April 30, 2008
New Student Loan Case in the 4th Circuit
Educational Credit Management Corp. v. Mosko (In re Mosko), 515 F.3d 319 (4th Cir. Feb. 2008)
Issue: Did these debtors establish that they made a good faith effort to repay their student loans?
Appeal from the District Court
The debtors “lived in Mocksville, North Carolina, with their four-year-old son. Robert’s and Brenda’s student loans as of July 15, 2005, equaled $63,417.06 and $57,156.41, respectively.” They sought an order that the student loans were discharged as a hardship. Both have bachelors degrees and Brenda has a master’s degree. The three years before the bankruptcy they made jointly, $75,000, $78,000 and $64,000. Robert’s employment is somewhat erratic because of medical problems. The bankruptcy court granted the discharge and the District Court affirmed.
The 4th Circuit Court of Appeals reversed finding that the debtors did not meet the third Brunner test, i.e., “a good faith effort to repay their loans.” “The Moskos have not demonstrated a good-faith effort to obtain employment and maximize income. Brenda does not work during the summer months because she wishes to spend time with her son and care for her mother.” “The record does not show that [Robert’s] medical condition precludes him from all part-time employment, self employment, or other work from home.” “In addition, the budget the Moskos presented to the bankruptcy court does not minimize their expenses. Each month, the Moskos spend $75 for internet, $80 for cell phones, $60 for satellite television, $68 for a YMCA membership, and an undisclosed amount for cigarettes.” “Furthermore, the Moskos’ actual expenditures do not demonstrate an effort to minimize expenses. Between December 2, 2004 and March 1, 2005, the Moskos spent over $1,600 at Circuit City, Best Buy, Amazon.com, and Radio Shack; over $3,000 at Sam’s Club, Wal-mart, and Kmart; and over $800 on computer software related purchases. We conclude that their expenditures do not indicate a good faith effort to minimize expenses. Furthermore, the Moskos’ failure to minimize expenses during a period when Robert was unemployed indicates that their own negligence contributed to their current financial situation.” “Additionally, the payments the Moskos made on their student loans are insufficient to demonstrate good faith because they failed to make payments on their student loans during a time period when their income substantially exceeded their necessary expenses.” “Finally, the Moskos failed to adequately pursue loan consolidation options.” “Based on the Moskos’ adjusted gross income of $64,130 in 2004, their monthly payments under the income-contingent William D. Ford Direct Loan Consolidation Program would be approximately $319 per month.”
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