Lynn Hock is a 72-year old attorney with an advanced tax degree. Her husband is a disabled veteran. Their total household income, derived from Social Security, Veteran's disability, and retirement, is nearly $7,000 a month, but under the Means Test, the Current Monthly Income is only $520 a month. Ms. Hock is a cancer survivor, the effects of which she is still suffering from following her diagnosis and treatment in 2016 and has been unable to continue her prior employment at Merrill Lynch. The Hocks relocated from California to near Charlotte in 2018, purchasing a $375,000 home on Lake Norman.
Between 2013and 2014, Ms. Hock took out more than $100,000 in Parent Plus loans for her son, who is not liable for the loans. Ms. Hock obtained a deferral of payments for those loans while her son remains enrolled in college, and only paid $2,774.52 towards these loans, which now total more than $140,000. The standard 10-year repayment for these loans would be approximately $1,680 a month. As these are Parent Plus Loans, Ms. Hock would need to consolidate those loans in order to qualify for an Income Driven Repayment plan, but would then have a monthly payment of $0.00. Additionally, Ms. Hock may qualify for a Total and Permanent Disability (TPD) administrative discharge of her student loans, but only made a minimal attempt at obtaining the necessary certification from her primary care physician, who was unwilling after a single appointment to sign such. (But did not foreclose later certifying that she would be unable to maintain substantial gainful employment for the next 5 years.)
Ms. Hock filed Chapter 7 bankruptcy in 2018 and brought an adversary proceeding against the U.S. Education Department ("USED") arguing that the student loans imposed an undue hardship and should be discharged.
The bankruptcy court applied the three part Brunner Test :
- Past: Has the Debtor made a good faith effort to repay the loans?
Ms. Hock argued that she had, by making all payments contractually due, made the necessary good faith efforts under the Brunner test. The bankruptcy court, however, noted that she had actually only made 2 payments on the loans and immediately sought a voluntary deferral of payment while her son remained in school.
Further, while the payments under an ICR are not "dispositive" the court found her cursory dismissal of the $0 a month ICR as indicative of her lack of good faith. Her further failure to pursue a TPD was also evidence of the lack of good faith.
2. Present: Can the Debtor maintain, based on her current income and expenses, a ‘minimal’ standard of living for herself and her dependents if forced to repay the loans?
Ms. Hock argued that a determination of her present ability to pay should be based on her CMI. The bankruptcy court easily distinguished the CMI used for determining the general availability of a bankruptcy discharge, from the current income used in an undue hardship evaluation, with the latter including all sources of income. Further, the bankruptcy court dissected the Hock's budget, finding that with income of $7,000 month, Ms. Hock could, with modest reduction in expenses from their "upper income standard", easily afford the $1680 a month student loan payment.
3. Future: Do 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?
While Ms. Hock is 70-years old and an IDR payment would persist until she was 93, the bankruptcy court held that age alone was insufficient for meeting the future-looking "certainty of hopelessness" factor, particularly as none of the nearly $7,000 a month of household income depends of the ability of either spouse to work.
This case was not a close decision for the bankruptcy court, nor, given the brutal criteria of Brunner, particularly with the even more vicious "certainly of hopelessness" standard imposed by the 4th Circuit in Frushour, should Hock have attempted to have her student loans discharged.
What is disappointing, however, is the degree to which the cruel standards for student loan discharge seemed to infect the tone of this decision. Despite surviving thyroid cancer and remaining debilitated, both physically and psychologically from that ordeal, there is not a word of compassion for Ms. Hock in this opinion. Even while holding that the student loans were nondischargeable, it would not have imposed an undue hardship to offer a minimal kindness.
Additionally, this is another example of USED resisting a bankruptcy discharge, apparently preferring that a borrower obtain a TPD discharge instead. As there are no longer tax consequences from a TPD discharge, this is just as good for the borrower, but there is not logical reason why USED fights the same outcome under a bankruptcy banner.
That said, there is little to explain why Ms. Hock and her bankruptcy counsel did little to pursue either a Zero Dollar IDR or an administrative discharge, as both would have been more successful and far more cost effective.
For a copy of the opinion, please click here: