Summary:
After graduating from North Carolina Central Law School and passing the bar exam, Ms. Halatek found employment with the North Carolina Department of Health and Human Services, not as an attorney, but as a Project Analyst. Subsequently, Ms. Halatek was diagnosed with hyper mobile Ehlers-Danlos Syndrome (hEDS) and narcolepsy, which have impeded but not prevented her on-going employment. With over $114,000 in student loans, Ms. Halatek filed Chapter 7 and sought to a determination that such loans were an undue hardship and dischargable.
In applying the Brunner test for undue hardship, the bankruptcy court considered that, as a government employee, Ms. Halatek would be eligible for forgiveness of her student loans after paying under an income based repayment plan for 10 years. Further, the court looked at whether Ms. Halatek had sought to reduce her expenses to a “minimal standard of living”, finding that her gross income was more than five times the poverty threshold and that she has a “very comfortable lifestyle.” Accordingly, the student loans were not found to be an undue hardship.
Commentary:
The aspects that the court found made up “very comfortable lifestyle” that Ms. Halatek enjoys include wild extravagances such as daily contact lenses and going to movies. She also drives a 2015 Ford Escape, which seems to be characterized as similarly excessive. That Ms. Halatek also continues to work despite her medical issues and, in fact, has occassional side jobs to supplement her income, also weighed against her.
With the estimated payment of $362 a month, Ms. Halatek will pay the Department of Education just over $43,000 over the course of 10 years. At that point, her student loan balance (assuming a 7% interest rate) will have negatively amortized and the Department of Education will then forgive nearly $170,000 in loans.
It is difficult to see how this opinion encourages responsible behavior by debtors, as Ms. Halatek would be better off ceasing to work, obtaining disability (in part because she should not be able wear contact lenses), instead of seeking to better her circumstances. Instead, allowing the amount owed to the government, with a hope to eventual forgiveness is preferred.
While Brunner is certainly a strict test, it does not require this degree of illogical harshness.
For a copy of the opinion, please see:
Halatek v. U.S. Department of Education
For an estimate of the amortization of the student loans, please see:
Blog comments