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Murray v. ECMC

More hope for student debtors out of the United States Bankruptcy Court for the District of Kansas.   There is a popular misconception that unless someone is living below the poverty line and suffering from serious medical issues, there is no way to meet the exacting “Brunner” standard for undue hardship.  Bankruptcy Judge Dale Somers has joined the growing retinue of judges who say this simply is not true.

In Murray v. ECMC, 563 B.R. 52 (Bankr. D. Kan. 2016), married couple Alan and Catherine Murray sought to discharge more than $300,000 in federal student debt.  The couple had no children, and suffered from no physical or mental impairments.  The couple’s combined monthly income was $6,100—hardly poverty in rural Kansas.  And the couple reported that their reasonable monthly expenses were $5,060—which the court found a little inflated, and thus reduced to $4,442, leaving $1,658 as the debtor’s estimated disposable income.

The court found that under the standard repayment plan, debtors would be required to pay $3,945.16 per month to satisfy the debt in 10 years.  Under an income driven repayment plan, the debtors would pay either $605.20 or $907.80 per month.

The creditor argued that the debtors could surely meet their obligations under an income driven repayment plan.  The court, however, found that it was unreasonable to force debtors into the income driven repayment plan, since such a plan was not even capable of repaying the interest in full, and thus the balance would continue to grow rather than decrease.  Further, the court rightly noted that under the income driven plan, the remaining debt would be forgiven in 25 years, but would come with serious tax consequences.

The court was otherwise persuaded that debtors had met the exacting Brunner prongs, and that despite earning almost a six-figure income, the student debt burden was simply untenable, and thus discharged all interest that had accrued on the debt.  Thus, debtors were relieved of more than $200,000 in interest debt, and are now only required to pay the original principal of $77,524.

The case is fascinating for a variety of reasons, including the income of the debtors (almost $100,000 a year), the court’s rejection of an income driven repayment plan, and the court’s finding that the tax consequences of any administrative loan forgiveness was necessarily part of the “undue hardship” equation.

Student debtors take note—Judge Somers says you don’t have to be disabled or poverty-stricken to get relief in his court.