South-Western Legal Studies in Business

No Partial Discharge of Student Loans Absent Hardship
Description Appeals court held that a bankruptcy court improperly allowed partial discharge of student loans. The debtor failed to show that she suffered hardship as she had non-essential expenses such as a cell phone and cable TV, and it was likely that her income would rise in the future.
Topic Bankruptcy
Key Words Chapter 7; Student Loans; Partial Discharge
C A S E   S U M M A R Y
Facts To help pay for college and graduate school, Miller took out student loans of almost $90,000. At the time she filed for bankruptcy she had paid only $368 toward the loans. Her income at the time she filed was $26,500 a year. The bankruptcy court granted Miller a partial discharge of the loans, dismissing $55,000 of what she owed. The Pennsylvania Higher Education Assistance Agency (PHEAA) appealed the discharge.

Reversed and remanded. A grant of partial discharge under the equity powers of the bankruptcy court, can be made only upon a showing of undue hardship with regard to the amount discharged. The factors taken into account are: 1) that the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself if forced to repay the loans, 2) that additional circumstances exist indicating that this condition is likely to persist, and 3) that the debtor has made good faith efforts to repay the loans. The discharge was improper here because Miller did not show undue hardship and did not show that her current income was likely to be the level that she would earn in the future. She made little effort to repay the loan while using non-essential services such as cell phone and cable television services, so partial discharge cannot be justified.

Citation Miller v. PHEAA, 377 F.3d 616 (6th Cir., 2004)

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