In re: Antoinette Marie Harris

Filing 10

MEMORANDUM AND ORDER - The bankruptcy court's judgment is affirmed. A separate judgment will be entered. Ordered by Judge John M. Gerrard. (DCD)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
ANTOINETTE MARIE HARRIS,
Plaintiff,
vs.

4:15-CV-3025
MEMORANDUM AND ORDER

WINDHAM PROFESSIONALS, A
New Hampshire Company, et al.,
Defendants.
Antoinette Marie Harris appeals from the final judgment of the
bankruptcy court that her student loans held by Educational Credit
Management Corporation (ECMC) are not dischargeable. Harris filed a
voluntary petition for Chapter 7 bankruptcy in October 2013 and received her
discharge in January 2014. She filed this adversary proceeding to have her
student loan obligations discharged for undue hardship pursuant to 11 U.S.C.
§ 523(a)(8). The bankruptcy court found there was no undue hardship and
entered judgment against her. Harris appeals. ECMC timely elected to have
the appeal heard in district court. Filing 2. The Court will affirm the
bankruptcy court's judgment.
BACKGROUND
The facts of Harris' employment and payment history are largely
undisputed. In October 1996, Harris obtained a student loan of $10,804.20 to
complete her bachelor's degree, which was awarded in 1997. The first year for
which wage information is available in the record is 2004, when she was
earning a $37,920 salary. By 2009, Harris was earning over $55,000 as a
marketing specialist at the University of Nebraska Medical Center (UNMC).
She lost that position in 2010 due to a reduction in force and was briefly
unemployed, but accepted a temporary position with UNMC in 2011 and then
accepted her current position as residency program coordinator for the plastic
surgery department. Filing 1-2 at 2. At the time of trial, Harris' gross income

was $38,342.20 per year, and the bankruptcy court found her net monthly
income to be $2,101.84. 1 Filing 1-2 at 3.
During the approximately 10 years between the date of the loan and
September 2006, Harris made only three payments totaling $397.81. Harris
asked for and received three deferments and eleven forbearances of
repayment. Due to capitalization, the outstanding balance of the loan was
approaching $23,000 in 2006. Filing 1-2 at 2.
In 2007, Harris began a graduated repayment plan and started making
payments of $160 per month. A graduated repayment plan involves low
initial payments that increase over time. And over the next 3 years, Harris
paid about $6,000. But many of those payments were late, so some of the
money went to late fees, and she made little progress at reducing the loan
principal. Then, beginning in late 2009, Harris' payments became even more
erratic, and she began missing payments. Harris' lender made a claim with
the loan's guarantor, the National Student Loan Program (NSLP), adding
collection costs to the debt. NSLP paid the original lender and began
garnishing Harris' paychecks. The garnishment stopped when Harris began
making voluntary payments of $250 per month. NSLP collected $5,619.66
from garnishment and $2,000 in voluntary payments, but most of that
amount went toward interest and collection costs; only $511.96 was applied
to principal. Filing 1-2 at 2.
Harris filed a voluntary Chapter 7 bankruptcy petition in 2013 (case
no. BK13-41856) and received her Chapter 7 discharge on January 28, 2014.
She filed this adversary proceeding (case no. A14-4001) on January 10, 2014
seeking to discharge her student loan debt. After the adversary proceeding
was filed, NSLP transferred the loan to ECMC, which provides guaranty
services for the Department of Education. Filing 1-2 at 3. At the time of the
transfer, the outstanding principal balance of the loan was $24,413.93, and
interest of $550.78 and collection costs of $6,085.52 were unpaid. At the time
of trial, the total debt was $32,643.73. Filing 1-2 at 3.
A Chapter 7 discharge does not discharge a debtor's educational debt
unless excepting the debt from discharge "would impose an undue hardship
on the debtor and the debtor's dependents . . . ." 11 U.S.C. § 523(a)(8). But the
bankruptcy court found no undue hardship here. The bankruptcy court found
that Harris' salary of about $38,000 per year "is probably on the low end of
what she will reasonably expect to earn in the future." Filing 1-2 at 4. After
conducting a detailed examination of Harris' expenses, the bankruptcy court
Harris contended to the bankruptcy court that her net monthly income was $1,940.15, but
the bankruptcy court found that figure to have been based on mathematical error, and
Harris does not take issue with that reasoning. See filing 6 at 12.
1

