____________________________________________________________

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS

MEMORANDUM AND ORDER PARTIALLY GRANTING AND PARTIALLY DENYING DEBTOR'S COMPLAINT FOR

DISCHARGE OF STUDENT LOAN

This is an adversary proceeding pursuant to 11 U.S.C.A. § 523(a)(8)1 to determine the

dischargeability of plaintiff Daniel Herman Stockstill's (Debtor) student loan indebtedness to defendant

Educational Credit Management Corporation (ECMC). The plaintiff Debtor appears by Paul Post of

Paul Post, P.A. The defendant, ECMC, appears by N. Larry Bork, of Goodell Stratton Edmonds &

Palmer, LLP. There are no other appearances. This is a core proceeding2 over which the Court has

subject matter jurisdiction.3 Venue is proper.4 The parties do not contest jurisdiction or venue.

Debtors, Daniel Herman Stockstill and Susan Kay Stockstill, filed for relief under Chapter 7 on

September 24, 2002. Debtor Daniel Herman Stockstill filed a Complaint to Determine

Dischargeability of Student Loan based upon undue hardship against defendant AFSA Data

Corporation.5 ECMC filed an answer stating that it was the holder of two consolidated loans assigned

to it from USA Funds with an estimated balance of $119,862.406 and was unaware whether the named

1 Future references to the Bankruptcy Code in the text shall be to the section only.

2 28 U.S.C.A. §157(b)(2)(I).

3 28 U.S.C.A. § 1334.

4 28 U.S.C.A. § 1408.

5 Doc. No. 1.

6 Because the parties have consistantly treated the Debtor's student loan obligation as if it were

a single note, the Court likewise will refer to the entire amount due as a student loan.

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defendant had additional loans.7 ECMC moved to be added as a defendant.8 The motion was

granted.9 A Journal Entry of Judgment based upon default was entered against AFSA Data

Corporation.10

An evidentiary hearing was held. The Debtors testified, exhibits were admitted without

objection, and the Court heard argument. Post trial briefs were filed.11 The Court is now ready to rule.

FINDINGS OF FACT.

Having heard the testimony of witnesses and considered the exhibits admitted into evidence, the

Court makes the following findings of fact.

Debtor Daniel Herman Stockstill is 57 years old.12 He received his B.A. degree from

McPherson College in 1968 and his B.S. degree from Black Hills State University in Spearfish, South

Dakota in 1975. He has credit hours towards his doctorate but has not finished his dissertation. He

was employed as a teacher and then later as a high school principal and superintendent of schools.

Most recently he was the high school principal and superintendent of schools in North Jackson USD

335, Holton, Kansas. Debtor submitted his resignation at the end of the 2002 school year because he

had been told the school district would not renew his contract.

At the time of trial, Debtor was an inpatient at an alcohol rehabilitation hospital and was due to

be released the day after trial. He was required to continue his treatment with a 10 week out patient

program. He has been an alcoholic for many years. Upon retrospect, he believes that his alcoholism

contributed to his need to terminate his employment with the USD 335. After he lost that job and could

not find other employment, his drinking became out of control.

When employed by USD 335, Debtor and his wife lived in Circleville, Kansas. After his

termination, he looked for other school district employment in the area, submitting 20 applications and

being granted seven interviews. Debtor was not hired. Debtor determined that he could not stay in

Circleville because of his large house payment. Debtor then sold his Circleville house and took early

retirement, entitling him to monthly KPERS payments of approximately $1,700. In May or June 2002,

Debtor and his wife moved to Geneseo in Central Kansas, where Debtor's wife's elderly parents live.

Debtor's father, who is in his 80's, lives close by. Debtors received proceeds of approximately

$32,600 from the sale of the Circleville house, which were used in part to purchase a 1997 Chevrolet

four-wheel drive vehicle, replacing a 1978 Ford. Debtor and his wife also used $5,000 to purchase a

two bedroom 1971 mobile home from a relative. Additional proceeds from the house sale were used

to make the mobile home livable, including trimming trees, re-coating the road, rebuilding the steps,

carpeting and installing tile flooring, and repairing the toilet. Debtor and his wife now live in the mobile

home and have no house payments.

