Educational Credit Management Corp. v. Mosko
2008 WL 366786 (4th Cir. 2008)
Are you ridden with student loans, contemplating bankruptcy, and reading this wiki post on the web via your overpriced internet provider? If so, read on because you may have to give up the privilege of surfing the net if you file for bankruptcy in hopes of having your student loan debts discharged as imposing an “undue hardship.â€
Typically, when a debtor files a Chapter 7 bankruptcy the debtor is not able to have his or her student loan debt discharged unless such post-discharge debt payments would constitute an “undue hardship on the debtor.†11 U.S.C. § 523(a)(8). For the debtor to show that such payments would amount to an “undue hardship†and, therefore, the student loan debts should be discharged, the debtor must establish (1) that he or she cannot maintain, based on current income and expenses, a minimal standard of living for themselves . . . if forced to repay the loans; (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of his or her student loans; and (3) the debtor has made good-faith efforts to repay his or her student loans. Brunner v. N.Y. State Higher Educ. Services, 831 F.2d 395 (2d Cir. 1987).
In the present case, the Court held that the debtors had not established that they had made good-faith efforts to repay their student loan debts under the third prong of the Brunner test and, therefore, their debts were not dischargeable. Under the third prong in Brunner, a debtor must take “efforts to . . . maximize income . . . and minimize expenses†before the court will find that the debtor made good-faith efforts to repay his or her student loans. The Court held that the debtors in this case failed to take such steps to maximize their income and minimize their expenses because their monthly expenses included, among other things, $75 per month for internet service. The Court opined that such an expenditure was (believe it or not) “generally unnecessary to maintain a minimum standard of living†and, therefore, the debtors had failed to make a good-faith effort to repay their loan debt via minimizing their expenses. As a result, the debtors’ student loan debt was not eligible for discharge. Had the debtors been willing to cut out their unnecessary expenses, including those incurred in obtaining internet access, the Court would have likely found their debts to be dischargeable.
So, what does this mean for a potential bankruptcy filer who is reading this wiki post online? It means that if you want to argue to the bankruptcy court that your student loan debts should be discharged, then you should “X†out of this wiki post right now, cancel your expensive internet service contract immediately, and take out your checkbook and pay off some of your student loan debt with the money you saved. Unless of course you would rather continue to surf the net and give up any chance of having your debt discharged in bankruptcy. That decision lies with you.
2008 WL 366786 (4th Cir. 2008)
Are you ridden with student loans, contemplating bankruptcy, and reading this wiki post on the web via your overpriced internet provider? If so, read on because you may have to give up the privilege of surfing the net if you file for bankruptcy in hopes of having your student loan debts discharged as imposing an “undue hardship.â€
Typically, when a debtor files a Chapter 7 bankruptcy the debtor is not able to have his or her student loan debt discharged unless such post-discharge debt payments would constitute an “undue hardship on the debtor.†11 U.S.C. § 523(a)(8). For the debtor to show that such payments would amount to an “undue hardship†and, therefore, the student loan debts should be discharged, the debtor must establish (1) that he or she cannot maintain, based on current income and expenses, a minimal standard of living for themselves . . . if forced to repay the loans; (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of his or her student loans; and (3) the debtor has made good-faith efforts to repay his or her student loans. Brunner v. N.Y. State Higher Educ. Services, 831 F.2d 395 (2d Cir. 1987).
In the present case, the Court held that the debtors had not established that they had made good-faith efforts to repay their student loan debts under the third prong of the Brunner test and, therefore, their debts were not dischargeable. Under the third prong in Brunner, a debtor must take “efforts to . . . maximize income . . . and minimize expenses†before the court will find that the debtor made good-faith efforts to repay his or her student loans. The Court held that the debtors in this case failed to take such steps to maximize their income and minimize their expenses because their monthly expenses included, among other things, $75 per month for internet service. The Court opined that such an expenditure was (believe it or not) “generally unnecessary to maintain a minimum standard of living†and, therefore, the debtors had failed to make a good-faith effort to repay their loan debt via minimizing their expenses. As a result, the debtors’ student loan debt was not eligible for discharge. Had the debtors been willing to cut out their unnecessary expenses, including those incurred in obtaining internet access, the Court would have likely found their debts to be dischargeable.
So, what does this mean for a potential bankruptcy filer who is reading this wiki post online? It means that if you want to argue to the bankruptcy court that your student loan debts should be discharged, then you should “X†out of this wiki post right now, cancel your expensive internet service contract immediately, and take out your checkbook and pay off some of your student loan debt with the money you saved. Unless of course you would rather continue to surf the net and give up any chance of having your debt discharged in bankruptcy. That decision lies with you.