-2-

found that several of Harris' expenses were temporary, and that when those
expenses were no longer necessary it would "free[] up $600.00 per month in
the foreseeable future." Filing 1-2 at 6. The bankruptcy court also noted
Harris' eligibility for an Income Based Repayment (IBR) plan, which caps a
debtor's monthly payment based on gross income and family size relative to
the federal poverty guidelines, and provides for discharge of the remaining
balance if the debtor makes the required payments for 25 years. Filing 1-2 at
6 (citing 34 C.F.R. § 682.215). And the bankruptcy court noted that as a
public employee, Harris might also be eligible for the Public Service Loan
Forgiveness Program (PSLFP), which provides for discharge of remaining
debt after only 10 years. Filing 1-2 at 6 (citing 34 C.F.R. § 685.219). The
bankruptcy court concluded:
Ms. Harris is an intelligent, articulate, and hard-working
individual who has been employed full time since graduating
college. It is very likely that she will continue to be employed at
or above her current salary for many years to come. As discussed
above, her monthly net income is actually somewhat higher than
she represents due to the biweekly nature of her compensation.
Further, it appears that she is over-withholding for federal
income taxes, perhaps as much as $100.00 per month. In
addition, many of her monthly expenses are relatively short-term
obligations, ranging from a few more months to a few years.
Accordingly, as more fully described above, her net monthly
income after expenses is more than sufficient to cover an IBR
payment, whether it is $76.58 or $154.70 or more. By
participating in the IBR and the PSLFP, she could discharge her
student loan debt in as little as 10 years by making payments
calculated according to her income, all without adverse tax
consequences. In fact, had she done so prior to commencement of
this adversary proceeding, she would already be more than a year
into the 10-year repayment term.
For the foregoing reasons, I find that Ms. Harris has not
met her burden of proof for undue hardship under 11 U.S.C. §
523(a)(8), and her request for discharge of her student loan
indebtedness is denied . . . .
Filing 1-2 at 7. Harris appeals.

-3-

ISSUES ON APPEAL
On appeal, Harris raises four points of error. First, she challenges the
bankruptcy court's evaluation of her past, present, and reasonably reliable
future earnings, arguing that the court failed to sufficiently consider the
"cyclical" nature of her employment history. Second, she challenges the
bankruptcy court's conclusion that her monthly expenses will be reduced by
several hundred dollars in the foreseeable future leaving her with adequate
surplus income to make monthly payments. Third, she contends that the
bankruptcy court failed to give proper regard to her good faith efforts to repay
the loan, and erred in suggesting that she participate in an IBR plan or the
PSLFP program. And fourth, she argues that the bankruptcy court erred in
suggesting that loan forgiveness may be non-taxable. Filing 6 at 1.
STANDARD OF REVIEW
The issue of dischargeability of student loans is a question of law,
which the Court reviews de novo. Reynolds v. Penn. Higher Educ. Assistance
Agency (In re Reynolds), 425 F.3d 526, 531 (8th Cir. 2005). Factual findings
underlying that legal conclusion are reviewed for clear error. Id. A finding is
clearly erroneous if, after examining the entire record, the Court is left with a
definite and firm conviction that the bankruptcy court has made a
mistake. Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985).
ANALYSIS
In an educational loan discharge case, the debtor has the burden of
establishing undue hardship by a preponderance of the evidence. In re
Walker, 650 F.3d 1227, 1230 (8th Cir. 2011). To assess whether the debtor
has met this burden the Court applies a totality-of-circumstances test,
considering (1) the debtor's past, present, and reasonably reliable future
financial resources; (2) a calculation of the reasonable living expenses of the
debtor and her dependents; and (3) any other relevant facts and
circumstances surrounding the particular bankruptcy case. Id. The burden is
rigorous: if the debtor's reasonable future financial resources will sufficiently
cover payment of the student loan debt, while still allowing for a minimal
standard of living, then the debt should not be discharged. Educ. Credit
Mgmt. Corp. v. Jesperson, 571 F.3d 775, 779 (8th Cir. 2009).
FINDINGS REGARDING HARRIS' EARNINGS
Harris's first argument is that the bankruptcy court erred in evaluating
her past, present, and future earnings and stating that she "'has been
employed full-time since graduating college.'" Filing 6 at 4. She contends that
she actually presented evidence of interruptions in her employment between
-4-

