An Airline Pilot Tries to Get His Student Loans Discharge . . . and Loses
Student loans are a hot topic in the bankruptcy world right now. With reports indicating that student loan debt has reached staggering numbers, and is hampering graduates’ abilities to get started with life and to build wealth, its not at all surprising. There seems to be some discussion about student loan relief legislation (more than just the repayment alternatives that have been created), but that will have to wait until after the election season. In the meantime, it seems that more and more bankruptcy debtors are attempting to have their student loans discharged as part of their bankruptcy case. The standards are pretty stringent around the country, so people have to really think hard before spending the time and resources on this kind of litigation. Another issue is that bad facts make for bad caselaw, and this case might be one of those.
This case, which comes out of the Bankruptcy Court for the Northern District of Georgia. The debtor, a 46 year old single man with no dependents or no known illnesses or disabilities, filed for chapter 7 bankruptcy in February 2015. As part of his debts, the debtor had student loan debts that originated in 2001, when he pursued and obtained an associates degree in Professional Pilot Technologies. The debtor also took out some more student loans in 2006 and 2007 when he pursued a bachelor’s degree in Professional Aeronautics. In total, the debtor’s student loans, at the time of trial, totaled $137,299.44. Notably, the debtor didn’t make any payments towards these loans, nor did he try to enroll in any alternative repayment plans.
After graduating, the debtor worked as a flight instructor until 2011. In 2011, he was hired as a prop plane pilot, making $18 an hour. In 2014, the debtor was hired as a first officer. At the time he filed his bankruptcy case, the debtor had income of about $1300.00 per month (plus contributions from his father of about $300 – $600 per month), and expenses of about $1800.00 per month. In short order after the debtor filed his bankruptcy case, he had a number of positive events take place. His income nearly doubled (from $23 an hour to $42 an hour), he paid off his car, and he moved to a more expensive apartment. After these changes post-filing, the debtor’s monthly net income was about $3,300.00 a month.
This court adopts the undue hardship test, which looks at (1) repayment of the loans would cause the debtor to be unable to maintain a minimal standard of living; (2) additional circumstances exist that indicate the debtor’s circumstances would persist for a significant portion of time of the repayment period; and (3) the debtor has made good faith efforts to repay the loans. With respect to the first prong, the court found that, even since the debtor’s bankruptcy filing, his standard of living has improved. He has more income per month, he moved into a more expensive apartment, and his car was paid off. Thus, there is no indication that repayment of the loans would cause him to lead a below minimal standard lifestyle. With respect to the second standard, the court found no circumstances to indicate that the debtor’s state of affairs would continue for a significant period of time. Again, the debtor had received a pay increase, and would continue to see pay increases over time. (The debtor argued that, because of his age, he likely would not be able to become a captain for a major commercial airline, but the court indicated that this is not a circumstance that causes undue hardship, as he can make about $100,000 per year after ten years at his current position.) Finally, with respect to the final element of whether the debtor made a good faith effort to repay the loans, the court found that he did not since he never made a payment towards them (even after his recent pay increase), nor did he even attempt some alternative repayment option. Cleveland v. ECMC, et al (In re Cleveland, 15-52571-WLH), 15-5237-WLH (Bankr. N. D. Ga, Sept. 2016).
The student loan burden is heavy for many. Not only do the regular payments take a big chunk of monies per month if you can find work, but it also defers your ability to do things like buy a new car or home for many years. Notwithstanding, the test in discharging bankruptcy is not whether the student loans prevents you from reaching your American Dream, but rather (as you can see) whether repayment makes living your life almost impossible. People should be cautious about bringing cases to discharge student loans because bad facts, like the ones in this case, end up in bad case law that control future cases.