Student Loans Discharged

After a remand from the Bankruptcy Appellate Panel, Judge Katz concluded that Schatz’s student loans are discharged in the case of Schatz v. United State Department of Education.

Judge Katz, in her earlier judgment, held that Schatz’ s equity in her home resulted in it not being an undue hardship for her to pay her student loans. The B.A.P., in Schatz v. Access Group, Inc. 602 B.R. 411 (B.A.P. 1st Cir. 2019), held that Judge Katz did not recognize that §522(c) prevents exempt property from being liable for any pre-petition debt. The B.A.P. also noted that the bankruptcy court had not made detailed findings regarding Schatz’s income, expenses, health, age education, number of dependents, and other personal or family circumstances.

While the Department of Education argued that Schatz was underemployed, Judge Katz noted that the total monthly payments to pay the student loan would be over $1,000/mo. Based upon Schatz’s age, history of employment, and state of health, she concluded that Schatz could not increase her income over her expenses by $12,000 per year. Even if Schatz could increase her income, her expenses would likely also increase to help cover expense she can’t currently afford.

Result: the court held that the student loans were dischargeable as an undue hardship under the ‘totality of the circumstances’ test.