Since moving to Central Kansas, Debtor has been looking for jobs but has not obtained

permanent employment. He applied for a position of facilities manager at Christian College, but was

not offered the position. He is on the list to be called as a substitute teacher in Lyons, Ellsworth,

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Holyrood, Claflin, Little River, and other towns within a reasonable driving distance. Debtor has

worked helping to plant wheat, labored at a refinery for a couple of months, scrubbed floors, carried

water, and coached basketball. Debtor believes that unknown persons in USD 335 have been

sabotaging his employment attempts in the education field.. Debtor met with Monty Longacre, a

counselor/consultant and a personalized rehabilitation specialist associated with Personalized

Rehabilitation Specialist, Inc. of Clay Center, Kansas. Mr. Longacre concluded that it was doubtful

that Debtor will be able to continue to work as an educator and must look at other sources of

revenue.

Debtor's wife is 57 years old. She has a high school education and cosmetology training.

While living in Circleville, she was employed by Family Health Care where her rate of pay was $8.35

per hour. Since moving, she has not applied for work. She takes care of her elderly parents seven

days a week; she cooks all of their meals, cleans their house, does the laundry, administers their

medications, takes them to the doctor, and shops for them. She is always on-call. Her parents are in

their 80s and have income of about $1000 per month and minimal assets. Their home is over 100

years old. If she were not taking care of her parents, it would be necessary for them to be placed in a

home, but they do not have sufficient income to pay for such care. She intends to continue to provide

the care to her parents. Debtor's wife drives an old car which has almost 300,000 miles on it. The

debtor's wife had an annuity, which she cashed in.

The United States Individual Income Tax return filed by Debtor and his wife for tax year 2001

showed an adjusted gross income of $84,830. It reflects the salary Debtor received from USD 335 in

the approximate amount of $75,500 and his wife's income from a Holton Community Hospital of

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$9,573. For the 2002 tax year, the adjusted gross income was approximately $64,000, comprised of

$46,004 from wages and salaries and $17,945 from pensions and annuities. Based upon the 2003 W-

2's, the total income that year was $28,770.65. At the time of the hearing, the Debtor's only reliable

income was $1,731.36 monthly benefit from the Kansas Public Employees Retirement System. At age

62, Debtor will be entitled to Social Security benefits of approximately $1,300 per month.

Debtor prepared a statement of monthly living expenses in the amount of $1,976.05, as follows:

At the time of trial, Debtor was not paying the full $646 for health insurance, as he was not eligible for

insurance at that time. The actual insurance expense was $311 for his wife. Debtor hoped to be

eligible for health insurance in the near future. Debtor's wife testified that a more accurate estimate of

monthly gasoline expense was $100. The Bank loan expense of $143 is for payment on two loans, at

lease one of which will be paid off in less than a year from the date of trial. The Debtor borrowed the

money to pay for his alcohol treatment in the amount of $8,300 from his father, who expects to be

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repaid.

The student loan balance as of February 10, 2004 was the principal amount of $121,742.90,

with unpaid interest of $7,232.22, for a total of $128,975. The annual interest rate is fixed at 9%. In

the fall of 2003, the monthly payment on the student loan was at least $825.30. The record does not

contain evidence of the amortization period. However, the Court's own calculations indicate a payment

period in excess of 40 years. The present loan is a consolidation of multiple loans which were

originated from 1986 through 2000. A substantial amount of principal was paid prepetition. The

borrowings were made for the education of the Debtor's three children and Debtor's doctoral work,

which was not completed. At the time of filing for Chapter 7 relief, the student loan were current.

Payments were made using a portion of the proceeds from the sale of the home after Debtor lost his

employment. The Debtor does not have sufficient income to make the monthly payment.

Debtor is eligible to participate in the Ford Program Income Contingent Repay Plan (ICRP).

Under this plan, the Debtor's monthly loan payment would be adjusted annually based upon his total

adjusted gross income for the prior year. Based upon Debtor's monthly gross income $1,918.36 from

KPERS and his family size of two, his monthly payment would be $181.67 for a term of 300 months

(25 years), based upon interest at 8.25%. If the Debtor's adjusted gross income were to increase to

$30,000, his payments would be $298 for a term of 300 months (25 years). The Debtor has not

elected to participate in this plan because he is not able to make the $187 per month payment.

DISCUSSION AND CONCLUSIONS OF LAW.

Section 523(a)(8) provides that a discharge under section 727 does not discharge an individual

from a debt for an educational loan made, insured, or guaranteed by a governmental unit unless

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excepting such debt from discharge under this paragraph will have an undue hardship on the debtor and

the debtor's dependants.13 The section is self-executing, and [u]nless the debtor affirmatively secures

a hardship determination, the discharge order will not include a student loan debt.14 Here, the Debtor

has filed a dischargeability complaint, and it is undisputed that the loans in issue are student loans for the

purposes of section 523(a)(8).

