Discharge in Bankruptcy. Mallinckrodt received an undergraduate degree from the University of Miami and, in 1995, a graduate degree from Barry University in mental health counseling. To finance this education, Mallinckrodt borrowed from The Education

Question

Resources Institute, Inc, and others. Unable to find a job as a counselor, Mallinckrodt worked as a tennis instructor and coach. (At one time, he had played professional tennis and was ranked among the top eight hundred players in the world.) In 1996, he ruptured his Achilles tendon and was unable to work. After a lengthy rehabilitation, he began work on a part-time, hourly basis at Horizon Psychological Services, but the work was intermittent and low paying. He continued to work as a tennis instructor and was also a licensed real estate broker, but he had little income in either field. With monthly income of about $549 after taxes, and expenses of $544, Mallinckrodt filed a bankruptcy petition to discharge his student loan debt, which with interest totaled nearly $73,000. Is this debt dischargeable? Discuss.

Answer 1

Discharge in bankruptcy
Student loan debts are dischargeable "to the extent that they constitute an ‘undue hardship' upon the debtor or his dependents." The court stated that the "essential starting point [is] one simple question: Is there a reasonable prospect that the debtor will ever be able to repay these loans? . . . If the debtor has done everything he can to minimize expenses and maximize income, there is no basis for refusing to discharge the student loans." In this case "the Court has no other choice but to conclude that he has made every effort to minimize expenses and maximize income. . . . The debtor's financial condition is not the result of some willful or negligent activity on his part. His ruptured Achilles tendon interfered with his tennis instruction. He was not successful as a real estate broker. He has pursued a career in mental health but that has not been particularly financially lucrative. He attempted to find employment and took the jobs which were available to him. He has acted in good faith in striving to provide a sufficient livelihood for himself. He simply cannot repay the loans. He has demonstrated that repayment would cause an ‘undue hardship' upon him." This case was decided before the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, but the result under that act would likely have been the same.