Longo v. Discover Bank (In re Longo)

654 B.R. 1

IN RE: Andrew LONGO, Jr., Debtor.

Andrew Longo, Jr., Plaintiff, v. Discover Bank, Defendant.

Case No. 21-20909 (JJT)

Adv. Pro. Case No. 22-02012 (JJT)

United States Bankruptcy Court, D. Connecticut, Hartford Division

Signed July 13, 2023

Joshua R.I. Cohen, Cohen Consumer Law, PLLC, St. Albans, VT, for Plaintiff.

RE: ECF No. 37

MEMORANDUM OF DECISION ON PLAINTIFF'S SECOND REQUEST FOR DEFAULT JUDGMENT REGARDING DISCHARGE OF STUDENT LOANS

James J. Tancredi, Unites States Bankruptcy Judge

Before the Court is a Request for Default Judgment (AP-ECF No. 37, the "Request")¹ filed by the Debtor/Plaintiff, Andrew Longo, Jr. (the "Debtor"), who seeks to have the Court enter a default judgment on the Debtor's Amended Complaint (AP-ECF No. 33) against the sole, non-appearing Defendant, Discover Bank ("Discover"). The Complaint sets forth a single count for discharge of student loans under 11 U.S.C. § 523(a)(8) based on a claim of undue hardship. The Debtor's claim implicates the Second Circuit's Brunner test for discharge of student loans. See Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987). The Debtor alleges that the repayment of his private student loans, with a total balance of $127,910.26, would constitute an undue hardship. Compl. ¶¶ 1, 9. To date, Discover has neither filed an appearance or answer nor has it moved to set aside the Clerk's Entry of Default (AP-ECF Nos. 8, 57) or challenged the Debtor's Request, despite proper service of those docket entries to Discover.

For the following reasons, and after full consideration of the Debtor's facts and circumstances, the relevant legal arguments, and the record of this case, the Court finds that payment of the entire private student loan debt would impose an undue hardship on the Debtor. As further explained below, the Court will grant the Debtor a partial discharge of his private student loan debt. Accordingly, after consideration of the Debtor's testimony during a hearing and reviewing documentary evidence, the Court grants, in part, the Debtor's Request for a Default Judgment.

I. JURISDICTION

The United States District Court for the District of Connecticut has jurisdiction over the instant proceedings under 28 U.S.C. § 1334(b), and the Bankruptcy Court derives its authority to hear and determine this matter on reference from the District Court under 28 U.S.C. § 157(a) and (b)(1) and the General Order of Reference of the United States District Court for the District of Connecticut dated September 21, 1984. This matter is a core proceeding under 28 U.S.C. §§ 157(b)(2)(I) concerning the administration of the bankruptcy estate.

II. BACKGROUND

A. Procedural History

On September 30, 2021, the Debtor filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code.² In his Summary of Assets and Liabilities, the Debtor reported total assets of $41,916.29 and total liabilities of $168,314.78. Of the Debtor's liabilities, a total of $146,330.63 consists of federal and private student loan debt. The Debtor owes $18,420.37 in federal student loans and $127,910.26 in private student loans.³ However, Discover never filed a proof of claim or otherwise appeared or participated in the Debtor's bankruptcy case. On November 9, 2021, the Chapter 7 Trustee entered a Report of No Distribution (BR-ECF No. 9) certifying that there was no property available for distribution from the estate and that the case had been fully administered. The Debtor received a discharge on January 12, 2022 (BR-ECF No. 12) and the Clerk's Office closed the case on January 27, 2022 (BR-ECF No. 15). The Debtor's student loans were excepted from his discharge as nondischargeable debts. On July 12, 2022, the Debtor moved to reopen the case (BR-ECF No. 20), stating he intended to challenge the nondischargeability of his student loans under 11 U.S.C. § 523(a)(8). The Court granted the motion by order dated July 21, 2022 (BR-ECF No. 21).