Undue hardship is not defined by the Bankruptcy Code. In this circuit, the standard for

undue hardship requires satisfaction of the three-part test adopted by the Second Circuit in Brunner

v. New York State Higher Education Services Corp.,15 as interpreted by the Tenth Circuit in

Educational Credit Management Corporation v. Polleys.16 In Brunner, the Court stated the

required three-part showing as follows:

(1) that the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself and her dependents 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 good faith efforts to repay the loans.17

Each of the three parts must be satisfied before the debtor is entitled to discharge the student loan.18

The Tenth Circuit's adoption of the Brunner framework included the following caveat:

1311 U.S.C.A § 523(a)(8).

14 Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 124 S. Ct. 1905, 1912, 158

L. Ed.2d 764 (2004).

15 831 F.2d 395 (2d Cir. 1987) (hereinafter Brunner).

16 356 F.3d 1302 (10th Cir. 2004) (hereinafter Polleys).

17 Brunner, 831 F.2d at 396.

18 Polleys, 356 F.3d at 1307.

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We therefore join the majority of the other circuits in adopting the Brunner framework. However, to better advance the Bankruptcy Code's fresh start policy, and to provide judges with the discretion to weigh all the relevant considerations, the terms of the test must be applied such that debtors who truly cannot afford to repay their loans may have their loans and discharged. Additionally, we think that the good-faith portion of the Brunner test should consider whether the debtor is acting in good faith in seeking the discharge, or whether he is intentionally creating his hardship.19

The Court will now apply each of the three standards to the facts of this case, but, before doing so, pauses to consider the nature and purposes of student loans and the policy of restricting discharge. One court has described the student loan program as follows:

The guaranteed student loan program offers loans without regard to the borrower's credit worthiness. As such, student loans are a great benefit to those who would not ordinarily qualify for a loan otherwise.

The student loan represents an investment in the borrower's future ability to generate income. Consequently, there is an expected likelihood of changed circumstances based on educational training – that is the borrower will obtain employment with income sufficient to repay his student loan obligations.

However, this is not always the case. Oftentimes, through no fault of the borrower, he is unable to generate the expected income.20

Section 523(a)(8) was recommended because of a rising incidence of consumer bankruptcies of

former students motivated primarily to avoid payment of educational loan debts.21 Allowing the

discharge of student loan obligations by recent graduates who had a substantial earning potential but

little or no nonexempt assets would contravene the general policy that a loan that enables a person to

19 Id. at 1309.

20 Speer v. Educ. Credit Mgmt. Corp. (In re Speer), 272 B.R. 186, 192 (Bankr. W.D. Tex.

2001).

21 Polleys, 356 F.3d at 1306 (quoting Report of the Comm'n on Bankr. Laws of the United States, H.R. Doc. No. 93-137, Pt. II § 4-506 (1973)).

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earn substantially greater income over his working life should not as a matter of policy be dischargeable

before he has demonstrated that for any reason he is unable to earn sufficient income to maintain himself

and his dependents and to repay the educational debt.22 The undue hardship standard promotes this

purpose. It is deprives student loan borrowers of discharge when the facts and circumstances show

that the loan enabled the debtor to earn greater income which can be dedicated to the repayment of the

student loan while a minimal standard of living is maintained. On the other hand, in those situations

where notwithstanding the additional education and the absence of fault of the borrower, the debtor can

not both pay the loan and maintain a minimal standard of living, the availability of discharge is consistent

with the public policy.

1.     Can Debtor maintain a minimal standard of living while repaying the consolidated student loan debt?

   ECMC does not seriously challenge satisfaction of the first element of the Brunner test.23 As

found above, Debtor's only reliable income at the time of the hearing was approximately $1,731.36

per month from KPERS, and his monthly expenses, without any payment of approximately $825

monthly student loan obligation, were approximately $1,976.05. The budget includes only $12.50 per

month for medical and dental expenses not covered by insurance. If this estimate of expenses is

amended to reduce the cost of gasoline from $233.26 to $100.00, expenses still exceed income. If this

estimate of expenses were further reduced to reflect the facts that at the time of trial Debtor was unable

to purchase health insurance and the bank loans would be paid in the near future, the Debtor would still

be unable to make the full monthly student loan payment, partially because the sums not paid for health

22 Id.

23 See, however, ECMC's arguments regarding the Ford Program, which are discussed below.

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insurance would be needed for Debtor's out of pocket health care costs.

All of the Debtor's expenses were satisfactorily explained. Debtor's life style is anything but

extravagant. Debtor moved from a home in Circleville which sold for $138,500 to a 1971 mobile

home which he purchased for $5,000. The Debtor's and his wife's vehicles are old. There are no

frivolous expenses; there is even no cushion for emergency expenses.

