Below poverty level income for five of the past six years was no basis for discharging a chapter 7 debtor's student loans, where she was voluntarily underemployed, had no dependents, and lived with her boyfriend, relying on his income as if they were married, according to the Bankruptcy Appellate Panel for the Eighth Circuit.
The debtor in Sederlund v. Educational Credit Management Corp., 2010 WL 4273243 (8th Cir. BAP Nov. 1, 2010), was a 42 year old college graduate who had obtained her degree in psychology, but had never worked in that field. She graduated in 1992 owing $16,649.70 in student loan debt. She paid $11,825.10 toward the student loans over the next twelve years, but was later granted deferrals on the payments. At the time of her chapter 7 filing in 2008, she owed approximately $47,000.00 on her consolidated student loans.
In the years leading up to the case, the debtor's income had been minimal: in 2004, it amounted to $6,601; in 2005, $5,930; in 2006, $9,180; in 2007, $5,316; in 2008, $12,635; and in 2009, $6,506. All these figures except that for 2008 fell below the federal poverty level for annual income. The debtor had typically worked as a secretary for law firms and had an inconsistent employment history, working most recently at a catering company.
The court noted that the debtor had either quit some jobs, or had been fired from others, for reasons for which she was at least partly to blame. She quit one job after arguing with her boss; she quit another because she disliked her supervisors' abusive attitudes; she quit another due to arguments with coworkers; she was fired from another job after having a dispute with a coworker over work hours. The debtor was currently working in food service, but despite having a low number of weekly work hours, she testified she was not seeking a better paying office job.
The court found that the debtor's "undue hardship" claim failed because she had simply quit jobs she did not like, and that she had lost jobs due to complaining too much.
The court also found that her boyfriend's income should be imputed to the debtor, because they lived together and their relationship was no more stable, nor was it less stable, than that of typical married couples.
Finally, the court noted that under an income contingent repayment plan (ICRP), the debtor's monthly student loan payments would be zero. She had not applied for the ICRP due to her belief that there would be negative tax consequences to her if the student loans were forgiven. However, the court rejected this argument and held that tax consequences could not form a basis for a finding of undue hardship. It therefore affirmed the lower court's nondischargeability ruling.
by Craig Andresen, Minnesota Bankruptcy Attorney · Posted in Student Loans