The Educational Credit Management Corporation (ECMC) appeals from the judgment of the bankruptcy court, later affirmed by the Bankruptcy Appellate Panel (BAP), which discharged the student loan debt of Michele D. Walker (Walker) under the “undue hardship” provision of Bankruptcy Code Section 523(a)(8).
Section 523(a)(8) of the Bankruptcy Code provides that debts from educational loans “made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit,” may not be discharged unless “excepting such debt from discharge . . . will impose an undue hardship on the debtor and the debtor’s dependents.” The debtor has the burden of establishing undue hardship by a preponderance of the evidence. To assess whether the debtor has met this burden we apply a totality-of-circumstances test, under which we consider (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the reasonable living expenses of the debtor and her dependents; and (3) any other relevant facts and circumstances surrounding the particular bankruptcy case.
ECMC raises three claims on appeal. First, it contends that the bankruptcy court erred in considering Walker’s financial circumstances at the time this Section 523(8) proceeding commenced in 2008. In its view, the undue hardship analysis must be made on the evidence as it stood at the time of initial Chapter 7 discharge in 2004. Second, it claims that Walker failed to prove undue hardship by a preponderance of the evidence and that the bankruptcy court overcame gaps in the record by making impermissible inferences about Walker’s financial resources and expenses. Third, it claims that the bankruptcy court erred in finding that Walker’s household expenses were “modest and commensurate” with a minimal standard of living. It contends that the Walkers’ expenses are unreasonable as a matter of law so as to preclude an undue hardship determination.
The Court of Appeals noted that this is not a case in which a debtor willfully chose to avoid payments that could have been made or was underemployed or unemployed for no discernible reason.
Caring for her five young children has become Walker’s full-time occupation. Both the bankruptcy court and the BAP determined that it was unlikely that Walker would be able to work until the older twins reached the age of majority, if at all, and noted that the staleness of her education at that time would limit her employment options.
The Court agreed that, in light of the overall circumstances of this case, excepting Walker’s student loan debt from discharge would impose an undue hardship on her.
Affirmed.