The opinion of the court was delivered by: Michael M. Mihm United States District Judge
Thursday, 23 December, 2010 08:17:06 AM
Clerk, U.S. District Court, ILCD
Bankr. No. 08-82824 Adv. No. 08-8135
This matter is now before the Court on Appellant, Educational Credit Management Corporation's ("ECMC"), Appeal from the Order of the Bankruptcy Court granting the discharge of Appellee, Harry E. Vargas' ("Vargas"), student loan debt. For the reasons stated herein, the decision of the Bankruptcy Court is REVERSED.
On October 17, 2008, Vargas filed for Chapter 7 relief, disclosing a monthly wage of $1,300.00, a net monthly income of $1,063.21, and monthly expenses of $1,074.00. He received a general discharge on January 21, 2009. An adversary complaint was filed on November 14, 2008, seeking to discharge almost $45,000.00 in student loan debt pursuant to 11 U.S.C. § 523(a)(8). On December 10, 2009, the Bankruptcy Court conducted a trial on the adversary complaint. The Bankruptcy Court issued an Order and Opinion dated January 12, 2010, finding that the student loan debt was dischargeable, and this appeal followed.
Jurisdiction and Standard of Review
This Court has jurisdiction to review the decision of the Bankruptcy Judge pursuant to 28 U.S.C. § 158(a). District courts are to apply a dual standard of review when considering a bankruptcy appeal. The findings of fact of the Bankruptcy Judge are reviewed for clear error, while the conclusions of law are reviewed de novo. In re Midway Airlines, 383 F.3d 663, 668 (7th Cir. 2003); In re Smith, 286 F.3d 461, 465 (7th Cir. 2002); In re Yonikus, 996 F.2d 866, 868 (7th Cir. 1993); In re Roberson, 999 F.2d 1132, 1137 (7th Cir. 1993); see also, Bankruptcy Rule 8013 (West 1995). In doing so, the Court must give deference to the Bankruptcy Court's findings of fact and to the factual inferences drawn from those facts as long as those findings are supported by the evidence of record. In re O'Hearn, 339 F.3d 559, 564-65 (7th Cir. 2003).
Vargas went back to school later in life with the hopes of obtaining a better paying job. After several years of attending a community college, he obtained a Bachelor of Arts degree from Western Illinois University in 1996, with a major in journalism and a minor in communications. The Bankruptcy Court made the following factual findings: (1) Vargas had made regular payments on his student loans for two years following his graduation until his income decreased and he became unable to make the payments; (2) Vargas sought and received five forbearances from his lender; (3) Vargas entered into a loan consolidation agreement with his lender in 2001; (4) Vargas made no payments on his loan following the consolidation.*fn1
The standard for determining the dischargeability of a student loan debt is undisputed. Educational loans are presumptively non-dischargeable, and debtors may obtain a discharge of student loan debt only if the obligation imposes an "undue hardship" on the debtor. 11 U.S.C. §§ 523(8) and 1328. As the phrase "undue hardship" is not defined by the statute, the Seventh Circuit has adopted the three-part test first set forth in Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395, 396 (2nd Cir. 1987), to determine whether the debtor qualifies for the exception:
(1) the debtor cannot maintain, based upon current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans; and (2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the ...