Under the circumstances which existed at the time of trial, Debtor's expenses could not be

reduced by $825, as would be required for him to make payment on the consolidated student loan.

The Court finds the first Brunner element satisfied.

2.     Is Debtor's state of affairs likely to persist for a significant portion of the repayment period of the consolidated student loan?

   The second Brunner element requires 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.24

The Tenth Circuit in Polleys described application of this prong as follows:

However, in applying this prong, courts need not require a certainty of hopelessness. Instead, a realistic look must be made into debtor's circumstances and the debtor's ability to provide for adequate shelter, nutrition, health care, and the like. Importantly, courts should base their estimation of the debtor's prospects on specific articulable facts, not unfounded optimism, and the inquiry into future circumstances should be limited to the foreseeable future, at most over the term of the loan.25

The Court finds that the evidence establishes that Debtor's state of affairs is likely to persist for a

significant portion of the repayment period. It is unlikely that Debtor's monthly income from his

24 Id. at 1310.

25 Id. (quoting Robert F. Salvin, Student Loans, Bankruptcy, and the Fresh Start Policy:

Must Debtors Be Impoverished to Discharge Education Loans?, 71 Tul. L. Rev. 139, 197 (1996)).

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employment will increase by $825 in the foreseeable future. Debtor's rehabilitation from his alcohol

addiction is a concern. Further, although Debtor has earned bachelor and master degrees and has

completed a part of his doctoral requirements and is certified by the State of Kansas to teach all grade

levels, to be a district administrator and to be a building administrator, there is convincing evidence that

Debtor will not be able to find full-time employment in public education. Debtor's most likely

employment in education is as a substitute teacher. Debtor's efforts to find full time employment in other

endeavors within driving distance of his home have been unsuccessful; he has been able to obtain work

only in temporary positions. The Court heard no evidence that this situation is likely to change. Even if

Debtor's wife returns to the labor market, given her age and education, she would contribute to the

family income only for a few years at a low rate of pay. Debtor's opportunities for employment certainly

are circumscribed by his decision to live in Geneseo, but this is a life choice made by the Debtor.26

Given the record in this case, a finding that the second element of Brunner is not satisfied because of the

likelihood of Debtor's increased income from wages would be speculation and not based upon specific

articulable facts.27

In contrast to the likelihood of an increase in income from employment, the record does support

a finding that Debtor will be eligible to receive Social Security before the student loan would be repaid.28

The earliest date on which Debtor could elect to start receiving benefits is age 62, approximately 5

26 Courts in the Tenth Circuit have been cautioned not to impose their own values on a debtor's life choices. Id. at 1310.

27 Id.

28 The record does not include the term of the consolidated student loan under the current

repayment schedule. The Court's own all calculations indicate that the term is in excess of 40 years, when Debtor would be 97 years old.

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years after the hearing. At Debtor's election, the commencement of social security payments could be

delayed for eight years, until age 70. If the early election is made, the benefits would be approximately

$1323 a month. The amount, of course, would increase if Debtor elects to not draw his benefits until a

later time.

The Court finds Debtor's entitlement to Social Security benefits in the future is not sufficient to

hold that the second element of the Brunner test is not satisfied. As found above, there is no evidence

to suggest that Debtor could make the $825 monthly payment between the date of the hearing and the

commencement of receipt of Social Security benefits. During that time, interest would continue to

accrue, thereby increasing the debt. The Court finds that expenses in addition to those included in the

Debtor's present budget will be incurred as Debtor and his wife age. The amount of the budget devoted

to medical expenses can not be sufficient to cover the medical expenses in the long term. Debtor's wife

will need to replace her old vehicle. The Debtor will undoubtedly have a significant increase in housing

costs at some point in the future. Even if the Debtor were to commence making payments of $825 a

month when he started drawing Social Security benefits, a significant portion of the debt could not be

paid down during his remaining lifetime. The burden of a debt which can never realistically be repaid

constitutes an undue hardship. 29

The Court holds that the second Brunner element is satisfied with respect to the consolidated

student loan which requires a monthly payment of $825.

3.     Good faith.

The third prong of the Brunner test requires the Court to evaluate the Debtor's good faith. The

29 Coats v. New Jersey Higher Educ. Assistance Auth. (In re Coats), 214 B.R. 397, 403 (Bankr. N.D. Okla. 1997).

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Tenth Circuit in Polleys defined the inquiry as follows:

Finally, an inquiry into a debtor's good faith should focus on

questions surrounding the legitimacy of the basis for seeking a discharge.

