Student Loans Discharged; Court Rules That Wife’s Income Not Relevant in Determining Income for “Undue Hardship” Analysis

01 Apr Student Loans Discharged; Court Rules That Wife’s Income Not Relevant in Determining Income for “Undue Hardship” Analysis

A Minnesota bankruptcy court recently held that the income of a non-debtor wife should not be considered to increase the income of a chapter 7 debtor, for purposes of considering whether the husband’s student loans should be discharged as constituting an “undue hardship.” The court held that while the wife’s income could be considered to the extent that her income reduced the husband’s living expenses, her income should not be automatically added to the husband’s income, in evaluating his monthly income and expenses.

This case gives hope to chapter 7 debtors desiring to discharge burdensome student loans, whose personal income is meager, but who are married to spouses whose income substantially adds to their own. Income from spouses who are not responsible for the other spouses’ student loans cannot always be used to defeat efforts to discharge student loans, under the reasoning of this decision.

Halverson v. U.S. Department of Education, 2009 WL 396112 (Bky.D.Minn. Feb. 12, 2009), involved a 65-year-old married man who had accumulated nearly $300,000 in student loans. His after tax monthly income was $2,094.17; his wife’s after tax monthly income was $2,589.81. Interest alone on his student loans amounted to $1,962.79 per month. The husband and his non-debtor wife had signed an antenuptial agreement and had been married several years prior to his chapter 7 filing.

The court held that the non-debtor wife’s income was relevant only to the extent it reduced the debtor’s monthly living expenses, and that her income should not be used to increase the debtor’s monthly income. “It would be unfair to expect her to either pay all of Halverson’s personal expenses just so he can make payments on a loan he incurred years before the marriage, or to pay those loans for him,” said the court.

Additionally, the debtor’s monthly expense of $209.42 for tithing was not unreasonable, given his longstanding commitment to his church, where he had met his wife. The court also rejected the suggestion that the debtor should participate in an Income Contingent Repayment Plan (ICRP). The debtor would have been 90 years old at the conclusion of an ICRP; worse yet, the amount of the cancelled student loan indebtedness would then be considered taxable income.

The court concluded by ordering that the majority of the debtor’s student loans were discharged as constituting an undue hardship, but it found that the debtor’s remaining student loan obligation of $11,363.29 could be repaid by the debtor without undue hardship.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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