Sue Reagan is 60-years old and lives in a mobile home on rented land. She has a part-time job but lives near or below the poverty line. She took out student loans to obtain a bachelor's degree in administration of justice and a master's degree in criminology, but that was long ago.
Unable to pay back her student loans under a standard ten-year repayment plan, Reagan signed up for an income-based repayment plan (IBRP). Her income is so low, however--$1,286 a month--that her monthly payments are zero dollars.
Reagan filed for bankruptcy and brought an adversary action to discharge her student loans. She argued that her student loans constituted an undue hardship and that she could not maintain a minimal standard of living and pay back those loans.
Educational Credit Management Corporation, her creditor, filed a motion for summary judgment and asked the bankruptcy court to dismiss Reagan's case without a trial. ECMC argued that since Reagan's monthly payments were zero dollars, she could not reasonably argue that her student loans constituted an undue hardship or that her loans forced her below a minimal standard of living.
But Bankruptcy Judge Gregory Taddonio disagreed with ECMC and refused to dismiss Reagan's case. In Judge Taddonio's view, it did not matter which debt drove Reagan to the edge of poverty. "If she finds herself financially underwater, the question of which obligation pushed her below the surface matters little. To a camel whose back is already broken, any straw in his pack is unwelcome."
Judge Taddonio looked at Reagan's financial information and noted that her expenses were $119 more than her income, which was less than $1,300 a month. Moreover, her expenses were reasonable--mostly going for basic necessities. Judge Taddonio said he could not identify any expenses that could be trimmed.
So Judge Taddonio allowed Sue Reagan's adversary proceeding to go forward. Will she ultimately prevail?
Who knows? ECMC's motion to dismiss was merely the first of many arguments ECMC will make to defeat Reagan's attempt to shed her student loans. And ECMC has unlimited resources. It can hound Reagan for years right up to the Third Circuit Court of Appeals.
But Reagan's initial victory is heartening, a sign perhaps that the federal bankruptcy judges have begun to acknowledge that the federal student loan program has destroyed the lives of millions of people, most of whom deserve bankruptcy relief.