Belasco v. Sallie Mae Servicing Corporation et al

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re
DAVID BERTON BELASCO
NORMA B. BELASCO
Debtors
DAVID BELASCO
Plaintiff
vs.
STATE OF COLORADO
DEPARTMENT OF HIGHER
EDUCATION
Defendant
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Case No. 04-10672
Chapter 7
Judge Hopkins
Adversary Case No. 05-1072
This document has been electronically entered in the records of the United
States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
Dated: April 04, 2007
____________________________________________________________
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1 The related bankruptcy case was filed prior to the effective date of the Bankruptcy
Abuse Prevention and Consumer Protection Act of 2005.
2
MEMORANDUM OF DECISION
ON JUDGMENT DETERMINING STUDENT LOAN DEBT
TO BE DISCHARGEABLE
This proceeding came before the Court on an evidentiary hearing to determine
the dischargeability of a student loan debt pursuant to 11 U.S.C. § 523(a)(8). For the
reasons that follow, the Court concludes that the debt is dischargeable.
APPLICABLE LAW
Section 523(a)(8) provides in relevant part:
(a) A discharge under section 727 . . . of this title does not
discharge an individual debtor from any debt–
. . .
(8) for an educational . . . loan made, insured, or
guaranteed by a governmental unit, . . . unless excepting
such debt from discharge would impose an undue hardship
on the debtor or the debtor's dependants[.]
11 U.S.C. § 523(a)(8).1 The debtor bears the burden of proof under § 523(a)(8).
Dolph v. Pennsylvania Higher Educ. Assistance Agency (In re Dolph), 215 B.R. 832,
836 (B.A.P. 6th Cir. 1998); Ledbetter v. United States Dept. of Educ. (In re
Ledbetter), 254 B.R. 714, 716 (Bankr. S.D. Ohio 2000) (Hopkins, J.).
"Undue hardship" is not a term that is defined under the Bankruptcy Code. To
determine whether excepting a student loan debt from discharge would pose an undue
hardship on the debtor or the debtor's dependants, the Sixth Circuit has adopted the
three-part test set forth in Brunner v. New York State Higher Educ. Servs., 831 F.2d
395, 396 (2d Cir. 1987). See Oyler v. Educ. Credit Management Corp. (In re Oyler),
397 F.3d 382, 385 (6 th Cir. 2005). 	The Brunner test requires proof of each of the
following elements:
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(1) that the debtor cannot maintain, based on current income and
expenses, a "minimal" standard of living for herself and her dependents
if forced to repay the loans; (2) that additional circumstances exist which
suggest that this state of affairs is likely to persist for a significant
portion of the repayment period of the student loans; and (3) that the
debtor has made good faith efforts to repay the loans.
Brunner, 831 F.3d at 396.
F ACTS
David Belasco obtained a Ph.D. in International Studies from the University of
Denver in 1990. Mr. Belasco utilized educational loans to obtain his Ph.D. At the
time of trial Mr. Belasco owed $51,685.13 on the loans. Interest accrues at 9%.
Mr. Belasco is married to Norma Belasco. At the time of trial, Mr. Belasco was
59 years old and Mrs. Belasco was at least 66 years old. See Ex. 9 at #2. The couple
has no dependents.
Both of the Belascos have medical conditions of concern. Mr. Belasco suffers
from a coronary artery disease known as cardiomyopathy. 	In 2004, Mr. Belasco
underwent coronary bypass surgery at the Cleveland Clinic, performed by Dr. Jose
Navia. Mrs. Belasco, pursuant to her own testimony, has a life threatening kidney
disease. 	Although she is taking medication, her condition has not improved.
Together, the Belascos take approximately 20 medications.
Mr. Belasco is qualified to teach at the collegiate level. 	He is currently
unemployed. In the sixteen years since Mr. Belasco obtained his Ph.D., he has taught
for approximately four of those years as a visiting professor at various schools. He
has been unemployed for the balance of the period. 	His last job was a one-year
position at Miami University from 1999 to 2000. His only current source of income
is a monthly pension of $360, an inheritance from his aunt. See Ex. 9 at #6.
Mrs. Belasco is presently employed as a school teacher. She has nine years of
experience in this field. Her kidney disease makes it difficult for her to teach. Mrs.
Belasco earns gross monthly income of $1,712.87. See Ex. 9 at #6.
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2 The monthly expenses are as follows:
Rent 	$710
Phone 	$90
Water & Sewage 	$57
Gas 	$708
Car 	$700
Vitamins & Medicines 	$250
Clothing 	$166
Car Payments 	$235
Food 	$2,400
TV & AOL 	$101
Health Club 	$83
Life Insurance 	$84
The Belascos list three additional expenses (school supplies, travel, moving expenses) that
are better characterized as one-time expenses that will not be included in their monthly
budget.
3 Mr. Belasco testified that he and his wife frequently eat at restaurants because they
are both too fatigued to cook.
4
Mr. Belasco has exercised all of his forbearance and deferment options on the
loans. He has made some payments when employed.
ANALYSIS
I. 	Whether the Belascos can maintain, based on current income and expenses, a
minimal standard of living if forced to repay the loans.
The Belascos currently receive net monthly income of $1,710. See Ex. 9 at #6.
Their monthly expenses are $5,584.2 See Ex. 9 at #7.