For instance, a debtor who willfully contrives hardship in order to discharge student loans should be deemed to be acting in bad faith.

Good faith, however, should not be used as a means for courts to impose their own values on a debtor's life choices.30

Good faith can be evidenced by the fact that the debtor did not immediately seek to discharge

his student loan obligations when they became due and cooperation with the lenders.31 Additional

evidence of good faith is a showing that the debtor is "actively minimizing current household living

expenses", is "maximizing personal and professional resources", and is not "attempting to abuse the

student loan system by having [debtor's] loans forgiven before embarking on lucrative careers".32

The evidence in this case establishes the presence of good faith. Debtor did not immediately

seek to his discharge loan. A substantial portion of the principal was paid prepetition. The Debtor

continued to make payments on the student loan even after he lost his job with the USD 337. In fact,

Debtor was current on his payments when the bankruptcy was filed because some of the proceeds from

the sale of the Debtor's house in Circleville were applied to the loan. Debtor's significant change in

income and lifestyle were independent of his obligation for the student loan. Debtor made application for

numerous jobs in education but could not find employment. Since moving to Geneosa, Debtor has been

looking for employment but was able to find only temporary work. Although Debtor's prospects for

employment might be enhanced if he were to move from Geneosa, Debtor has a sound reasons for

making the choice of Geneosa as his home. The Court has been cautioned not to second-guess a

debtor's life choices.33 Further, the hardship discharge operates to protect both the Debtor and his

dependants. Moving would impose a severe hardship upon Debtor's wife and her elderly parents, for

whom she provides constant care.

The Court finds that the third element of the Brunner test is satisfied as to the consolidated

student loan.

FORD PROGRAM.

ECMC argues that the good-faith standard, as well as the first and second elements of the

Brunner test, are not satisfied because Debtor is eligible to participate in the Ford Program Income

Contingent Repayment Plan (ICRP) under which Debtor's payments based upon his income at the

time of trial would be $181.67 for a term of 25 years. Debtor has declined to participate in the plan

because he does not currently have $181.67 which he can use for payments on the student loan.

The requirements for an ICRP are prescribed by 34 C.F.R. § 685.209. The amount of the

monthly payment is calculated based upon the borrower's adjusted gross income determined from the

tax returns, the total amount borrowed, and family size. The calculation of the payment amount has been

described as follows:

How does an ICRP work? The amount of the monthly payment under an ICRP is calculated based on the borrower's adjusted gross income (AGI) determined from the debtor's tax returns, total amount borrowed and family size. The monthly payment is calculated to be the lesser of the amount that would be paid if the borrower repaid the loan in 12 years, multiplied by an annual income percentage factor that varies based on the borrower's annual AGI, or 20 percent of the borrower's

33 Id. at 1310.

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discretionary income. Discretionary income is defined as the borrower's AGI minus the poverty level for the borrower's family size. . . . The payment may be adjusted annually depending on changes to the AGI reported on the debtor's tax return for the preceding year and that national poverty level. The combined income of a married couple.34

As stated above, ECMC offered evidence that under the ICRP, Debtor's initial plan payments would be

$181.67 for a term of 25 years based upon his gross income of $1,918.36. If the Debtor's annual

adjusted gross income were to increase to $30,000, his ICRP payment would be

$298 for a term of 25 years.

Although on the surface an IRCP is an appealing solution to the payment of student loans, there

are severe problems with such a plan in this case. Both the payment amounts proposed under Debtor's

circumstances at the time of trial and based upon the future possibility of $30,000 adjusted gross income

are insufficient to service even the interest on Debtor's loan at the revised proposed rate of 8.25% per

annum. In other words, there would be negative amortization for the foreseeable future. If Debtor were

fortunate to live for the full 25 year loan term, the remaining balance would be forgiven, but this would

result in taxable debt forgiveness income. Debtor's participation in a proposed plan would not constitute

payment of the student loan.

The Court holds that Debtor's failure to agree to participate in the ICRP does not evidence the

absence of good faith. Debtor testified that he is unable to make even a minimal payment calculated

under the ICRP based upon his current income. Even if Debtor could make the payment, given the

ineffectiveness of the ICRP as a vehicle to satisfy the Debtor's student loan, it is reasonable for him to

decline to participate. A rejection of the income contingent repayment plan is not, in and of itself,

34 Thomas J. Yerbich, Student Loan Income Contingent Repayment Plans: An Alternative?, 24 Am. Bankr. Inst. J. 8 (2005) (emphasis added).

