The Nightingale case: A 67-year-old retired teacher with chronic health problems seeks to discharge her student loans in bankruptcy
Alice Nightingale took out about $48,000 in student loans when she was in her late 50s to obtain a master's degree that would allow her to obtain a job as a public school teacher. Due to serious health issues, she went on disability leave in 2012 and received monthly disability benefits until she retired in June of 2014. After retiring, she lived on an income of $1,645 a month, consisting of Social Security income and state retirement benefits.
In June 2013, Nightingale filed for bankruptcy and received a discharge. She then filed an adversary complaint in the bankruptcy court to discharge her student loans. North Carolina State Education Assistance Authority (NCSEAA), Nightingale's student-loan creditor, filed for summary judgment in 2014, arguing she was eligible for a long-term income-based repayment plan that would obligate her to pay zero on her student loans. Since paying nothing would not be an undue hardship on her, NCSEAA maintained, Nightingale was not entitled to a bankruptcy discharge.
Fortunately for Nightingale, Judge Benjamin A. Kahn, a North Carolina bankruptcy judge, denied NCSEAA's motion, pointing out that the creditor's reasoning would mean that the people who are most worthy of bankruptcy relief could never get it. Furthermore, the judge pointed out,"Participation in such a 'repayment' program in which [Nightingale's] monthly payment is zero is not repayment at all; rather, the loan continues to accrue interest on the principal without any repayment. At the end of the twenty-five year period, [Nightingale's] loans may be forgiven, but that amount, on which interest has been accruing, may become taxable as income."
The case then went to trial, and Judge Kahn entered his decision on January 16, 2016. The judge ruled that Nightingale met two prongs of the three-pronged Brunner test. First, she could not pay back her loans and maintain a minimal standard of living. Indeed, Judge Kahn ruled, "the unrebutted evidence demonstrated that [Nightingale] is currently incapable of making any material payment on the debts while maintaining a minimal standard of living."
Brunner's second prong required Nightingale to show that she had made good faith efforts to pay back her loan. Judge Kahn ruled that she met this prong as well. Nightingale had paid about $11,000 on he loans and was currently making income-based payments of $133 a month.
To obtain a bankruptcy discharge of her student loan, Nightingale was also required to pass the third-prong of the Brunner test by showing that exceptional circumstances prevented her from paying back her student loans in the future. In other words, she was obligated to show a "certainty of hopelessness" regarding her long-term financial circumstances.
Judge Kahn admitted that Nightingale's testimony supported a finding of exceptional circumstances. "Nightingale is elderly, has no job prospect in the field for which she was educated, lives on a meager budget, relies upon friends and family to provide shelter, and testified that she has additional medical disabilities that prevent her from returning to gainful employment." In fact, NCSEAA agreed that Nightingale's current situation was dire "and that she is barely able to remain healthy and in affordable housing, much less hold down a job."
But Judge Kahn ruled that Nightingale's own testimony about her chronic health problems was insufficient to show long-term financial distress without corroborating evidence. The judge indicated that corroborating evidence in the form of a letter from Nightingale's doctor about her health status would probably be sufficient and gave her 14 days to produce such a letter or other corroborating evidence of her health problems.
What is the significance of the Nightingale decision?
The Nightingale decision is significant for two reasons. First, Judge Benjamin Kahn flatly rejected a student-loan creditor's argument that Nightingale was ineligible for bankruptcy relief because she could enroll in a long-term income-based repayment plan that would require her to pay nothing due to her limited income. Had Judge Kahn adopted NCSEAA's argument, no student-loan debtor would be eligible for bankruptcy relief, at least not in Judge Kahn's court.
Second, the Nightingale decision demonstrates the difficulty distressed student loan debtors have when trying to discharge student loans in bankruptcy. First, Nightingale had to defeat NCSEAA's summary judgment motion, which took months to resolve. Second, she was required to round up corroborating evidence of her chronic health problems.
In many circumstances, it is entirely appropriate for a bankruptcy judge to require a student-loan debtor to provide proof of chronic health issues. As Judge Kahn correctly observed, when health problems are not obvious, corroborating evidence is necessary to avoid the possibility of fabrication and fraud.
But Alice Nightingale is 67 years old! She went on disability leave until she retired in 2014 and now lives on an income of only $1645 a month. Why was it necessary for her to provide corroborating evidence that chronic health issues prevent her from increasing her income in the future?
I don't mean to be too hard on Judge Kahn. He was obviously sympathetic to Nightingale's situation. After all, he denied NCSEAA's motion for summary judgment, and he gave Nightingale time to provide supporting evidence of her chronic health problems. I feel sure the judge will ultimately discharge Nightingale's student-loan debt.
Nevertheless, when an elderly person living on a small pension and a Social Security check comes into bankruptcy court to discharge her student loans, I believe she is entitled to a speedy discharge. Unfortunately for Alice Nightingale, her adversary proceeding lasted more than two years. And her case may still not be behind her. If Judge Kahn discharges her student-loan debt, as seems likely, NCSEAA may appeal.
Nightingale v. North Carolina State Educ. Assistance Authority, 543 B.R. 538 (Bankr. M.D.N.C. 2016) (ruling requiring Nightingale to provide corroborating evidence of her chronic health problems).
Nightingale v. North Carolina State Educ. Assistance Authority, 529 B.R. 641 (Bankr. M.D.N.C. 2015) (ruling on NCSEAA's motion for summary judgment).