Judge Nugent

11-05138 Watson v. Sallie Mae et al (Doc. # 40) - Document Text

SIGNED this 30th day of October, 2012.





JORDAN CURTIS WATSON, ) Case No. 10-13963
) Chapter 7

Debtor. )
Plaintiff, )

v. ) Adversary No. 11-5138

Defendants. )



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Someone who is presently unable to maintain a minimal standard of living while

repaying a student loan, whose additional circumstances make it unlikely that he will be able to
do so going forward, and who is proceeding in good faith may meet the undue hardship standard
for discharging a student loan found in 11 U.S.C. § 523(a)(8). But if that someone is unable to
make his loan payments because he is serving felony time in a federal penitentiary and cannot
show the presence of "additional circumstances" that would prevent him earning enough to pay
the debt for a long time after his release, his loan obligations cannot be excepted from discharge.


This is an adversary proceeding filed under Federal Rule of Bankruptcy Procedure
7001(6) and is a core proceeding of which this Court has jurisdiction.1

Findings of Fact

The Court makes the following findings of fact based upon the parties’ stipulations.2 The
debtor, Jordan Watson, studied criminal justice at Washburn University from 2001 to 2005,
earning 80 credits. To fund this pursuit, he took several Stafford student loans that he is now
unable to repay. He paid $4,726.36 on the loans from January 29, 2007 to September 15, 2008.
He owes $22,005.39 as of July 2, 2011.

In 2008, Watson was convicted for interstate travel with intent to engage in illicit sexual
conduct and sentenced to 64 months in federal prison. Watson is currently incarcerated. His
prison term expires November 11, 2013, but his projected statutory release date is March 5,
2013. During his incarceration, he had no significant income and no significant expenses. The


 28 U.S.C. § 1334 and 28 U.S.C. § 157(b)(2)(I) (core proceeding).


 Stipulated Facts, Doc. 36.

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U.S. Bureau of Prisons supplies him with food, clothing, shelter, and medical care. He says that
his employment prospects are grim because he lacks a college degree and, upon release, will be
known as a convicted sex offender. He will be 30 years old upon release in March 2013.
He is eligible to have his student loans recast under the federal Income-based Repayment
Program (IBRP). This program allows a student loan debtor to repay only up to 15% of the
amount by which his income exceeds the federal poverty line over a period of up to 25 years.
When the repayment period ends, the remaining balance is discharged by the government. At
present, Watson's payments would be zero because his income is zero.


Section 523(a)(8) excepts from discharge any student loan debt unless the debtor can
show that being required to repay it would result in “undue hardship.” The phrase “undue
hardship” is not defined in the Code. In Educational Credit Management Corp. v. Polleys,3 the
Tenth Circuit adopted the well-known Brunner test for undue hardship, but added that courts
have discretion to weigh all the relevant considerations so as to apply the Brunner test such that
debtors who truly cannot afford to repay their loans may have their loans discharged.4 The three-
part Brunner test requires the debtor to prove (1) that the debtor cannot maintain, based on
current income and expenses, a “minimal” standard of living if forced to repay the loans; (2) that
additional circumstances exist indicating that this state of affairs is likely to persist for a
significant portion of the repayment period of the student loans; and (3) that the debtor has made


 356 F.3d 1302 (10th Cir. 2004).


Id. at 1309.

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good faith efforts to repay the loans.5 A student loan debt is nondischargeable under § 523(a)(8)
if the debtor fails to show any one prong of this test.6 The debtor bears the burden to demonstrate
undue hardship.7

The minimal standard of living prong requires analyzing the debtor’s current financial
situation.8 “A minimal standard of living includes what is minimally necessary to see that the
needs of the debtor and [his] dependents are met for care, including food, shelter, clothing, and
medical treatment.”9 The Tenth Circuit charges courts to consider whether the debtor has
demonstrated any reason why he is unable to earn sufficient income to maintain himself and
dependants while repaying the student loan debt.10

Watson has not shown that, given his current income and expenses, he is unable to
maintain a minimal standard of living while repaying the student loans. While he currently has
no income, neither does he have actual living expenses. The U.S. Bureau of Prison supplies him
with food, clothing, shelter, and medical care. Additionally, because his income is zero, his
student loan repayments under the IBRP would be zero. Thus, while incarcerated, Watson

5 Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395, 396 (2nd Cir.

