Tuttle v. Educ. Credit Mgmt. Corp. (In re Tuttle), Case No. 16-28259-beh

600 B.R. 783

IN RE: Dylan Frey TUTTLE and Madison Elizabeth Zuverink, Debtors.

Dylan Frey Tuttle, Plaintiff,

v.Educational Credit Management Corporation, Defendant.

Case No. 16-28259-beh

Adversary No. 17-02116

United States Bankruptcy Court, E.D. Wisconsin.

Signed March 31, 2019

Dylan Frey Tuttle, pro se.

Navient Solutions, Inc., pro se.

Jeffrey W. Guettinger, Richie, Guettinger & Manydeeds, S.C., Eau Claire, WI, for Defendant.

DECISION ON PLAINTIFF'S ADVERSARY COMPLAINT

Beth E. Hanan, United States Bankruptcy Judge

The debtor seeks to have his student loans, consolidated in 2001, discharged because he asserts that continued repayment would constitute an undue hardship. After obtaining a bachelor's and Master's degree, being employed and then self-employed for 19 years, the debtor ended his new job search in early 2016 after six weeks to stay home to care for his ailing parent, and then for his young child. As part of its argument against undue hardship, the lender seeks a determination that a trust, established by the debtor's mother shortly before her death in 2017, creates an income stream for the debtor's benefit and not strictly for the benefit of the settlor's grandchildren.

Applying the Brunner test, in light of Krieger v. ECMC ,¹ the Court holds that repayment of this debtor's student loans does not constitute such an undue hardship as to make that obligation dischargeable under 11 U.S.C. § 523(a)(8). The Court also interprets the trust settlor's intent to have set aside funds for her grandchildren's education, not the education of her 46-year old son, and so those funds are not available to the debtor for the repayment of his student loans or his other living expenses.

FACTS

Procedural History

Plaintiff, Dylan Frey Tuttle, is a married father of one. Mr. Tuttle, (dba Vulkans Forge Consulting Ltd, dba Weestack LLC) and his wife, Madison Zuverink, filed a Chapter 7 bankruptcy petition on August 18, 2016 and were granted a discharge on November 28, 2016.² On April 27, 2017, the Court granted Tuttle's motion to reopen his case to file an adversary complaint to determine the dischargeability of his student loans. Tuttle's pro se complaint asserts that excepting his student loan debt from discharge will impose an undue hardship on the debtor, his wife, and their young son.

The original defendant was Navient Solutions, Inc. On June 9, 2017, the Court granted Education Credit Management Corporation's ("ECMC") motion to substitute ECMC as a party defendant for Navient. ECMC is a not-for-profit Minnesota corporation that administers and guarantees the Federal Family Education Loan Program ("FFELP"). ECMC also provides specialized guarantor services to the Department of Education and other FFELP guaranty agencies, including accepting transfer of title to certain student loan accounts on which the student loan borrower has filed a bankruptcy proceeding. ECMC accepted the transfer of all right, title and interest in Tuttle's consolidated loan from its original guarantor. Exhibit 104.

After several months of discovery and discovery-related motions, the Court held a trial, with testimony from Mr. Tuttle and Ms. Kerry Klitsch of ECMC. Thereafter, the Court set a post-trial briefing schedule,³ and took the matter under advisement.⁴

Jurisdiction

The Bankruptcy Court for the Eastern District of Wisconsin has jurisdiction to decide this matter pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(a). This proceeding is a core matter in which this Court has constitutional authority to enter final orders under 28 U.S.C. § 157(b)(2)(I).

FINDINGS OF FACT

Education and Employment History

Mr. Tuttle testified as to his family background and educational opportunities.

His mother was from Costa Rica, and his father from the United States. They separated when he was age 11, as an only child. He and his mother lived in a Chicago apartment, and he attended public high school while she worked as a housekeeping supervisor at a hospital. They lived modestly, and he "did not have a lot of guidance regarding schooling or a career." He incurred student loan debt for his tuition and expenses at Shimer College in Chicago, where he received a Bachelor's Degree in 1994. He also assumed student loan debt while studying at the London School of Economics, where he received a Master's Degree in Political Sociology in 1996.

