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In Re: Richard Dean Carter v. United States Department of Education

November 8, 2011


Appeal from the United States Bankruptcy Court for the District of Oregon Honorable Trish M. Brown, Bankruptcy Judge, Presiding Bk. No. 10-30555-tmb7 Adv. No. 10-03136-tmb



Argued and Submitted on October 20, 2011 at Portland, Oregon

Filed - November 8, 2011

Before: Clarkson*fn2 , Pappas and Jury, Bankruptcy Judges.

This appeal arises from the bankruptcy court's judgment denying Chapter 7 debtor and appellant Richard Carter's ("Carter" or "Debtor") request that his student loans, in the current amount of approximately $26,000.00, be discharged pursuant to 11 U.S.C. §523(a)(8).*fn3

The Debtor has a compelling personal story consisting of several decades of substance abuse, related crimes and punishments, the eventual recovery from that dark abyss, and his re-entry as a productive member of mainstream society. For the past seven years, the Debtor has been steadily employed and currently holds a position as a service station manager at a gas station in the Portland, Oregon area.

Filing his chapter 7 petition on January 26, 2010, and thereafter commencing his adversary proceeding, the Debtor asserted that, based upon his current income and living expenses, he was unable to pay his student loans and maintain a minimal standard of living. After trial, and with sympathetic acknowledgment of the Debtor's destructive past and remarkable recovery, the bankruptcy court determined that the Debtor had a current ability to repay his student loans under the government administered Income Contingent Repayment Plan and at the same time continue to maintain a minimal standard of living. Thus, the bankruptcy court concluded that the Debtor's student loans could not be discharged. For the reasons discussed below, we AFFIRM the bankruptcy court's judgment.


2 a. Pre-Bankruptcy Events

Carter is fifty years old and has no dependents. In 1991, 4 Carter graduated from ITT Technical Institute in Portland, Oregon 5 with an Associate of Applied Science, Electronics Engineering 6 Technology Degree, and in 1992, he received his Bachelor of 7 Applied Science Degree in Automated Manufacturing Technology.

8 Between 1989 and 1992, Carter originally financed his education 9 through two student loans. In April 2003, Carter consolidated 10 these student loans (the "Consolidated Loan"), which resulted in a 11 principal amount of $21,122.19, with an interest rate of 4.5%. 12 Prior to consolidating his student loans, Carter had made no 13 payments on either, and his student loans were in default. 14 Commencing before his education at ITT, Carter used and 15 became addicted to various illicit substances. This use continued 16 until approximately January, 2004. Carter also engaged in 17 criminal activities associated with his drug addiction, including 18 selling drugs. As a result of those activities Carter was 19 arrested and imprisoned on many occasions.

20 From August 1992 to March 2003, Carter worked as an 21 electronics technician, and from March 1999 to 2004, Carter 22 obtained a second job as a field service technician. From 1999 to 23 2004, he was earning between $10.00 and $15.00 per hour performing 24 field technical services.

In January 2004, Carter entered into a six month rehabilitation program,*fn4 and in June 2004, completed his treatment and moved into the Oxford House.*fn5

After completing his treatment, Carter worked part-time at a furniture manufacturing company and in December 2004, commenced working for his present employer, WSCO Petroleum. Clean and sober, Carter advanced from a part-time employee to a full-time employee, then to an assistant manager and finally became a service station manager. Carter's commute to work is approximately twenty miles each way.

The Trial record is clear that as a service station manager, Carter receives $9.00 per hour, periodic bonuses based on performance of his service station, vacation benefits, health benefits, and overtime pay. Carter's monthly bonuses are based upon unit sales of gasoline and cigarettes. However, Carter is also financially liable for any and all cash shortages, and if inventory is short, it results in a reduction of his monthly bonus. Interestingly, any overtime (time in excess of forty hours per week) that Carter or any of his employees work is deducted from Carter's monthly bonus. As Carter describes the situation, he basically pays himself to work overtime.

Beginning in 2003, Carter's monthly payment on the Consolidated Loan was $78.25 under the Income-Contingent Repayment Plan ("ICRP") program.*fn6 Following the consolidation in April 2003, Carter failed to make any payments on the Consolidated Loan and in September 2004, the Department of Education ("DOE") declared his loan in default. On December 14, 2005, Carter submitted to DOE an offer to settle the Consolidated Loan for $1,000.00, which was rejected, and on January 6, 2006, Carter offered to commence paying $25.00 per month on the Consolidated Loan. He made a single payment of $25.00. On July 18, 2006, Carter renewed his offer to settle the Consolidated Loan for $1,000.00, which was also rejected. No further payments on the Consolidated Loan were made until June 15, 2009, when eight consecutive monthly payments were made, each in the amount of $230.00.*fn7

b. Procedural History

On January 26, 2010, Carter filed a voluntary chapter 7 petition, and on May 5, 2010, Carter filed a complaint initiating an adversary proceeding against DOE to determine the dischargeability of the Consolidated Loan under § 523(a)(8) (the "Complaint"). Carter alleged that excepting the student loans from discharge would impose an undue hardship on him.

1 On June 9, 2010, DOE filed its answer (the "Answer") which 2 further contained a counterclaim against Carter, alleging that 3 Carter is indebted on the Consolidated Loan in the principal 4 amount of $20,866.12, plus interest of $4,915.80, for a total of 5 $25,781.92 and interest continues to accrue at a daily rate of 6 $2.57, and that the DOE had received $1,865.00 in payments on the 7 loan. DOE's counterclaim further alleged that the Consolidated 8 Loan was not dischargeable and non-discharge of Carter's student 9 loan would not create an undue hardship on Plaintiff.

10 On March 31, 2011, the bankruptcy court conducted trial, 11 taking testimony from Carter regarding, inter alia, his income and 12 expenses. Carter testified that (1) his transportation costs had 13 increased, (2) his utilities had increased, (3) he has forgone 14 certain medical procedures because he does not have the available 15 funds, (4) his car insurance premium was $148.00 per month, (5) he 16 estimated that a reasonably reliable car would cost approximately 17 $346.00 per month, and (6) he anticipated a decrease in earnings 18 of approximately $100.00 to $200.00 per month because of slower 19 business at the station. Also, Carter testified that he is in 20 line for a promotion to work at another store which is closer to 21 his home in The Dalles.

22 Carter testified regarding his current health condition that 23 he suffers from right foot tremor disorder, Hepatitis C, and 24 chronic fatigue syndrome.

25 The bankruptcy court also took testimony from Carter's 26 witness, Clariner Boston. Ms. Boston testified that, considering 27 Carter's background, legal history, previous drug abuse, and 28 education, it would be "highly improbable" within a short amount 1 of time ...

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