Chief Judge Roger L. Efremsky • Clerk of Court Edward Emmons

Memorandum Decision re Burden of Proof re Dischargeability of Student Loans

Wednesday, November 24, 1999
Original Filed
November 24, 1999




In re

No. No. 99-31577HDM

Chapter 7




A.P. No. 99-3201DM






Trial was held in this student loan dischargeability action on November 3, 1999. Plaintiff Robert L. Ferris ("Robert"), an attorney admitted to practice before this court, appeared in propria persona and on behalf of his wife, Regina E. Ferris ("Regina"), who did not appear personally. Defendant Texas Guaranteed Student Loan Corporation ("TGSLC") appeared and was represented by Marcia E. Gerston, Esq.; Defendant Educational Credit Management Corporation ("ECMC") appeared and was represented by Mirian Hiser, Esq.

Having considered the testimony and evidence presented, as well as the arguments of counsel, the court determines that the student loans which are the subject of this action may not be discharged under 11 U.S.C. § 523(a)(8).


Robert is obligated to TGSLC on a consolidated Smart Loan which had a principal balance as of the date of trial of $49,074.39, with a monthly payment obligation of $374.24.

Regina is obligated to ECMC on a consolidated loan which had a principal balance as of the date of trial of $42,502.74, with a monthly payment obligation of $356.96.(2)

Robert is a 49 year old attorney and a Regina is a 46 year old graduate of law school who has not become a member of any bar. Robert and Regina have an 18 year old son, Marc, from Regina's prior marriage and a 10 year old son; Robert has a son from a prior marriage, who lives in Oregon with his mother.

For seven years Robert has practiced law in San Francisco as an employee of another practitioner. As of the date of bankruptcy (May 11, 1999) his average gross monthly wages were $3,759; his average net monthly wages were $2,879. In at least one prior year he earned more than his current annual income; he has also received a modest bonus on one occasion. Nevertheless, for purposes of this decision, the amounts set forth above are his gross and net monthly wages. Robert also maintains a private practice as a sole practitioner for some cases. Over the last three years he has produced gross receipts that have averaged just over $700 per month. After consideration of taxes, etc., his net self-employed income averages $458 per month.

Regina works as a substitute teacher and earns average gross wages of $162 a month. The average combined monthly net income of Robert and Regina is $3,535.

Robert and Regina have current monthly expenses of $4,518, consisting of $4,306 as set forth in their Second Amended Schedule J filed July 30, 1999, plus an additional $50 per month for increased rent of their apartment in Burlingame, California, $39.90 for additional care of Regina's mother, Mrs. Luna, $47 in increased health insurance expenses, and $75 for Marc's college expenses. The expenses claimed by Robert and Regina include $350 a month for charitable contributions paid as a tithe to Robert's church. Robert is not prohibited from worshiping at a local chapel of his church if he does not tithe but he is prohibited from entering portions of his church's temple and from participating in certain practices of the church if he does not tithe.


The parties are in agreement that the standards for determining dischargeability under 11 U.S.C. § 523(a)(8) are set forth in United Student Aid Funds, Inc. v. Pena, 155 F.3d 1108 (9th Cir. 1998), namely (1) whether the debtor is able to pay a student loan while maintaining a minimum standard of living without undue hardship; (2) whether the debtor's financial condition is likely to persist; and (3) whether the debtor has made a good faith effort to repay the loan. The debtors have the burden of proving each element. Peel v. Sallie Mae Servicing (In re Peel), 240 B.R. 387, 392 (Bankr. N.D. Cal. 1999); Shankwiler v. National Student Loan Marketing (In re Shankwiler), 208 B.R. 701, 705 (Bankr. C.D. Cal. 1997). TGSLC and ECMC do not question Regina's and Robert's good faith, and thus this case turns on whether the first two tests of Pena have been met. If one of the two remaining requirements of the test is not satisfied, the court's inquiry must end with a determination of nondischargeability. Shankwiler, 208 B.R. at 705.

As to the minimum standard of living, the court accepts as reasonable the expenses being borne by Robert and Regina with the exception of the monthly tithing.(3) Their choice to live in Burlingame compared to some other area is not unreasonable, nor are their routine household expenses for utilities, food, clothing, personal expenses, etc. excessive. Their current childcare expenses and the cost of assisting Regina's mother, Mrs. Luna, are also reasonable and necessary.

While Robert has established that he is not capable of earning any significant amount in addition to that as set forth above, Regina has failed completely to carry her burden to establish that she is unable to earn more than she does. Her lifestyle choices are her own, but she cannot meet the first or second prong of Pena without demonstrating that she is incapable of earning more than she currently is and that that is not likely to change. She has done neither. Her husband's argument that another paralegal in his office earns $15 per hour, and therefore Regina could not earn more than that, fails as a matter of proof. There is no evidence upon which the court could make a finding that Regina's situation is likely to continue, or that her financial situation is not the result of her (and her husband's) own lifestyle choices. Accordingly, Regina has failed to demonstrate a basis to declare her debt to ECMC nondischargeable.

As noted, Robert has carried his burden as to the extent of his present earning capacity and its likely continuation into the future without change. However, the court is unable to separate the financial affairs of Robert and Regina to determine whether or not Robert's paying TGSLC would be an undue hardship brought about by circumstances not of his own making and not likely to change in the future. Since Regina's debts cannot be discharged, the monthly obligations to ECMC must be considered a necessary expense even though Robert has no liability for that debt. Nevertheless, Regina's failure to prove her earning capacity makes it impossible for the court to determine whether the family expenses justify discharging Robert's obligations in whole or in part. Since the court looks upon Robert and Regina as a family unit, it is necessary, therefore, to deny discharge of Robert's obligations as well. Stated otherwise, the court will not use the nondischargeability of Regina's obligations as a basis for determining that Robert's obligations may be discharged. Had Regina come forth with proof to establish the dischargeability of her obligation to ECMC, the court might have had to decide whether some portion of Robert's obligation to TGSLC could be discharged.(4) Because she did not, Robert's case must fail as well.


Counsel for TGSLC and ECMC should submit one form of judgment consistent with this decision, declaring all obligations of Robert and Regina nondischargeable under 11 U.S.C. § 523(a)(8), and awarding costs to defendants. Counsel should comply with B.L.R. 9021-1 and 9022-1.

Dated: November 24, 1999

Dennis Montali
United States Bankruptcy Judge

1. The following discussion constitutes the court's findings of fact and conclusions of law. Fed. R. Bankr. P. 7052(a).

2. Robert also owes TGSLC a "Bar Study Loan" which he does not seek to discharge. Regina also owes ECMC a "Perkins Loan" which she does not seek to discharge.

3. Because the court will not discharge Robert's debt to TGSLC for the reasons which follow, it need not decide whether tithing is a necessary expense as a matter of law. However, Robert has not established that tithing is required as a condition of his worship; rather, the contrary has been shown. Robert's decision to tithe in order that he may participate in certain procedures and practices of his church would not likely justify discharging his student loans on account of this voluntary practice.

4. Had that been the case the court would have been forced to decide whether to follow United Student Aid Fund, Inc. v. Taylor (In re Taylor) 223 B.R. 747 (9th Cir. BAP 1998) (bankruptcy court may not partially discharge a student loan), or Brown v. Great Lakes Higher Education Corp., et al. (In re Brown) 239 B.R. 204 (S.D. Cal. 1999) (contra).