Some of the Belascos' expenses are excessive. For example, they spend $2,400
monthly on food.3 Therefore, to the extent that some expenses exceed the Internal
Revenue Service's collection financial standards, the Court will reduce these expenses
accordingly. See In re Howe, 319 B.R. 886, 892 (B.A.P. 9 th Cir. 2005)("a bankruptcy
court may consider the IRS standards as one piece of evidence in relation to its first
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4 The IRS Standards can be found at:
www.irs.gov/individuals/article/0,,id=96543,00.html
–or–
www.usdoj.gov/ust/eo/bapcpa/20061001/meanstesting.htm
5 The IRS allowance of $280 includes all operating costs for one vehicle (e.g., gas,
maintenance, repairs, etc.). This category is distinct from the ownership cost of a vehicle,
which the IRS separately classifies. 	The Belascos' "Car" expense category does not
represent the ownership cost of the vehicle, which they separately budget as "Car
Payments."
6 A couple of expenses that may not readily appear to be necessary warrant
comment. An $83 expense is listed for the use of a health club. It is clear from Dr. Navia's
testimony that Mr. Belasco requires the use of an exercise facility. 	Additionally, a $250
expense is listed for vitamins and medicines. Based upon the Belascos' health conditions,
the Court does not doubt that this is a necessary expense. At trial, Mrs. Belasco testified
that copayments alone can be as high as $300 per month.
5
prong analysis" under Brunner).4
The expenses to be reduced are the following:
Expense 	Budgeted Amount 	IRS Allowance
Gas & Car 	$1,408 	$280 5
Clothing 	$166 	$93
Food 	$2,400 	$368
When the foregoing expenses are reduced to the IRS Standards, the Belascos' monthly
expenses drop to $2,351. 	The Court finds $2,351 to be the Belascos' reasonable
current monthly expenses.6
Given the Belascos' current net monthly income of $1,710 and monthly
expenses of $2,351, the Court finds that the Belascos cannot maintain a minimal
standard of living if forced to repay the loan.
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7 At the same time, the Court does not envision a significant reduction, if any, in the
Belascos' reasonable monthly expenses of $2,351.
8 The poverty guidelines can be found at:
http://aspe.hhs.gov/poverty/07poverty.shtml
6
II. 	Whether additional circumstances exist which suggest that this state of affairs
is likely to persist for a significant portion of the repayment period of the
student loans.
Mrs. Belasco is at least 66 years old. She has a one year teaching contract that
expires at the end of the 2006-2007 school year. 	There is no guarantee that the
contract will be renewed. She already lost a different teaching job at the end of the
2004-2005 school year due, according the Belascos, to her age. 	Even if Mrs.
Belasco's contract is renewed, she will be at least 67 years old. Given her age and her
health problems, which affect her ability to work, the Court does not find it likely that
Mrs. Belasco can continue teaching for more than a couple of years, if at all. Once
Mrs. Belasco finishes her teaching career, she will receive a monthly pension of $833.
Mr. Belasco is 59 years old. 	He is presently unemployed. 	The Defendant
contends that Mr. Belasco could find employment if he applied himself to the task.
But the record reflects that Mr. Belasco's health restricts his ability to work. Dr. Navia
testified to the following: (1) 70% to 80% of cardiomyopathy patients, in general, are
prohibited from working; (2) Mr. Belasco, in particular, is "extremely restricted from
doing any kind of job"; (3) Mr. Belasco might be able to work, sitting down, one or
two hours every third day (i.e. two to four hours per week); and (4) Mr. Belasco's
heart condition is "critical" and could result in sudden death. 	Based upon Mr.
Belasco's medical condition, his age and his sparse employment history, the Court
does not find it likely that Mr. Belasco could find gainful employment consistent with
his medical restrictions. Even if he could, the Court does not think it is worth the risk
of sudden death. Given Mr. Belasco's inability to work, his income is limited to a
monthly pension of $360.
Based upon the foregoing, the Court finds that the state of affairs is likely to
persist, if not worsen, in the future. In the near future, the Belascos will be limited to
a monthly income of $1,193. 7 This amounts to an annual income of $14,316. The
2007 poverty guideline for a family of two is $13,690. 8
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9 The record reflects that Mr. Belasco never pursued the Income Contingent
Repayment Plan (a twenty-five year stream of adjustable payments based upon the
debtor's current income, with the balance being forgiven at the end of the term). Although
a debtor's failure to pursue the program may be a relevant factor under the third prong of
the Brunner analysis, it does not necessitate a failure of proof. See In re Barrett, 337 B.R.
896, 904 (B.A.P. 6th Cir. 2006)("Where there is no reasonable likelihood that the Debtor will
ever be able to repay his student loans, the ICRP fails to provide a reasonable alternative
to a discharge for undue hardship.").
7
III. 	Whether Mr. Belasco has made good faith efforts to repay the loans.
The Court finds that Mr. Belasco made a good faith effort to repay the loan. He
exhausted all of his forbearance and deferment options. He made payments when he
was working. Lastly, and perhaps most importantly, he did not seek to discharge the
debt in bankruptcy until he filed his chapter 7 petition in 2004. Thus, he spent more
than a decade struggling with the debt amidst long spells of unemployment, only
resorting to bankruptcy after a 2003 heart attack and the onset of his coronary artery
disease. 9
CONCLUSION
For the foregoing reasons, the Court concludes that Mr. Belasco has sustained
his burden of proof under the Brunner factors. Accordingly, the Court finds the debt
to be dischargeable pursuant to 11 U.S.C. § 523(a)(8). A judgment to this effect will
be entered.
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Copies to:
Rose Ann Fleming
Fleming@xavier.edu
Michael F. Feeley
mfeeley@ir-law.com
ltumey@ir-law.com
U.S. Trustee
ustpregion09.ci.ecf@usdoj.gov
###
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