Jill Stevenson enrolled at Thomas M. Cooley Law School in 2002, but she never graduated. Although she completed 87 of the 90 credit hours she needed to get a law degree, she was academically dismissed because of her low GPA. Subsequently, Stevenson obtained work as a paralegal in New Mexico.
Stevenson borrowed $90,000 to fund her law studies.
In 2006, she enrolled in an income-based repayment plan (IBRP), and she made
regular payments under that plan for 14 years. Nevertheless, due to accruing
interest, her loan balance grew to $116,000.
In 2019, Stevenson filed an adversary proceeding to
discharge her student loans in bankruptcy. At the time of filing, her monthly
payment under the IBRP was $259.
Educational Credit Management (ECMC) opposed
Stevenson’s plea for bankruptcy relief. ECMC sent
Stevenson a formal request for admission asking her to admit that she could
make her IBRP monthly payments and still maintain a minimal standard of living.
Initially, Stevenson admitted that she could maintain a minimal standard of living while making monthly payments of $259. She argued, however, that her loan balance was growing and she would face a substantial tax burden when her IBRP obligations ended 11 years in the future because the forgiven debt would be taxable to her as income.
She maintained this tax liability constituted an undue
hardship in itself and entitled her to discharge her student debt in bankruptcy.
Later, Stevenson moved to revise her answer to ECMC’s
request for admission to state that her expenses exceeded her income even if
she was relieved of her student-loan debt.
ECMC asked Bankruptcy Judge David Thuma to dismiss Stevenson's case based on her admission that she could make her IBRP payments and
still maintain a minimum standard of living. ECMC also objected to Stevenson’s
attempt to amend her answer to its request for admission.
This is how Judge Thuma ruled. First, he said Stevenson
was entitled to change her answer to ECMC’s request for admission. Second, he
ruled that there was a factual dispute about whether Stevenson would suffer undue hardship if forced to repay her loans.
However, Judge Thuma ruled that Stevenson was not
entitled to discharge her student loans in bankruptcy simply because she could
face tax consequences when she completed her IBRP. “If borrowers can pay some amount each month," Judge Thuma reasoned, "it
would shortchange the government to discharge the debt before the end of the
Nevertheless, Judge Thuma added, the tax bill that
Stevenson potentially faced in 11 years could be considered when determining
whether it would be an undue burden to require Stevenson to repay her student
Stevenson v. ECMC is significant for two reasons. First,
the case demonstrates ECMC’s chief litigation strategy in student-loan bankruptcy
cases. ECMC almost always argues that it
is never an undue hardship for a
student borrower to make monthly payments under an IBRP. In other words, from ECMC’s
perspective, no one is entitled to
discharge student loans in bankruptcy because income-based payments never constitute
an undue hardship.
Second, and more disturbing, Judge Thuma took note
of the fact that Stevenson’s elderly parents own valuable real estate—a strip
mall. “If [Stevenson’s] financial situation changes (e.g., if she receives an
inheritance), she might be able to repay her student loans."
Ms. Stevenson is 53 years old, and her parents are in
their 80s. Unless her loans are discharged in Judge Thuma’s bankruptcy court,
she will be required to make IBRP payments for 11 more years only to see her loan balance