Complaint to Determine Dischargeability of Private Student Loan Debt
Preliminary Statement
Nearly two decades ago, the debtor took out two private student loans totaling roughly [original principal amount] for one year at a private university. The debtor has paid back more than originally borrowed. The debtor still owes substantially more than the original principal. One loan exceeded the school-certified cost of attendance by more than [excess amount]. The debtor alleges that loan should not have survived discharge. The debtor further alleges that repayment of the remaining private student loan debt would impose an undue hardship. The debtor asks this Court for relief from both loans.
Parties
1. Plaintiff. The debtor is an individual residing in [State]. The debtor filed a Chapter 7 bankruptcy case in this Court and received a discharge under 11 U.S.C. § 727.
2. Defendant. The defendant is the current owner, holder, or servicer of the private student loan debts described in this complaint and may be served through its registered agent or other proper service channel.
Jurisdiction, Venue, and Consent
3. This adversary proceeding is brought under 11 U.S.C. § 523(a)(8) and Federal Rule of Bankruptcy Procedure 7001(6).
4. This Court has jurisdiction under 28 U.S.C. §§ 1334(b) and 157(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(I).
5. Venue is proper under 28 U.S.C. § 1409.
6. The debtor consents to this Court’s entry of final orders and judgments.
Nature of Action
7. The debtor brings this adversary proceeding seeking two forms of relief: a declaratory judgment under 11 U.S.C. § 523 and 28 U.S.C. § 2201 that one private student loan was discharged by operation of law, and a determination that repayment of the private student loan debts would impose an undue hardship under 11 U.S.C. § 523(a)(8).
8. The debtor seeks a determination that Private Loan B, described below, falls outside every subsection of § 523(a)(8). It was not made, insured, or guaranteed by a governmental unit or nonprofit institution. It was not an obligation to repay funds received as an educational benefit, scholarship, or stipend. And it was not a qualified education loan because it was not incurred solely to pay qualified higher education expenses.
9. This Court has authority to enter the requested declaration because the dispute concerns the scope and effect of the discharge entered in this case.
Statement of Facts
10. The debtor enrolled at a private university shortly after graduating from high school.
11. The school set the debtor’s cost of attendance for the academic year at approximately [cost of attendance].
12. The debtor borrowed Private Loan A, in the approximate amount of [Loan A original principal], through a private student loan program. That loan was disbursed directly to the school.
13. The debtor also borrowed Private Loan B, in the approximate amount of [Loan B original principal], through a separate private student loan program.
14. The amount borrowed through Private Loan B exceeded the school-certified remaining cost of attendance by more than [excess amount]. The excess funds were used for living expenses and household or family support. A family member co-signed the loans.
15. The loans were later transferred to the defendant or are now serviced by the defendant. For more than a decade, the debtor paid what the debtor could and used forbearance when payment was not possible. The debtor has repaid more than originally borrowed. The current asserted balance is approximately [current balance].
16. Since the period of enrollment, the debtor has lived with a chronic health condition. The condition allows periods of high-intensity work, but prolonged high-stress work leads to deterioration and periods of reduced functioning.
17. The debtor’s treating provider has identified a pattern of short-term high-intensity functioning followed by deterioration. The provider’s assessment is that the debtor’s condition is chronic, that symptoms fluctuate, and that the condition will impair the debtor’s ability to maintain consistent full-time employment for the foreseeable future. The debtor continues to pay for reduced-frequency medical care and medication and cannot afford the additional treatment the provider recommended.
18. The debtor’s employment history reflects the same cycle. Over a period of years, the debtor held multiple professional positions, each lasting a limited time before another transition. The debtor later moved into freelance and short-term contract work, including temporary classifications without health insurance, full benefits, or a guaranteed next project.
19. The debtor’s income history reflects sharp fluctuations. In one year, the debtor earned a high professional income. The following year, income dropped substantially. Income later recovered, then fell again, and eventually declined to a small fraction of the prior high-income years. The same pattern continued into the bankruptcy period.
