Pub. 9 2014-2015 Issue 6

www.nebankers.org 30 Extraordinary Service for Extraordinary Members. I N THE MATTER OF NOELLE L. DELAET, the U.S. Bankruptcy Court for the District of Nebraska held DeLaet met her burden of proving her student loans from Discover Bank and National Collegiate Trust (collectively, the “banks”) caused her undue hard- ship. The court, therefore, discharged DeLaet’s student loan obligations to the banks, nearly $100,000. Conventional wisdom holds that student loans are not dischargeable in bankruptcy. Although not impossible, it is extremely difficult to do so. Dis- charging student loans is governed by 11 U.S.C. § 523(a)(8), which provides that a discharge in bankruptcy does not discharge any debt for student loans “unless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor’s dependents.” The exclusion of student loans from discharge is self-executing, that is, unless a debtor affirmatively secures a court’s express ruling that a loan is dischargeable because it imposes an undue hardship, the discharge will not include student loan debt. Federal Bankruptcy Court in Nebraska Discharged Private Student Loans Anthony D. Todero , Baird Holm LLP Under Eighth Circuit precedent, the test for undue hardship is the totality of the circumstances, which includes: (1) the debtor’s past, present, and reason- ably reliable future financial resources; (2) the debtor’s reasonable and neces- sary living expenses; and (3) any other relevant facts and circumstances. The debtor’s burden of proof is heavy. If the debtor’s reasonable future finan- cial resources will cover student loan payments, while allowing a minimal standard of living, a court will not dis- charge the debt. DeLaet’s background was somewhat sympathetic but probably not uncom- mon. She graduated from college in 2009 with degrees in fine arts and Eng- lish. After graduation, she struggled to find work in her fields of study despite sending out hundreds of resumes and job applications. Shortly after gradu- ation, she found contract work for the Nebraska Department of Health and Human Services, acting as a case worker for $12.42 to $16 per hour. She began working directly for the state in 2012, and at the time of the court’s decision, she made $17.68 per hour. She had not been seeking other employment. Her financial difficulties strained her rela- tionships with her mother, who was a co-obligor on the loans, and her fiancé, who was hesitant to marry DeLaet until she paid off her debts. DeLaet testified that her finances caused her anxiety, for which she took medication. The court first considered DeLaet’s past, present, and future financial resources and found she was likely to receive only nominal raises for increases in the cost of living. The court found no evidence to support the banks’ conten- tion that DeLaet could find greater pay using her degrees and credited DeLaet’s testimony that she was too new and unqualified to apply for a supervisory position with the Foster Care Review Board. It “simply is not the law” that a debtor must apply for every possible job, qualified or not, to prove undue hardship. The court next examined DeLaet’s living expenses and found them reason- able. The banks challenged DeLaet’s internet bill, her cell phone charges, recycling charges, and irregular ex- penses, arguing they were unnecessary for a minimal standard of living. The court disagreed, finding the standard of living needed to account for DeLaet’s particular circumstances, a 28-year-old employed full time sharing household expenses with her fiancé. The court noted that most of DeLaet’s dealings with the banks were online and, given the dilapidated state of her car, her expenses would likely increase. Finally, the court considered other relevant facts, mainly DeLaet’s strained emotions and relationships. The court rejected the banks’ argument that her financial situation would improve once she married because her fiancé did not want to get married while DeLaet’s student loans were outstanding. The court, therefore, did not consider her fiancé’s income.