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Wednesday, April 10, 2013

Ind. Decisions - 7th Circuit rules in student loan bankruptcy appeal

In SUSAN M. KRIEGER v. EDUCATIONAL CREDIT MANAGEMENT CORPORATION, a 10-page opinion in a case out of Illinois, Chief Judge Easterbrook writes:

Susan Krieger is destitute. Her entitlement to a discharge in bankruptcy is unquestioned. But her largest creditor—Educational Credit Management, which acts on behalf of some federal loan guarantors—asked the bankruptcy judge to exempt her student loans from the discharge, relying on 11 U.S.C. §523(a)(8). This subsection excludes educational loans “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor”. * * *

A bankruptcy judge concluded, following a trial, that this standard has been met. The evidence shows that Krieger cannot pay the debt now or in the foreseeable future. She is living with her mother, age 75, in a rural community where few jobs are available; mother and daughter between them have only a few hundred dollars (from governmental programs) every month. She is too poor to move in search of better employment prospects elsewhere, and her car, which is more than a decade old, needs repairs. She lacks Internet access, which coupled with the lack of transportation hampers a search for work. * * *

A district judge reversed and held that the educational debt cannot be discharged. * * *

The district judge did not doubt that Krieger has paid as much as she could during the 11 years since receiving the educational loans. Instead the judge concluded that good faith entails commitment to future efforts to repay. Yet, if this is so, no educational loan ever could be discharged, because it is always possible to pay in the future should prospects improve. * * *

In Roberson we boiled the three criteria down to “certainty of hopelessness”. 999 F.2d at 1136. That sounds more restrictive than the statutory “undue hardship,” but at all events the bankruptcy judge found that Krieger’s situation is hopeless. That may be unduly pessimistic, but a judge asked to apply a multi-factor standard interpreting an open-ended statute necessarily has latitude; the more vague the standard, the harder it is to find error in its application. The ultimate finding of “undue hardship” is neither clearly erroneous nor an abuse of discretion. The judgment of the district judge is reversed, and the case is remanded with instructions to reinstate the discharge issued by the bankruptcy judge.

Marion, concurring. [A quote] [W]ith many people struggling to make payments on their loans, will they see in this case and perhaps others like it an excuse to avoid their own student-loan obligations?

Posted by Marcia Oddi on April 10, 2013 12:48 PM
Posted to Ind. (7th Cir.) Decisions