6 Polleys, 356 F.3d at 1307.


In re Woodcock, 45 F.3d 363, 367 (10th Cir. 1995).


Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 308 B.R. 495, 503 (10th Cir.
BAP 2004).


Innes v. State of Kansas (In re Innes), 284 B.R. 496, 504 (D. Kan. 2002).
10 Polleys, 356 F.3d at 1309-10.

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maintains a minimal standard of living despite a lack of income.11 Under these circumstances,
Watson cannot meet the first prong of the Brunner test at this time.12

The additional circumstances prong requires determining if circumstances exist that
indicate his current state of affairs is likely to persist for a significant portion of the repayment
period of the student loans. The Tenth Circuit warned that courts need not require a “certainty of
hopelessness,” but should take “a realistic look into a debtor’s circumstances and the debtor’s
ability to provide adequate shelter, nutrition, health care, and the like.”13 Moreover, courts
should estimate “a debtor’s prospects on specific articulable facts, not unfounded optimism,” and
limit the inquiry into future circumstances to the foreseeable future, at most over the term of the
loan.14 This prong does not require some horrific event or condition, but it does require “an
inability to earn and not simply a reduced standard of living.”15

Watson fails to meet the second prong of the Brunner test, too. Nothing in the record
suggests that he will be somehow barred from working upon his release or that he is incapable of
doing so. Realistically, a healthy thirty-year-old male with no dependents should be able to find

11 Hahaj v. United States Dep’t of Educ., 2009 WL 5386132 at *4 (Bankr. D. Idaho Dec.
9, 2009) (“. . . while incarcerated, Plaintiff is not prevented from maintaining an adequate,
although fairly Spartan, standard of living, despite a lack of income.”).

12 Looper v. United Sates Dep’t of Educ., 2007 WL 1231700 at *6 (Bankr. E.D. Tenn.
April 25, 2007) (inmate unable to satisfy first prong of the Brunner test because state of
Tennessee furnished his basic living needs).

13 Polleys, 356 F.3d at 1310.

14 Id. (quoting Robert F. Salvin, Student Loans, Bankruptcy, and the Fresh Start Policy:
Must Debtors Be Impoverished to Discharge Educational Loans?, 71 Tul. L.Rev. 139, 197

15 Id. at 1306 (quoting Cuenca v. Department of Education, 1995 WL 499511, at *2
(10th Cir. Aug. 23, 1995)); Alderete, 308 B.R. at 504, 506.


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some employment. While being a convicted sex offender may limit Watson’s employment
options, he brings no proof that this fact, standing alone, establishes that he will be unable to
earn or that he will face prospective undue hardship. The fact that he is eligible to repay his
student loans under the IBRP tempers any concerns based on his limited employment prospects.
The facts and circumstances in the record do not support finding that he will be unable to make
some payments on this debt. And, if his criminal record does limit his future career prospects,
that is the unfortunate result of his own choices.

Finally, the good faith prong requires a court to consider whether the debtor is acting in
good faith in seeking the discharge or whether he intentionally created his hardship. We do this
by measuring his efforts to obtain employment, maximize income and minimize expenses.16
Good faith exists when a debtor’s unfortunate financial or personal circumstances are the results
of factors beyond his or her reasonable control.17

Watson has made an effort to repay what amounts to a quarter of the original debt, even
making two payments while in prison.18 But, though he is eligible for highly favorable payment
relief that could result in his partially discharging the debt after making more payments, he has
not chosen to pursue that remedy. Instead, he opted to seek a discharge of his obligations in their
entirety. This cuts against finding that he has proceeded in good faith. And, as noted above, his
future employment limitations are the direct result of his conduct, not factors beyond his
reasonable control. And, even if he met the good faith test here, he failed to meet the other two

16 Buckland v. Educ. Credit Mgmt. Corp. (In re Buckland), 424 B.R. 883, 892-93
(Bankr. D. Kan. 2010) (Karlin, J.).
17 Polleys, 356 F.3d at 1311-12.
18 Stipulation, Ex. B, Doc. 36-4 at 10.

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prongs of the Brunner test, thus his complaint must fail.


Because Watson fails to meet all three prongs of the Brunner test, he has failed to show
that repayment will work an undue hardship on him and his student loan obligations cannot be
discharged. Judgment should therefore be entered for defendants on the complaint. A separate
Judgment on Decision will issue this day.

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