16

sufficient to show lack of good faith on the part of the Debtor.35 There is ample additional evidence of

good faith.

This Court also rejects ECMC's suggestion that the Debtor's decision not to participate in an

ICRP evidences that the Debtor has not satisfied the first two Brunner factors which examine the

Debtor's present and future ability to make loan payments. ECMC argues that because payments under

the plan would be adjusted based upon the Debtor's income with regard to the poverty standard, the

Debtor would always be able to afford the payments while maintaining a minimal standard of living.

Other courts have identified the flaws in this position. [T]he availability of the ICRP cannot be a magic

wand that when waived precludes discharge of a student loan debt.36 In re Strand37 rejected the

argument that a hardship discharge could not be granted when the debtor could participate in an ICRP

because there would never be an occasion where the repayment obligation would constitute an undue

hardship, since the payments would be directly tied to income and could even be reduced to zero.38 As

to the detriment from participation in the plan, the court stated as follows:

Even, or indeed especially, in the event of a debtor's fruitless zero-payment-required participation in such an income contingent repayment program, the derivative financial woes would be significant with interest accruing for twenty five years, and very little or absolutely no payment

35 Norris v. Educ. Credit Mgmt. Corp. (In re Quarles), 2004 WL 2191608, _______ 
(Bankr. D. Kan. Apr. 22, 2004) (citing In Re Swinney, 266 B.R. 800, 806 (Bankr. N. D. Ohio 2001)); see Alderete v. Educ. Credit Mgmt. Corp. (In re Alderete), 308 B.R. 495, 507 (10th Cir. BAP 2004).

36 Durrani v. Educ. Credit Mgmt. Corp. (In re Durrrani), 311 B.R. 496, 506 (Bankr. N.D. 
Ill. 2004), aff'd 320 B.R. 357 (D.N.D. Ill. 2005).

37 Strand v. Sallie Mae Servicing Corp. (In re Strand), 298 B.R. 367 (Bankr. D. Minn. 
2003).

38 Id. at 375.

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against the principal, [debtor] would be hamstrung into poverty for the rest of his life. He would be precluded from obtaining any credit, and perhaps even from obtaining approval of a rental application. He would grow hopelessly more insolvent, with no realistic possibility of ever retiring the debt. Finally, at the age of 79, the debt would be forgiven and he would be assessed at an enormous income tax liability, probably nondischargeable in bankruptcy. The loans would haunt him for twenty five years and then create an income liability he could not pay. 39

In In re Fahrer,40 the court found that a 53 year-old Chapter 7 debtor was entitled to an undue

hardship discharge on her more than $180,000 in student loan debt despite her eligibility for and

conscious decision not to participate in an ICRP. The court stated:

The Court must consider the consequences of Debtor's potential participation in the ICRP and the efficacy of that relief under the circumstances. In this case, the Debtor owes approximately $180,000, a staggering sum of money. Given the Debtor's past, present and the likely future income and expenses, there is little doubt that she would have to be in the program for the full 25 years, still not pay the entire amount, then receive a discharge of the unpaid balance and face taxable income in that amount. At that point, the Debtor would be 78 years old.

The age of the Debtor is a factor the Court may take into consideration in assessing whether repayment of the debt constitutes an undue hardship. . . . This Court agrees with the observation in Brown that requiring a debtor to participate in an extended repayment plan, which significantly exceeds the debtor's working life constitutes an undue

hardship.41

In In re Williams,42 the age of the debtors, 53 and 54 years old, and the amount of student loan debt,

nearly $200,000, were factors in the court's holding that the debtor's failure to participate in the ICRP

39 Id. at 376-77, quoting Korhonen v. Educ. Credit Mgmt. Corp. (In re Korhonen), 296 B.R. 492, 497 ( Bankr. D. Minn. 2003).

40 Fahrer v. Sallie Mae Serv. Corp. (In re Fahrer), 308 B.R. 27 ( Bankr. W.D. Mo. 2004)

41 Id. at 35.

42 Williams v. Educ. Credit Mgmt. Corp. (In re Williams), 301 B.R. 62 (Bankr. N.D. Cal.

2003).

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did not preclude an undue hardship discharge. The court reasoned that the debtors' payment under the

plan would not be sufficient to service the interest on the loans and under the current law would have

resulted in taxable income of from $300,000 to $400,000 for the debtors upon forgiveness of the loans

on the eve of their 80th birthdays.43

For the foregoing reasons, the Court rejects ECMC's argument that the Debtor has not has

satisfied his burden to prove the presence of each of the three Brunner elements required for an undue

hardship discharge of his student loan in the amount of $121,742.90 principal, plus interest because of

his failure to participate in a Ford Program IRCP.