1996 and 2005, and again in 2010. Filing 6 at 4. She argues that she has
"ultimately maintained entry level secretarial positions" with UNMC and her
income is below the national average, and that "[t]o assume she can or will
obtain a job with more income is nothing short of utilizing a crystal ball."
Filing 6 at 10. The Court understands Harris to be questioning the
bankruptcy court's factual findings, which the Court reviews for clear error.
See Reynolds, 425 F.3d at 531.
But to begin with, Harris misunderstands what the bankruptcy court
found, and its import. What the bankruptcy court actually wrote was that
Harris "has been steadily employed since graduating college" and that the
bankruptcy court had "no doubt that she will continue to be employed fulltime for the foreseeable future." Filing 1-2 at 4. Whether Harris has been
"steadily" employed is more of a semantic question than a legal one, and the
most important part is whether she can expect to remain employed. Nor did
the bankruptcy court base its analysis on any assumption that Harris' income
would increase; the bankruptcy court quite clearly acknowledged that Harris
"now makes a little more than $38,000.00 per year and expects to receive
relatively small annual cost of living increases in future years." Filing 1-2 at
4. The bankruptcy court's reference to that being on the "low end" of what she
could expect was simply an expression of the finding that Harris could be
expected to continue earning at least that much. See filing 1-2 at 4. The
bankruptcy court's calculations were based on that assumption, not any
speculation about an increase. See filing 1-2 at 4-7.
And the bankruptcy court's analysis required it to determine, as best it
could, what Harris could be expected to earn. Courts are required to consider
the debtor's "reasonably reliable future financial resources." Jesperson, 571
F.3d at 779. The bankruptcy court did not employ a "'crystal ball'" to the
extent Harris suggests, but to the extent the bankruptcy court did look to the
future, those estimations are required by the issues presented. The Court
sees no clear error in the bankruptcy court's findings.
LIVING EXPENSES
Next, Harris takes issue with the bankruptcy court's determinations
regarding her expected living expenses. This is, again, a factual issue that
the Court reviews for clear error. See Reynolds, 425 F.3d at 531.
Primarily, Harris takes issue with the bankruptcy court's finding that
some of her expenses were, or are, temporary. The bankruptcy court found
that a loan obtained to pay for auto repairs would be paid off in a few months,
the support Harris provided to her college-age daughter would no longer be
necessary at some point after her daughter graduated or got a job, and