After completing his formal education, Mr. Tuttle worked in options trading between 1997 and 2005. He first served an internship learning the options trade in 1997, then as a clerk at the Chicago Mercantile Exchange in 1998. After that he worked as a clerk for a trader at the Board of Options Exchange, working on a joint account for over a year, into 1999. For the next several years he traded off and on, sometimes for his own account and sometimes for another's account. When the exchange transitioned from floor to electronic trading, Tuttle was unwilling to incur more debt to obtain a Master's degree in quantitative finance and thereby participate in electronic trading, so he accepted a severance package as his department downsized. He drove a cab at night in 2006. After leaving trading, he volunteered for a small business development corporation, and then worked in economic development programming, developing programs for managers and small business owners. During this period, he also took 30 credits of coursework in economics and accounting at the local technical school, without borrowing for tuition and in an effort to improve his employment prospects. Exhibit 42. After being denied a promotion, he started his own business in 2011, around the same time he got married. He worked in Chicago during the week, sleeping in his office, and coming to Milwaukee on weekends to be with his wife. While trying to make a go of his grant-writing training business, Tuttle successfully completed a Phase I SBIR award (small business innovation research program through the National Science Foundation) but did not progress further as he was unable to secure significant investor commitments. As he said, "By then it was December, 2015, and he was running out of options and realized the business was not going to work and was not sustainable." He also testified "his wife humored him for awhile and then said he had to get real and move on."

Mr. Tuttle has generated no monthly income since October 2015. He testified that because it took so long for the business to become "cash flow positive" he could not make payments on his educational loans after January 6, 2012. His job search between the weeks of November 21, 2015 and January 9, 2016 was unsuccessful. He then ceased his search, because his mother became terminally ill and shortly thereafter his wife became pregnant. Exhibit 34. He converted his Illinois S-Corporation into a Wisconsin LLC (Weestack, LLC) with the intention of running the business from home. Exhibit 4. That business never produced revenue.

After finding local daycare costs to be almost $ 1,000/month, Exhibit 48, and considering Mr. Tuttle's irregular income over time, Exhibit 44, and work history, Tuttle testified he and Ms. Zuverink decided that he should care for their child full-time, stating "it is plausible that our children will be better off with a parent at home." As part of this decision, he testified he also considered the fact of his "low-income background" and his perception of its effect on his employability. He testified that his career history of lack of advancement and lack of supervisory experience, by mid-life, were also factors in his conclusion that he was not readily employable. He did not specify for which types of employment he based this conclusion.⁵ He and his wife filed their Chapter 7 bankruptcy case in August, 2016, several months before their child was born.

Their child is now a healthy two-year-old, and both Mr. Tuttle and Ms. Zuverink are healthy and ages 46 and 32, respectively.

Loan Repayment History

Mr. Tuttle's initial student loans totaled $ 39,088, including Stafford Subsidized, Stafford Unsubsidized, and Federal Perkins loans. Exhibit 40. His loans entered repayment in 1997. Tuttle repaid his Perkins Loans ($ 5,000) by August, 2000, during the time he was working in options trading. Exhibit 10. On January 10, 2001, Tuttle executed a Federal Consolidation Loan Application and Promissory Note created pursuant to FFELP. Tuttle's consolidation loan of his Stafford Loans was disbursed on January 22, 2001 in the amount of $ 41,871.56, including capitalized interest, with a repayment period of 25 years. Exhibit 49, Response 9. ECMC now holds title to the consolidation loan. To date, Tuttle has made 104 payments on his FFELP consolidation loan in the total amount of $ 34,198.59, of which $ 4,799.84 was applied to principal. Since he consolidated his Stafford Loans, Exhibit 10, he has taken nine periods of deferment or forbearance, totaling 87 months between January 1, 2003 and May 4, 2017.⁶ Exhibit 49, Response 11. During that same period, he had several employers, some unemployment, and had also been an entrepreneur.

These periods of deferment and forbearance have resulted in capitalization of interest. Thus, as of the time of trial in late summer, 2018, his consolidated loan had a balance due of $ 59,640.19. Exhibit 105. His updated payment schedule, issued January 22, 2017, requires 196 monthly payments: $ 368.50 for five months beginning April 2, 2017, increasing to $ 504.90 for 190 months, and one final payment of $ 502.66 if the loan were to be paid off by July 2033. Exhibit 41. Tuttle has avoided default on his student loan debt.

Loan repayment options have changed over the time since Mr. Tuttle first entered repayment. Presently, he has not elected to participate in any repayment plans offered by the William D. Ford Direct Loan Program. Ms. Klitsch described the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plan, Income Contingent Repayment Plan ("ICRP"), Income-Based Repayment Plan ("IBR"), and...