PARTIAL DISCHARGE.

The foregoing constitutes a finding that the Debtor's repayment of the entire student loan debt

would be an undue hardship. However, under the circumstances presented, the Court is convinced that

payment of part of the student loan debt would not constitute an undue hardship; the first and second

Brunner elements would not be satified if the debt were significantly lower. The Court therefore

proceeds to examine whether it has the authority to fashion a remedy discharging the Debtor from a

portion of the student loan, but holding that there would be no undue hardship if he were required to pay

the remainder.

There is a split among the courts concerning the authority of a bankruptcy court to order a

partial discharge as a remedy under section 523(a)(8). Some courts take a strict view of the code and

hold that a debt is either wholly dischargeable or wholly non-dischargeable.44 Other courts interpret

43Id. at 78-79.

44 E.g., Skaggs v. Great Lakes Higher Educ. Corp. (In re Skaggs), 196 B.R. 865 (Bankr.

W.D. Okla. 1996).

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section 523 (a)(8) more flexibly in light of equitable powers that have been granted to bankruptcy

courts and to serve the broader policy rationale of the Code.45 The 6th46, 9th47, and 11th48 Circuits have

each held that a partial discharge is appropriate when there is a finding of undue hardship with respect

to a portion of the student loan debt. The issue has not been decided in the 10th Circuit. In 1982, Judge

Franklin, although noting that most courts had made an all or nothing finding under section 523(a)(8),

chose to follow the few courts who had reduced the amount of the loan or revises the payment

schedule.49 In 1996, the bankruptcy courts in Oklahoma reached conflicting conclusions.50 In 1998, the

10th Circuit BAP, in a case holding that the order confirming a Chapter 13 plan which discharged part

of a student loan was res judicata, identified the strict view as the majority position.51 In 2004, the 10th

45E.g., Hornsby v. Tennessee Student Assistance Corp. (In re Hornsby), 144 F.3d 433 (6th Cir. 1998).

46 Miller v. Pennsylvania Higher Educ. Assistance Agency, 377 F.3d 616, 622 (6th Cir. 2004) (holding that the requirement of undue hardship must always apply to the discharge of student loans in bankruptcy – regardless of whether a court is discharging a debtor's student loans in full or only partially.)

47 Saxman v. Educ. Credit Mgmt. Corp. (In re Saxman), 325 F.3d 1168, 1174 (9th Cir. 2003) (holding that a debtor who wishes to obtain the discharge of his student loans must therefore meet the requirements of § 523(a)(8) as to the portion of the debt to be discharged before that portion of his or her debt can be discharged.)

48 Cox v. Heman Ins. Corp. of America (In re Cox), 338 F.3d 1238, 1242 (11th Cir. 2003) (holding partial discharge of a student loan indebtedness is possible upon the finding of undue hardship).

49 United States of America v. Brown (In re Brown), 18 B.R. 219 (Bankr. D. Kan. 1982).

50 Compare In re Skaggs, 196 B.R. at 865 with Heckathorn v. United States of America

ex rel. United States Dept. of Educ. (In re Heckathorn), 199 B.R. 188 (Bankr. N.D. Okla. 1996) and Griffin Corp. v. EDUSERV (In re Griffin), 197 B.R. 144 (Bankr. E.D. Okla. 1996).

51 Anderson v. Higher Educ. Assistance Found. ( In re Anderson), 215 B.R. 792, 795 (10th Cir. BAP 1998) aff'd. 179 F.3d 1253 (10th Cir. 1999).

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Circuit BAP52 decided an appeal from New Mexico in which the bankruptcy court had granted the

debtors a partial discharge of all but the principal amount of the student loan. The student loan creditors

appealed. The court reversed the bankruptcy court's finding that the second and third Brunner factors

had not been satisfied, held that the entire debt should have been discharged, but affirmed the partial

discharge because the debtors had not cross appealed. Although the BAP did not discuss partial

discharge, the court's affirming an order of partial discharge indicates possible support for the more

flexible point of view.

