Kemp v. U.S. Department of Education

Case Type:
Case Status:
17-6032 (8th Circuit, Aug 24,2018) Published
In order to obtain a section 523(a)(8) discharge, a debtor must introduce a preponderance of evidence that shows that any obligation to repay student loan debt imposes an undue hardship on the debtor. In examining the totality of the circumstances, the bankruptcy court properly can consider any repayment plan available to the debtor.
Procedural context:
The debtor filed an adversary proceeding seeking a determination that her student debt owed to the Department of Education was dischargeable. After trial, the bankruptcy court ruled that the debtor failed to meet the burden of proving that the student loan repayment obligations imposed an undue burden on her. The debtor appealed.
When the debtor filed her chapter 7, she was employed as a part-time worker at Lowe's and operated a childcare business. The debtor was in an income-based repayment program with the Department of Education, under which the DOE set her student loan payment obligations based on her income. At the time of filing, the debtor was not required to make any payments on her student loan debt. The income-based repayment program also provides that the student loan debt may be forgiven if, after a designated period of time, if the debtor completes all payments under the program. In the eight month period before filing her chapter 7 case, the debtor quit a full-time job and withdrew $35,000 from her retirement account. She used these funds to (1) pay for a truck for her husband, (2) make a loan to her stepson, and (3) pay bills other than her student loan debt. At the trial on the debtor's dischargeability litigation, the bankruptcy court noted that the debtor's testimony regarding the income from her childcare business was inconsistent with her bankruptcy schedules, and found that the debtor had surplus income of at least $105 per month. The bankruptcy court also found that the debtor's present inability to pay her student loan debt was within the debtor's control even though she testified to having anxiety and depression. The court noted that the debtor failed to adduce evidence, such as medical reports, that her anxiety and depression made it impossible for her to work full-time. Thus, under the totality of the circumstances based on the evidence introduced by the debtor at trial, the bankruptcy court could not find that the student loan debt imposed an undue hardship on the debtor.

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