Hock v. Dep't of Educ. (In re Hock)

IN RE: LYNN KAREN HOCK, Debtor

LYNN KAREN HOCK, Plaintiff, v. DEPARTMENT OF EDUCATION, Defendant.

BANKR. NO. 18-31795

ADV. PRO. NO. 19-03016

UNITED STATES BANKRUPTCY COURT WESTERN DISTRICT OF NORTH CAROLINA CHARLOTTE DIVISION

March 17, 2021

CHAPTER 7

MEMORANDUM OPINION AND ORDER DENYING DISCHARGEABILITY OF STUDENT LOAN DEBT

This matter is before the Court upon the Complaint of Debtor Lynn Karen Hock ("Hock") seeking the discharge of her student loan debt owed to the Department of Education ("Government") under 11 U.S.C. § 523(a)(8). Having considered the evidence and the legal arguments presented, the undersigned finds for the Government. Hock's student loan debt is not dischargeable.

BACKGROUND

On December 3, 2018, Hock filed a voluntary Chapter 7 case in this District. On March 1, 2019, Hock filed this adversary proceeding seeking discharge of her student loans which approximate $143,581.48. Hock received a general discharge on March 5, 2019.

After taking discovery, the parties agreed to a stand down so that Hock might seek an administrative discharge of her student loan debts with the Government. She did not pursue that option, and by September 28, 2020, the matter was back in court on cross summary judgment motions under Fed. R. Civ. P. 56 and Fed. R. Bank. P. 7056. At the conclusion of the hearing, a bench ruling was announced denying both motions, it appearing that a ruling would necessarily require weighing conflicting evidence. Thereafter, the parties entered into Joint Stipulations of Facts and Admissibility of Documents.¹ At a hearing held on January 11, 2021, the two sides agreed that the matter be tried on the same, and without live testimony.² The matter was taken under submission.

STIPULATED FACTS³

A. Plaintiff Lynn Karen Hock

1. Hock is a seventy-year-old female who has not been employed since June 2017. Hock is not currently seeking employment due to her medical conditions, and her responsibilities at home caring for her permanently disabled husband.

2. Hock's husband, a former Navy SEAL, became permanently disabled whilefighting in active combat during the Vietnam War and has not been employed since 2012. The Veteran's Administration has deemed him unemployable. His service-connected disability is 90%, being paid at the 100% rate because he is "not employable due to service-connected disabilities."

3. Hock graduated from Brooklyn College with a BA in fine arts, Pepperdine University School of Law with a J.D., and New York University School of Law with an L.L.M. in tax.

4. Hock's last employment was as a financial advisor at Merrill Lynch. She was forced to resign from that position after life-saving cancer surgery was complicated by acute hypercalcemia. She was rushed to the hospital by ambulance for emergency treatment 10 days after cancer surgery. Prior to Merrill Lynch, Hock held, inter alia, various jobs as a lawyer and was a real estate broker for 20 years. The Government's questioning and Hock's sworn testimony related to her work history is found at her Depo Tr. 11:12- 17:12 (Doc. 19-1, Ex. 4).

5. In 2016, Hock was diagnosed with Stage 3 thyroid cancer, and in October 2016, she had surgery at UCLA to remove her thyroid gland, lymph nodes, and parathyroid glands.

6. Her treatment further involved two mega-doses of radiation treatment—one three months after the surgery and one the following year.

7. Due to the fact her thyroid was surgically removed, Hock takes Synthroid, a mediation that takes the place of having that essential organ.

8. Hock is currently cancer-free but has yearly scans, blood tests, and check-ups with her endocrinologist to check for recurrence of cancer and ensure therapies toreplace thyroid function are still at optimum levels.

9. The Government's questioning and Hock's sworn testimony related to her cancer treatment and related symptoms is found at her Depo Tr. 24:2-26:19 (Doc. 19-1, Ex. 4).

10. Hock added the following testimony: "Hock continues to suffer from the effects of cancer and complications with recovery from acute hypercalcemia. She has difficulty concentrating or sitting at a desk for more than 2 hours at a time, is unable to complete routine tasks without taking breaks, and has arthritis in her knees and consistent pain with discs in her lower back which prevent her from standing for more than 30 minutes at a time. She has fixated on death and dying since her cancer diagnosis 4 years ago and has been depressed about being asked to leave her job and her inability to work in the future."

11. The Government does not object to the introduction of Hock's testimony in written form for the court's consideration, obviating the need for any further live testimony.

12. During her cancer treatment, Hock experienced acute hypercalcemia, an overdose of calcium which was prescribed by her surgeon following her cancer surgery. Hock was rushed to the hospital via ambulance for life-saving treatment after she went into toxic shock and her organs began shutting down. The Government's questioning and Hock's sworn testimony related to her hypercalcemia and related symptoms is found at her Depo Tr. 27:2-32:19 (Doc. 19-1, Ex. 4).