20. When the debtor filed bankruptcy, the debtor was receiving unemployment benefits of approximately [monthly unemployment amount]. The defendant demanded approximately [monthly private loan payment] per month in private student loan payments. The debtor’s basic monthly expenses for rent, utilities, medical care, food, and other necessities exceeded [monthly expense amount]. After filing, when the debtor’s financial situation did not improve, the debtor applied for and began receiving a small amount of public food assistance. The debtor’s partner helped cover the shortfall for a period of time.
21. While unemployed, the debtor contacted a student loan servicer seeking hardship options. The servicer offered no forbearance and no unemployment deferment. The only offer was a reduced monthly payment of approximately [reduced payment amount]. Even that amount, combined with rent alone, exceeded the debtor’s unemployment income before accounting for food, medicine, utilities, or other necessities.
22. The debtor also owes more than [tax debt amount] in non-dischargeable federal and state tax debt. The debtor will need to resolve those obligations through installment agreements with the taxing authorities.
23. After applying for numerous positions, including contract, full-time, part-time, and lower-paying positions, the debtor accepted a short-term contract position in the debtor’s professional field. The position pays a daily rate but provides no health insurance or full benefits package. It is expected to last only for a limited term and remains subject to business needs.
Count I — Declaratory Judgment: Private Loan B Was Discharged by Operation of Law
24. The debtor incorporates paragraphs 1 through 23.
25. Private Loan B is not a qualified education loan within the meaning of 11 U.S.C. § 523(a)(8)(B). It exceeded what remained of the cost of attendance after Private Loan A was disbursed directly to the school. A loan whose proceeds exceeded the cost of attendance was not incurred solely to pay qualified higher education expenses. Private Loan B also does not fall within any other subsection of § 523(a)(8): it was not made, insured, or guaranteed by a governmental unit or nonprofit institution, and it was not an obligation to repay funds received as an educational benefit, scholarship, or stipend. The debtor alleges that Private Loan B was discharged by operation of law when this Court entered the debtor’s Chapter 7 discharge.
Count II — Undue Hardship
26. The debtor incorporates paragraphs 1 through 23.
27. Even if Private Loan B were not discharged by operation of law, both private student loans would be dischargeable because repayment would impose an undue hardship on the debtor.
28. At filing, the debtor could not repay these loans and maintain a minimal standard of living. Even before any private student loan payment, the debtor was short each month, and the gap was covered voluntarily by the debtor’s partner. Adding the contractual private student loan payment would have substantially increased that deficit.
29. The non-dischargeable tax debt compounds the problem. Those payments will compete with any loan payment for the same limited dollars, and the taxing authorities have collection tools unavailable to an ordinary private creditor.
30. The debtor’s recent short-term contract does not resolve the hardship. It provides temporary income but no health insurance or full benefits package and may end based on business needs. It reflects the same burst-and-collapse pattern identified by the debtor’s treating provider and reflected in the debtor’s income history. The question is not whether the debtor can make a few loan payments during a temporary contract. It is whether the debtor can sustain a substantial monthly payment for the next fifteen to thirty years. The facts alleged here do not show that the debtor can do so.
31. Excepting the private student loans from discharge would impose an undue hardship on the debtor within the meaning of 11 U.S.C. § 523(a)(8).
Prayer
WHEREFORE, the debtor respectfully requests that the Court enter judgment as follows:
32. As to Count I, threshold dischargeability of Private Loan B:
a. Declare that Private Loan B was discharged by operation of law upon entry of the debtor’s Chapter 7 discharge because it falls outside every subsection of 11 U.S.C. § 523(a)(8).
b. Enjoin the defendant from any further collection activity on Private Loan B inconsistent with this Court’s declaratory judgment.
33. As to Count II, undue hardship:
a. Determine that excepting Private Loan A from discharge would impose an undue hardship on the debtor under 11 U.S.C. § 523(a)(8).
b. In the alternative to Count I, determine that excepting Private Loan B from discharge would impose an undue hardship on the debtor under 11 U.S.C. § 523(a)(8).
c. Discharge all obligations arising from Private Loan A and Private Loan B, including accrued interest, fees, and penalties.
34. As to both counts, grant such other and further relief as the Court deems just and proper.
Respectfully submitted,
[Counsel for Plaintiff]