This Court finds the reasoning of decisions which hold that the Code permits partial discharge of

a student loan debt based upon undue hardship to be convincing and holds that a partial discharge is

permissible under section 523(a)(8). The words undue hardship suggest a matter of degree, not all or

nothing.53 The burden of payment of an entire student loan may constitute an undue hardship, but that

burden may become bearable if the obligation is reduced. The Sixth Circuit's Hornsby decision is a

leading case permitting partial discharge, although the Hornsby court placed more reliance on the

authority of section 105 than this Court views to be necessary.54 The United States District Court for

the Southern District of California when finding authority for partial discharge focused most of its analysis

on section 523. It rejected the contention that the plain reading of section 523 implies that only the

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

53 In re Heckathorn, 199 B.R. at 195.

54 In re Hornsby, 144 F.3d at 433. The 6th Circuit now requires a finding of undue hardship

with regard to the amount discharged. In re Miller, 377 F.3d at 622.

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entire debt can be discharged for undue hardship.55 It adopted the reasoning urged by the lender:

[T]hat a partial discharge is the most logical and appropriate path to take. . . because a full discharge would go against the Congressional intent of section 523(a)(8): [t]o use an all our nothing approach has the effect of rendering a large debt more likely of discharge, and rewarding irresponsible borrowing, neither of which can be presumed to be part of congressional intent. A vast body of authority supports this view.

These courts have generally concluded that the language of section 523(a)(8) is ambiguous and have therefore relied on congressional intent and the equitable powers of the bankruptcy courts to allow partial discharge. To this end, the Supreme Court has noted that when a little literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters, ... [then] [i]n such cases, the intention of the drafters, rather than the strict language, controls.

Because the language of section 523(a)(8) is ambiguous, the Court is persuaded by Hornsby, where the Sixth Circuit held that a bankruptcy court has the authority to partially discharge a debtor's student loan by virtue of 11 U.S.C. § 105(a). 56

A law review comment summarizes some of the arguments that section 523(a)(8) supports partial

discharge as follows:

 [T]he all-or-nothing rule would in some cases result in insufficient repayment, in others in insufficient discharge, regardless of the debtor's 
particular circumstances. . . . .

Conversely, a partial discharge would allow a court to protect educational lenders by requiring the debtor pay off at least a portion of the loan. At the same time, the debtor is alleviated from debt which the court foresees that she will not be able to repay in the future, assuming other options short of discharge are not feasible. As such, a partial discharge gives force to the dual purpose underpinning § 523(a)(8) and the undue hardship exception: protecting educational loans and providing for a fresh start.

55 Brown v. Great Lakes Higher Educ. Corp. (In re Brown), 239 B.R. 204, 210 (D.S. D. Cal. 1999).

56 Id. at 211-12.

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Furthermore, an analysis determining how much of a discharge is needed to relieve an undue hardship is consistent with the court's role in a closely evaluating the debtor's financial situation during a discharge proceeding. Thus, an argument buttressing the all our nothing interpretation because it is an easier to apply bright-line rule disintegrates when placed in the reality of this type of bankruptcy proceeding. . . .

Thus, a partial discharge is not only with the court's statutory power but also feasible for a bankruptcy court to determine.57

For the forgoing reasons, the Court finds that partial discharge is permitted by Code and is

consistent with the overall policies relating to student loan discharge. In this case, although it would

constitute to an undue hardship to except the entire student loan from discharge, the evidence before the

Court evidences the Debtor's present and future ability to pay a portion of the student loan debt while

maintaining a minimal standard of living for himself and his dependent. As found above, the Debtor's

obligation to pay principal and interest on at least part of the bank loan will be fully satisfied in the near

future. This will allow the Debtor to pay the amount budgeted for the bank loan, up to $143.26 monthly,

to the repayment of the student loan with no impact upon his standard of living. Further, given all the

circumstances, including the possibility that the Debtor will find some work in the near future, the Court

holds that the Debtor without undue hardship can make student loan payments of approximately $200

per month. Although it would constitute undue hardship for the Debtor to be required to make such

payments for the full 25 years proposed by ECMC pursuant to the ICRP, the Court holds that the

Debtor will be able to make payments for seven years without an undue hardship. The payment of

$204.26 per month for seven years will be sufficient to amortize a debt of $13,000 at the Ford Program

rate of 8.25%.

57 Brendan Hennessy, The Partial Discharge of Student Loans: Breaking Apart the All or Nothing Interpretation of 11 U.S.C. § 523(a)(8), 77 Temp. L. Rev. 71, 88–89 (2004) (citations omitted.).

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 The Court accordingly holds that Debtor's student loan obligation in excess of $13,000 is

discharged because of undue hardship within the meaning of section 523(a)(8). Debtor is not discharged

from his obligation to pay $13,000 with interest at 8.25%, commencing on the date judgment is entered.

 The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the

Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A

judgment based on this ruling will be entered on a separate document as required by Federal Rule of

Bankruptcy Procedure 9021 and the Federal Rule of Civil Procedure 58.

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