13. Hock contends that due to these health events and their continuing symptoms, she was unable to continue and left her job at Merrill Lynch approximately 5 monthsafter returning from a 3 ½ month medical disability leave.

14. In April 2018, Plaintiff and her husband moved from California, their long-time home, to North Carolina in an effort to reduce expenses. On December 3, 2018, Hock filed for Chapter 7 bankruptcy with the United States Bankruptcy Court for the Western District of North Carolina. (Bankr. No 18-31795, Doc. 1).

15. Hock's Chapter 7 bankruptcy case was discharged without any assets being liquidated or administered by the Chapter 7 Trustee, and without objection from any of her creditors. (Bankr. No 18-31795, Doc. 25). As stated on Hock's Official Form 101 (Bankr. No 18-31795, Doc. 1), Hock's household "current monthly income" in her underlying bankruptcy case is $520.11 per month as calculated under Section 101(10A) of the Bankruptcy Code. Hock's household "disposable income" in the underlying bankruptcy case was therefore $0 per month because her allowed monthly expenses exceeded $520.11 per month.

B. The Student Loans

16. On or about July 29, 2013, Hock executed an Application and Master Promissory Note ("MPN") for a Federal Direct PLUS Loan.

17. The loan was taken out on behalf of Hock's son, Trevor Hock, for his studies at Berklee College of Music. Trevor Hock is currently 26 years old and enrolled full-time at California State University Northridge. All of Trevor Hock's classes are online during Fall 2020 due to COVID-19 pandemic restrictions.

18. The loan is a Parent PLUS loan and Hock is solely responsible for the repayment of the debt (i.e. it is not a co-signed debt between the parent and the student).

19. Disbursements were made on September 21, 2013 for $47,00.00 at 6.41% perannum and on September 20, 2014 for $55,651.00 at 7.21% per annum. Interest rates are determined by regulation 34 CFR 685.202(a)(9)(iv).

20. As of August 17, 2020, Hock's student loan debt held by the Department of Education, is $143,581.48 of which $118,105.64 is principal and $25,475.84 is accrued interest.

21. Hock has made two payments on the loan totaling $2,774.52.

22. The loan was in repayment for a brief three-month period beginning in December 2016 but has otherwise been in a deferment status from February 1, 2014, through the present. This deferment status is currently scheduled to expire on February 25, 2021. The deferments were input at the request of Hock and are permitted per 34 CFR 685.204(c)(s), which details provisions for deferment based on the enrollment status of Trevor Hock. Hock's student loans with The Government have remained current and in good standing at all times since they were originated in 2014.

1. Income-Contingent Repayment Plan

23. Parent PLUS loans, such as Hock's, are not eligible for income-driven repayment plans. Upon entering repayment, Hock is currently scheduled for a standard, 10-year amortization (minus any previous time in repayment), monthly repayment amount that changes daily because of accruing interest, but which would be approximately $1,680 in February 2021. However, consolidation of Hock's current Parent PLUS loans would allow her to participate in the Income-Contingent Repayment ("ICR") plan, which is not available to Parent PLUS borrowers without consolidation. (See 34 CFR 685.208(a)(2)(iv)(D)). Thus, torepay her student loans under ICR, Hock would need to consolidate her Parent PLUS loans into a Direct Consolidation Loan, and then apply for an ICR plan.⁴

24. Under ICR, a borrower's monthly repayment amount is generally based on the total amount of the borrower's Direct Loans, family size, and adjusted gross income ("AGI") reported by the borrower on their tax returns for the most recent year.

25. Under ICR, student loan payments will be $0 per month whenever a borrower makes less than 100% of the HHS Poverty Guidelines for their family size. (See 34 CFR 685.209(b)(1)). Under the ICR calculations, Hock's household makes less than 100% of the HHS Poverty Guidelines for her family size, and therefore her student loan payments would be $0 per month under ICR. For borrowers above this threshold, monthly payments are equal to 20% of discretionary income, divided by 12.

26. For ICR, a borrower's "discretionary income" is the amount they earn over 100% of the HHS Poverty Guideline for their family size (adjusted annually). Under the ICR calculations, Hock's "discretionary income" is currently $0 per month and has not changed significantly since the filing of her Chapter 7 case.⁵

27. Hock's AGI would need to exceed $100,000 to have a monthly ICR payment as high as her most recent loan payment amount of $1,387.26, and based on a family size of two (2), some estimated repayment scenarios for Hock would be:

AGI

Monthly payment

under

...