On August 2, 2022, the Debtor commenced this Adversary Proceeding by way of Summons and Complaint against Discover (AP-ECF No. 3) by sending a copy via certified mail to Discover's main branch address.⁴ On September 9, 2022, after Discover failed to appear, plead, or otherwise defend the case, the Clerk filed an Entry of Default against Discover (AP-ECF No. 8), which was also served on Discover at its main branch address. On September 12, 2022, the Debtor filed his first Request for Default Judgment (AP-ECF No. 10, the "First Request"). On December 15, 2022, the Court held a status conference where Discover failed to appear again.⁵

The Court denied the Debtor's First Request for a default judgment on the original Complaint because the Complaint lacked any detailed factual allegations that would demonstrate the Debtor's undue hardship under 11 U.S.C. § 523(a)(8) and the Brunner test and thus failed to state a claim upon which relief could be granted. See Ruling on Plaintiff's Request for Default Judgment (AP-ECF No. 31, the "First Default Judgment Ruling"). The Debtor subsequently amended his Complaint to add more particular allegations and filed the instant Request, both of which were served on Discover. Upon review of the Amended Complaint (AP-ECF No. 33), the Court chose to exercise its discretion under Fed. R. Civ. P. 55(b)(2) to conduct an evidentiary hearing to establish the truth of the Debtor's allegations and ordered the Debtor to submit evidence in support of his claim (AP-ECF No. 38). The Court's concerns were that the Debtor had not shown: (i) the amount, date, and loan number of each private student loan, (ii) that Discover was the current holder or servicer of these private student loans, and (iii) whether the loans had been refinanced or consolidated.

The Debtor filed exhibits in advance of the evidentiary hearing (AP-ECF No. 45), which included the following: (i) a copy of a state court complaint that Discover had intended to serve on the Debtor and file in the Connecticut Superior Court as a collections action against the Debtor regarding his private student loan debt (the "Collections Complaint"); (ii) a copy of the Debtor's Federal Student Aid Report; (iii) federal tax returns for the tax years 2016 through 2022, (iv) paystubs from his current employment; and (v) a recent statement and payment history for his auto insurance. On April 22, 2023, the Court conducted an evidentiary hearing where the Debtor had the opportunity to present this evidence and give his own testimony. By supplemental order dated April 14, 2023, the Court required the Debtor to file copies of all relevant promissory notes and related loan documents, as well as any documents evidencing any prior consolidation or refinancing of those loans (AP-ECF No. 50).

On April 17, 2023, the Debtor filed additional exhibits (AP-ECF No. 51) in compliance with the Court's order, which included: (i) promissory notes for two private student loans with Discover; (ii) a letter dated January 19, 2022 from Discover to the Debtor's bankruptcy attorney, Eugene S. Melchionne; and (iii) a screenshot of the Debtor's total account balance for both of his private student loans with Discover. On May 2, 2023, the Court held a second evidentiary hearing to address the Debtor's additional exhibits and allow the Debtor an opportunity to present arguments on the application of the Brunner test. At the conclusion of the hearing, the Court took the matter under advisement.

B. Factual Background

The Court derives the factual background from the Debtor's Amended Complaint, as well as the documentary evidence and testimony presented by the Debtor. All factual allegations in the Debtor's Amended Complaint were deemed admitted by virtue of the Clerk's Entry of Default (AP-ECF No. 57).

1. The Debtor's Education and Professional Background

The Debtor attended Montville Highschool in Montville, Connecticut where he grew up. In 2009, the Debtor enrolled at Berklee College of Music ("Berklee") in Boston, Massachusetts to pursue his undergraduate degree in music. The Debtor made an agreement with certain family members where he would pay for two years of his degree, his mother would pay for one year, and his grandmother would pay for the remaining year. The Debtor's mother took out a loan in her name for approximately $53,000 to pay for one year of the Debtor's degree. To cover his portion of the agreement, the Debtor borrowed a combination of federal and private student loans. He borrowed approximately $18,000 in federal student loans.⁶ In 2011, the Debtor borrowed $45,000 in private student loans from Discover ("Loan 1").⁷ In 2012, the Debtor borrowed an additional $50,000 in private student loans from Discover ("Loan 2," and together with Loan 1, the "Discover Loans").⁸ His mother, Lisa Longo, is a cosigner on both Discover Loans. In 2013, the Debtor graduated from Berklee and received his Bachelor of Arts in music.

With this degree, the Debtor expected that he would write music for movies and television commercials. After graduation, however, the Debtor realized that most jobs of this type existed in New York or California. He claims that Berklee did not inform him of this reality until near the end of his degree program. Most of the Debtor's peers who graduated from Berklee do not work in the music industry. One friend is a "jazzercise" instructor and another plays music on the side. He was required to take some general credits at Berklee but, as a music school, Berklee did not require him to focus on math and science. He believes his GPA was around 3.6 but claimed that Berklee did not focus heavily on counting grades. The Debtor has contemplated moving to New York or California at various times to look for jobs in the television and music industry, but never fully committed to the idea because he felt the cost of living was too high in those states.

After graduation, the Debtor benefitted from a six-month grace period on his Discover Loans before his monthly payments commenced at around...