in good physical and mental health. She does not suffer from any illness or disability that would prevent her from working. She testified that she intends to work for thirty-eight more years and retire when she is sixty-five years old.
The Debtor earns $2,903.33 per month, with her net pay totaling $2,312.87. Despite receiving federal income tax refunds each year, the Debtor has never lowered her income tax withholding, which would eliminate her annual tax refund but would increase her monthly net income. Over the past four years, her refunds have averaged $922.00 per year, or $76.83 per month.
At the time of trial, the Debtor's actual monthly expenses included:
Despite reported net income of $2,312.87 and actual expenses of only $1,108.42, the Debtor has not been making payments on her student loans since filing bankruptcy in March 2014. At trial she was unable to satisfactorily account for the remaining $1,204.45 in funds she should have had each month since starting her new job. The Debtor indicated that she has been trying to save this money but, at the time of trial, she had only $4,000.00 in the bank.
At trial, the Debtor agreed that her $122.50 monthly storage expense is not a reasonable expense. Thus, excluding the storage expense, the Debtor's actual monthly expenses should total $985.92, resulting in disposable income of $1,326.95 per month. If the Debtor were to add to that amount the monthly amount of her average tax refund ($76.83), which would be available to her if she lowered her income tax withholding, her disposable income would increase to $1,403.78 per month.
As of the date of trial, the Debtor's monthly payments on her student loans were:
Based on the Defendants' standard repayment plans, the Debtor is required to pay $988.65 per month toward her student loans. If the Debtor were to pursue the Defendants' graduated repayment plans and Navient's offer to restructure its note, the Debtor's payments on her student loans could be as low as $726.33 per month initially. The remaining term for each of the notes varies, but it appears that the remaining terms range from 126 months to not more than 240 months.
As a general rule, student loans fall within the category of nondischargeable debt and pass through the bankruptcy process unaffected.
The Debtor does not dispute the existence of the Defendants' loans, or that the loans are of the type described in § 523(a)(8). Accordingly, the Debtor has the burden of proving undue hardship by a preponderance of the evidence.
In this district, to prove undue hardship, a debtor must satisfy a "totality of the circumstances" test.
The Debtor has been employed in her field of study since 2011. Her income has increased over the last three years by 41%, 28%, and 21%, respectively. The Debtor's current net earnings are $2,312.87 per month. She also receives an income tax refund that has averaged $76.83 on a monthly basis over the past four years, resulting in average net income of $2,389.70. The Debtor testified that she may be eligible for bonuses at her new job. As the record establishes, the Debtor's income has risen steadily since her college graduation, and "her prospects for a steady increase in income over time are promising."
The record does not establish that the Debtor's future income will be insufficient to pay her student loans and provide a minimal standard of living.
Further, during the roughly three-and-a-half years prior to filing for bankruptcy, when the Debtor was paying her student loans as she was able, the Debtor paid an average of $4,628.00 per year. At that time she was making between $15,922.00 and $28,853.00 per year. The Debtor has more than doubled her salary since 2011 to $34,840.00, thus making it reasonable to assume that she could, at a minimum, double her average annual payments and pay at least $9,256.00 per year.
The Debtor also has accumulated $4,000.00 in savings since graduation. The Debtor could easily apply some of those funds to her student loan debt.
Under the totality of the circumstances test, "a debtor must show that her necessary and reasonable expenses leave her with too little to afford repayment."
Contrary to what the Debtor's budget at Schedule J reflects, the Debtor does not have any current housing expenses in the form of rent or utilities. The Debtor contends, however, that she should be permitted to claim housing expenses of $925.00 per month ($800.00 for rent for a one-bedroom apartment in Nashua and $125.00 for utilities) because she may need to pay these housing expenses in the future. The Debtor testified that her relationship with her boyfriend is "day-to-day" and her current living arrangement may not continue in the future. If the Debtor were allowed $925.00 toward her non-existent housing expenses, her monthly expenses would increase to $1,910.92 per month.
Including the housing expenses in the Debtor's budget results in disposable income of $478.78 per month, which she could use to pay her student loans. Excluding the housing expenses in the Debtor's budget results in disposable income of $1,403.78 per month, which she could use to pay her student loans. Under either scenario the Debtor has surplus funds each month that she can use to pay her student loan debt. During the trial, the Debtor acknowledged that she has a surplus each month but believes she has the ability to pay only $212.87 per month toward her student loans, which amount she is willing to pay for a period of more than twenty years or until she is forty-nine years old.
As other bankruptcy courts in the First Circuit have held, a debtor cannot establish undue hardship while carrying a monthly surplus or otherwise retaining funds that could be used to pay her student loan debt.
The third factor under the totality of the circumstances test is whether there are other relevant facts or circumstances "unique to the case" that would prevent a debtor from maintaining a minimal standard of living. The Debtor has not presented any other facts or circumstances to show that paying her student loans would impose an undue hardship. She did testify at trial that she would like to have a family and children some day and save money towards her retirement, but she did not attempt to quantify how having a family or contributing towards her retirement might impact her ability to maintain a minimal standard of living if required to make payments on her student loans.
In the Court's view, there are relevant facts and circumstances demonstrating that paying the Debtor's student loans would not impose an undue hardship. The Court notes preliminarily that a significant period of time has not elapsed since the time the Debtor's repayment obligations began and when she filed for bankruptcy in order to seek the discharge of her student loans. And, during that three-and-a-half year period, the Debtor was able to make significant payments on her student loan obligations. Thus, as the Defendants argue, the Debtor's request to discharge her student loans could be considered premature.
Additionally, the Debtor's health has not changed since she borrowed money to fund her college education. The Debtor is a young, healthy person with no dependents. She has been gainfully employed since graduation, and is presently employed in her field of study, with many more working years ahead of her. If her income continues on its recent trajectory, which—given her obvious intelligence, work ethic, and marketable skills—seems likely, she will have an increasingly better ability to repay her student loans in the future. Depending on her job status, she may begin to receive annual bonuses. Because the Debtor is young and has no dependents, she also has the ability to take on a second job, which would alleviate some of the financial strain she may feel. For example, working just twenty hours a month at $12.50 per hour would increase the Debtor's monthly gross income by $250.00.
The Court notes further that since filing bankruptcy, the Debtor has been able to purchase a new car. Unlike some debtors who may be saddled with a home mortgage or other long-term debt, the Debtor is not burdened with any other significant debt other than her car loan, which requires only a modest payment each month. Rather, the Debtor's student loan debt consists of the majority of her obligations and clearly is the reason she filed for bankruptcy.
Considering the record as a whole, the Debtor has failed to demonstrate any "truly exceptional circumstances" that would warrant the discharge of her student loans.
For the reasons set forth above, the Debtor has not satisfied her burden of establishing that paying her student loans would constitute an undue hardship within the meaning of § 523(a)(8). Accordingly, the Court finds that the Debtor's student loan debt should not be excepted from discharge. This opinion constitutes the Court's findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will issue a separate judgment in the Defendants' favor.
ENTERED at Manchester, New Hampshire.
