Randall v. Navient Solutions (In re Randall)

628 B.R. 772

IN RE: Terry Lucille RANDALL, Debtor.

Terry Lucille Randall, Plaintiff,

v.Navient Solutions, Defendant.

Case No. 19-21815-MMH

Adversary No. 19-00368-MMH

United States Bankruptcy Court, D. Maryland, at Baltimore.

Signed: June 21, 2021

Jeffrey L. Friedman, Friedman and Associates, Reisterstown, MD, for Defendant Navient Solutions.

MEMORANDUM OPINION

MICHELLE M. HARNER, U.S. BANKRUPTCY JUDGE

A bankruptcy case generally offers the honest but unfortunate debtor a financial fresh start. This objective is implemented through the bankruptcy discharge, which allows most debtors to eliminate most of their prepetition debts upon completing their bankruptcy cases. Although the Bankruptcy Code¹ reflects Congressional intent to provide debtors with as broad of a discharge as possible, Congress has expressly excepted certain kinds of debt from the bankruptcy discharge. One of the most significant categories of debt excepted from discharge, and at issue in this adversary proceeding, is student loan debt.

The debtor in this proceeding owes over $500,000 in general unsecured student loan debt, with approximately $190,000 of that being owed to the defendant. The debtor is 68 years old, does not own any meaningful assets, and is not incurring any unnecessary or excessive expenses. Despite holding various degrees, the debtor has been working for the past several years at a job paying approximately $13 per hour, with some opportunity for overtime. The debtor testified that she has tried to repay her student loan debt but that the money just is not there. According to the debtor, after paying necessary living expenses, she has nothing left to give. The defendant disputes this conclusion, arguing that the debtor is able to continue working and to pay something back on the student loans. The parties' dispute raises a difficult question for the Court, namely how destitute must an individual be to warrant the discharge of her student loan debt?

The Court has considered the evidence presented by the parties, the language of the Code, and applicable case law. The Code permits discharge of student loan debt only if requiring the debtor to repay the debt would impose an undue hardship on her. The Court recognizes that a mere hardship is not enough; it must be an undue hardship. In this case, the debtor is able and is willing to work. Her employment opportunities are, however, limited, and the likelihood of her earning capacity increasing is remote. Although she earns a steady income, her net wages, even with overtime, are not sufficient to support her basic and necessary living expenses and to repay her student loan debt in full. The Code does not require a debtor to be left wearing nothing but the proverbial barrel in order to repay her student loans.

The Court finds that requiring this debtor to further eliminate expenses or commit to working excessive overtime hours at age 68 for any extended period of time is unreasonable and would impose an undue hardship on the debtor. That said, the debtor does have some ability to repay at least a portion of the student loan debt. Accordingly, the Court will not discharge the debt in its entirety. Such a partial discharge in the face of undue hardship is permissible and, in this Court's view, aligns with the objectives of both sections 727(a) and 523(a)(8) of the Code.

I. Relevant Background

Terry Lucille Randall, the above-captioned plaintiff and the debtor in the underlying chapter 7 case (the "Plaintiff"), filed her bankruptcy petition on September 4, 2019. The Plaintiff complied with her obligations under the Code and received a standard discharge on December 11, 2019. The Plaintiff also commenced three adversary proceedings relating to her prepetition student loan debt, including this proceeding against Navient Solutions (the "Defendant"). The Defendant filed an Answer to the Plaintiff's Complaint,² and the Court conducted an evidentiary trial in this proceeding on April 15, 2021 (the "Trial"). This Court has reviewed all of the admissible evidence, arguments of counsel, and applicable law, and this dispute is now ripe for resolution.

