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 BAP___Piccinino_v__U_S__Dept__of_Education.pdf​

In Piccinino v. U.S. Dep’t of Educ. (In re Piccinino), No. 17-6022 (8th Cir. BAP Dec. 7, 2017), the BAP affirmed the bankruptcy court’s finding that repayment of student loans would not constitute undue hardship because, among other reasons, the debtor’s underemployment was partly self-imposed and debtor could afford income-based repayments of $0.00 per month. 

Student loans can be discharged in bankruptcy only when repayment would constitute “undue hardship,” which is not defined by the Code. 11 U.S.C. § 523(a)(8). The burden of proof is on the debtor. In the Eighth Circuit, undue hardship is determined under a flexible “totality of the circumstances” test that mainly considers: (1) the debtor’s past, present, and reasonably reliable future financial resources; (2) a calculation of the debtor’s reasonably necessary living expenses; and (3) any other relevant facts and circumstances. Undue hardship is reviewed de novo.

 (1) Past, Present, and Reasonably Reliable Future Financial Resources

The BAP found that debtor’s underemployment was partly self-imposed. The debtor decided not to work for two years and offered no evidence she considered full-time employment after 2012. The debtor also failed to provide evidence for her argument that she was unable to find full-time employment that would pay enough for childcare. Importantly, childcare needs would naturally decrease as her child gets older. In light of the “evidence of her age, health, skill sets and abilities,” the debtor failed to meet her burden regarding future financial resources.

 (2) Reasonably Necessary Living Expenses

The debtor’s schedules showed negative net monthly income based on monthly “rent” of $500 to her mother. However, the debtor paid rent to her mother only when she could. The BAP also found that the debtor’s pre-bankruptcy request for a loan modification reflected her belief she could make some level of payment.  

 (3) Other Relevant Facts and Circumstances

Regarding “other relevant facts and circumstances,” the debtor’s “employment decisions and her perception of future employment prospects reflect elements of self-imposed conditions which weigh against dischargeability;” the debtor was approved to participate in an Income Driven Repayment Plan with payments of $0.00 and she had sufficient funds to make those payments; and the debtor’s filing was for the admitted purpose of discharging her student loans constituting 98% of her total debt.