Summary:
Leigh Raynor filed for Chapter 13 bankruptcy on April 11, 2019, and, after receiving a general discharge of debts on July 30, 2024, commenced a Student Loan Adversary Proceeding to discharge her student loan debts, totaling $80,408.84 as an "undue hardship" under 11 U.S.C. § 523(a)(8). The student loans were incurred between 1999 and 2002 for undergraduate and graduate education, but Raynor did not enter the professional field associated with her graduate degree.
The bankruptcy court evaluated Raynor's claim using the Brunner Test, a three-pronged standard for determining "undue hardship":
Minimal Standard of Living:
Ms. Raynor proved that, given her limited Social Security income and lack of other financial resources, she could not maintain a minimal standard of living while repaying the loans.
Persisting Hardship:
At age 76, with ailing health and caregiving responsibilities for her husband, the court found Ms. Raynor's financial hardship would persist, making future repayment unlikely.
Good Faith Efforts to Repay:
The court ruled Ms. Raynor failed this prong, citing insufficient attempts to maximize income or repay the loans, finding that:
- Limited effort to secure higher-paying work in her field.
- Diversion of resources, such as $54,000 paid toward a family loan secured by property benefiting her husband.
- Lack of evidence supporting diligent efforts to negotiate or consolidate the debt.
Conclusion:
While Raynor met the first two prongs of the Brunner Test, the court found that her failure to satisfy the third prong of the Brunner Test rendered her student loan debts nondischargeable.
Commentary:
Even though this student loan is guaranteed by the NC Education Assistance Authority and accordingly was not directly subject to the 2022 Student Loan Adversary Proceeding (SLAP) guidance from the Department of Judgment, the motion for a consent judgment between Ms. Raynor and ECMC finding a undue hardship (presumably with the full consent of the review and consent of the NCEAA) was rejected by the bankruptcy court. Perhaps the parties could have stipulated more clearly that the attempted settlement was agreed to with consideration of not only avoiding the costs of litigation, including discovery as mentioned below, or the expenses and futility of continued collection efforts (which creditors are often required to make or unable to stop) from a 72-year old borrower with income, which being insufficient to meet a minimal standard of living almost certainly would be below any amounts subject to garnishment. Nondischargeable does not equal paid.
Having not listened to the recording of the trial, it is not clear what evidence Ms. Raynor may have presented regarding her good faith efforts to repay. Speculating, Ms. Raynor might have been able to present evidence, including obtained through discovery and requests for admissions from ECMC and the NCEAA, that might have shown more of her diligent efforts to repay, especially to the extent that her student loan servicers may have improperly diverted her from repayment plans to forbearances.
Further, it appears that Ms. Raynor's more than 60 months in Chapter 13, which through her good faith efforts (a requirement of the confirmation of her plan) she did pay ECMC nearly $2,500, were either not raised or considered by the court regarding her diligent efforts.
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