II. Jurisdiction and Legal Standards

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a) and its Local Rule 402, the United States District Court for the District of Maryland has referred this case to the Court. This matter is a statutorily core proceeding under 28 U.S.C. §§ 157(b)(1) and (b)(2). The Court has constitutional authority to enter final orders in this matter. This Memorandum Opinion and the related Order constitute the Court's findings of fact and conclusions of law in accordance with Rule 52 of the Federal Rules of Civil Procedure, made applicable to this proceeding by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

The primary issue in this adversary proceeding is whether the Plaintiff may discharge her student loan debt under section 523(a)(8) of the Code. The bankruptcy discharge is a hallmark of U.S. bankruptcy law. It provides a debtor with that coveted fresh start, and it is one of the primary policy objectives underlying the Code. See, e.g., Grogan v. Garner , 498 U.S. 279, 286, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Indeed, the Code broadly defines the terms "debt" and "claim" so that, "[g]enerally, ‘all legal obligations of the debtor, no matter how remote or contingent,’ are potentially dischargeable in bankruptcy." Kubota Tractor Corp. v. Strack (In re Strack) , 524 F.3d 493, 497 (4th Cir. 2008) (citations omitted); 11 U.S.C. §§ 101(5), (12).

The bankruptcy discharge is not, however, absolute. It is limited by, among others, sections 727(a) and 523(a) of the Code. 11 U.S.C. §§ 727(a), 523(a). The only exception to discharge implicated by this proceeding is that found in section 523(a)(8), which provides,

(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt--

...

(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor's dependents, for- -

(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or

(ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or

(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual ....

11 U.S.C. § 523(a)(8) (emphasis added). The Plaintiff argues that the facts and circumstances of her case satisfy the undue hardship requirement of section 523(a)(8) ; the Defendant disagrees with that position. The Court addresses the relevant facts and the parties' respective arguments below.

III. Findings of Fact ³

The Plaintiff is 68 years old. Tr. 4–5, 14.⁴ She received her first college degree, a bachelor's degree in psychology, in 2004 from Morgan State University. Tr. 15; Def. Ex 6, p. 15. She then received a master's degree in human services and public policy in 2008 from Sojourner-Douglass College. Tr. 15; Def. Ex 6, p. 15. The Plaintiff further pursued, but did not complete, a master's degree in business administration from Strayer University. Tr. 16. The Plaintiff financed her education with assistance from her parents and with loans from, among others, the Defendant. Tr. [Adv. 370] 26–27.

The Plaintiff was prepared for, and professional throughout, her testimony and the presentation of her case. The Court observed her demeanor and listened closely to her statements and her responses to the Defendant's questions. The Court found the Plaintiff's testimony credible and generally consistent with the documentary evidence in this proceeding. To the extent that the Plaintiff's testimony differed in any respect regarding precise dates or the exact amount of her income and expenses, the Court relies on the documentary evidence. The Court notes that any such discrepancies were minor (for example, the exact start date of her current employment), not intentional, and not material to the Court's ruling herein.

The Plaintiff testified that she is currently employed as a community medical technician, earning approximately $13 per hour with some opportunity for overtime. Tr. [Adv. 370] 26–28; Tr. 18. The Plaintiff appears to have been employed in this or similar positions since 2009, and her hourly wage has ranged between $9 to $13 per hour. Tr. [Adv. 370] 26–28; Tr. 18; Def. Ex. 6, p. 16. The Plaintiff has some ability to supplement her regular wages with overtime. The Plaintiff explained that she has worked an exceptional number of overtime hours during the past year primarily due to the global COVID-19 pandemic and a shortage of workers. The Plaintiff stated that she did not believe her current level of overtime pay would continue after the pandemic recovery. Tr. [Adv. 370] 32–33; Tr. 19.

A review of the Plaintiff's paystubs shows that the Plaintiff has consistently worked overtime hours since at least 2017 and that the total number of those hours fluctuates by pay period. Pl. Ex. 3 [Pay Stubs].⁵ The pay stubs suggest that the Plaintiff's overtime hours vary from 40 hours per pay period to over 100 hours per pay period. Id . The Plaintiff's pay stubs for 2019, which reflect her most recent pay history prior to the pandemic, show overtime generally between 40 to 80 hours per pay period. Id . The Plaintiff's Form W2 for 2019, in turn, lists her annual wages as $43,209. Id . at p. 21.

The Plaintiff's monthly expenses total approximately $3,200.⁶ These expenses include her monthly rent, car payment, car insurance, health insurance, utilities, and $300 for food and housekeeping supplies. Sch. J, Case No. 19-21815-MMH, ECF 1; Def. Ex. 6, p. 21. Based on the Plaintiff's testimony, although her income may vary depending on her overtime hours, it never...