Student Loan Discharge Tragedy

Student loans are hard to get rid of; even in bankruptcy. Congress only allows a bankruptcy court to discharge student loan debt when not doing so causes undue hardship for the debtor or the dependents of the debtor. The discharge rule for student loans is short and is set out in 11 USC §523(a)(8). Undue hardship is the key and must be proved by the debtor in bankruptcy before discharge is allowed.

Robert Mosko found out just how tough the courts have made this discharge requirement when his case was reviewed by the United States Court of Appeals for the Fourth Circuit after his student loan creditor, Educational Credit Management Corporation (ECMC), appealed the discharge of his student loan debt. In a recent published opinion, Educational Credit Management v. Mosko, the Fourth Circuit re-analyzed the facts of the case and overruled both a bankruptcy judge and a federal district court judge who previously decided that repayment of over $120,000 in student loans would cause undue hardship to the Moskos or their family.

The appeals court relied on In re Brunner, a 1987 bankruptcy court opinion, for help in picking away at money spent over the Christmas and Thanksgiving holidays by the Mosko family. This case has been relied on by many courts to prevent discharge of student loans but was decided at a time when student loans could be easily discharged after five years if a good faith effort had been made to pay them. I have previously written about this test and how it works to prevent discharge.

I have already told the story of the family with too many children to get a student loan discharge in my earlier article “Attacking Families in Bankruptcy Court.” Now, is is clear that ECMC has taken its toll on revered holidays as well. No Thanksgiving turkey for student loan debtors and no Christmas gifts for the family if a discharge of student loans is considered. The ECMC Grinch must be paid before these frivolous expenditures can be permitted.

Mr. Mosko lost his job because he suffers from a recognized illness caused by severe obstructive sleep apnea, periodic limb movement (similar to restless leg syndrome), and chronic obstructive pulmonary disease. He can’t drive a car and has trouble staying awake when he is at work as a computer programmer. This was not enough for the appeals court. Mrs. Mosko is a school teacher and takes the summer off to care for her four year old son and her mother. This was an outrage for the court of appeals.

The Mosko family made off budget purchases for food at a discount warehouse store and made purchases at a well known consumer electronics chain. Most of these purchases were made in November and December of the year before bankruptcy. The appeals court complained about these purchases and used them to support its contention that the Moskos failed to make a good faith effort to pay their student loans.

The moral of this story is sad to tell. Student loan debtors in the Fourth Circuit are not permitted to care for their family members, young or old, and they must avoid spending more for food or gifts at holidays than their bankruptcy budget allows. If a debtor commits these acts and carries the burden of large student loans, ECMC will be allowed to collect their pound of flesh for the rest of the debtor’s life.

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