-5-

certain other debt payments could be expected to end. Filing 1-2 at 5-6. These
temporary expenses added up to $600 per month. Filing 1-2 at 6.
Harris contends that the loan payments seen by the bankruptcy court
as "temporary" are actually not, because she relies on that credit "to
supplement her negative monthly income." Filing 6 at 11. But this Court does
not agree with Harris' reasoning, or her math. Her "negative monthly
income" is only negative because of these temporary expenses, and the longterm trend for the foreseeable future is clear, even if Harris continues to run
a deficit in the immediate future.
Harris also argues that the bankruptcy court erred in finding that she
could be expected to pay $200 to her boyfriend for rent, because, according to
Harris, she is to pay "an additional $300/mo to begin as soon as the other
obligations expir[e]." Filing 6 at 12. But she does not direct the Court to
where, in the record, evidence of that increase can be found. She says that
she "testified" to that at trial, but the testimony seems to indicate, at least to
the Court, that only $200 would be dedicated to that purpose. See filing 4 at
42-43. The first reference the Court can find to an alleged agreement for $500
is in Harris' post-trial brief to the bankruptcy court. See bankruptcy court
case no. A14-4001 filing 128 at 7. That is not evidence. And the Court cannot
find that the bankruptcy court erred by not crediting evidence that was not
presented to it.
Harris also contends that the bankruptcy court's assessment leaves her
no room for unexpected expenses such as illness or accidents, and that she
may incur medical expenses that are "uncontrollable, unpredictable and
unavoidable." Filing 6 at 13-14. She also points out that she might incur
additional expenses if her relationship with her boyfriend, in whose residence
she lives, were to change. Filing 6 at 14. But the court may not engage in
speculation when determining reasonable and necessary living
expenses. Jesperson, 571 F.3d at 780. The sort of potential expenses
identified by Harris are, by their nature, impossible to incorporate into an
analysis of this kind. Misfortune can strike anyone, and if the mere
possibility of calamity was enough to establish undue hardship, then 11
U.S.C. § 523(a)(8) would cease to have any meaning.
The Court finds no clear error in the bankruptcy court's assessment of
Harris' living expenses. 2
Harris also takes issue with the bankruptcy court's remark, in the context of evaluating
her automotive expenses, that she "should consider whether a newer, more fuel-efficient
vehicle would make sense." Filing 1-2 at 5. Harris says it wouldn't. Filing 6 at 15-16. But
the bankruptcy court clearly credited Harris for her current automotive expenses, without
regard to a possible replacement vehicle. See filing 1-2 at 5. The Court sees no need to
discuss the bankruptcy court's dicta in further detail.

2

-6-

GOOD FAITH ATTEMPT TO REPAY
Next, Harris contends that the bankruptcy court erred in failing to
credit her "good faith attempt" to pay her loan. Filing 6 at 16. The Court
cannot find any such analysis in the bankruptcy court's order, and with good
reason: some appellate courts require a bankruptcy court to consider whether
a debtor has made good faith efforts to repay loans, but the Eighth Circuit
declined to adopt that standard. See In re Long, 322 F.3d 549, 554 (8th Cir.
2003) (collecting cases). The bankruptcy court instead articulated and applied
the appropriate standards from Eighth Circuit precedent. It did not err in
doing so.
REPAYMENT PLANS
Under the headings for her third and fourth issues on appeal, Harris
makes related arguments regarding the bankruptcy court's reference to the
IBR plan and the PSLFP program. She objects that reliance on such plans is
unreasonable because the payments made pursuant to those plans are not
sufficient to actually reduce the outstanding principal, and that if she makes
payments long enough to actually obtain a discharge, there could be serious
tax consequences. Filing 6 at 17-23.
The Court is sympathetic to Harris' arguments. There is some merit to
the argument that it is a "hardship" to require a debtor who does not appear
capable of actually repaying a debt to carry the weight of that increasing debt
for decades while making token payments. But Harris' argument that the
availability of those plans should not be considered has been squarely
rejected by the Eighth Circuit. See Jesperson, 571 F.3d at 780-83. And the
Court of Appeals also expressly rejected the argument that the possible tax
consequences of debt cancellation should weigh into that consideration. Id. at
782. In light of that precedent, the Court finds no error on the bankruptcy
court's part in considering Harris' eligibility for federal repayment plans.
CONCLUSION
Having carefully considered Harris' claims, the Court finds no error in
the bankruptcy court's findings or reasoning, and affirms its judgment.
IT IS ORDERED:
1.

The bankruptcy court's judgment is affirmed.

2.

A separate judgment will be entered.

-7-

Dated this 31st day of March, 2016.
BY THE COURT:

John M. Gerrard
United States District Judge

-8-