By: Jessica Wright
St. John’s Law Student
American Bankruptcy Institute Law Review Staff
In In re Lovell,[1] the Bankruptcy Court for the Northern District of Iowa, held that a debtor who tithed approximately 11% of her gross income was nevertheless entitled to a hearing on whether she qualified for a hardship discharge of her student loan debt.[2] The debtor received a Chapter 7 discharge and then filed an adversary complaint for a discharge of her student loans, arguing that the loans would impose an undue hardship based on her current income and monthly expenses.[3] The debtor was gainfully employed and earned $44,255.04 per year,[4] and in her self-reported monthly expenses[5], she included charitable donations and tithes to her church amounting to nearly 11% of her gross income.[6] In assessing her expenditures, the court held that making charitable contributions and tithing is not per se unreasonable when requesting discharge of student loan debt. Instead, a fact-intensive inquiry into the appropriateness of such expenditures is required. For this reason, the court held that it was precluded from granting summary judgment to the creditor.[7]
“Undue hardship” is not defined in the Bankruptcy Code (“Code”), but the Eighth Circuit analyzes undue hardship using a totality-of-the-circumstances approach.[8] This approach entails an inquiry into the debtor’s past, present, and future financial resources, and a calculation of the debtor’s reasonable and necessary living expenses.[9] The court reasoned that the factual record needed further development in order to determine, among other things, whether the debtor should be characterized as “young or in the early part of her career.”[10] If so considered, the court stated that the debtor ought realistically to be able to increase her earning capability and income level.[11] In addition, the court found that questions of whether her tithing and charitable contributions were reasonably necessary living expenses were, under the circumstances, genuine issues of material fact to be determined at trial.[12] Though no evidence was presented as to whether the debtor’s tithe was necessary for membership in her church, she stated that giving was very important to her religious beliefs.[13] Because tithing is not per se unreasonable, whether tithing was compulsory was not a determinative factor of the reasonableness of the expense.
Most courts[14] that have considered whether tithing is presumptively unreasonable have held that it is not. Although student loan lenders sometimes claim that if a debtor has the financial wherewithal to tithe the debtor does not suffer undue hardship,[15] courts have generally held that a debtor may tithe up to 15% of his or her annual income without presumptively establishing that the debtor would not suffer an undue hardship if forced to repay student loan obligations.[16] Instead of adopting a bright line rule, courts have taken a case-by-case approach toward a debtor’s circumstances in an attempt to balance the demands of the Code with the protections of the Religious Liberty and Charitable Donation Protection Act (RLCDP).[17] The Lovell court, like others, rejected the creditor’s proposed rule that would prevent debtors from tithing if they wish to qualify for an undue hardship discharge. Instead, these courts have taken the position that tithing, like the calculation of reasonable and necessary living expenses, is an important question of fact that must be determined in individual cases.[18]
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