Joe Pizzingrillo
St. John’s University School of Law
American Bankruptcy Institute Law Review Staff
In general, student loan debt is not dischargeable in a case under title 11 of the United States Code (the “Bankruptcy Code”) unless there is a showing of undue hardship. A court will typically consider a debtor’s potential for future employment in determining whether student loan debt may be discharged. In In re Nitka, the United States Court of Appeals for the Tenth Circuit refused to discharge a former law student’s loan debt because the student had not shown that his financial difficulties were likely to persist for a significant portion of his repayment period.[i] Throughout his loan repayment period from 2015 to 2019, Gordon Nitka worked as a contract employee at a law firm, fitness coach, insurance salesman, and roofing salesman.[ii] Despite earning significant amounts of money, and while participating in an income-driven repayment program, Nitka was making minimal payments towards his loan.[iii] By May 2019, Nitka was unemployed.[iv] While unemployed, he focused his time on building phone apps for restaurants and converting his bus into a vacation rental to park near ski resorts.[v] In July 2018, he filed a petition under Chapter 7 of the Bankruptcy Code and a complaint against the Department of Education for an order discharging his student loan debt.[vi] The lower bankruptcy court granted summary judgment to the Department of Education, the Bankruptcy Appellate Panel ("BAP") affirmed, and Nitka appealed pro se from the BAP decision.[vii]
According to the Tenth Circuit, a debtor establishes undue hardship under Bankruptcy Code section 523(a)(8) when: (1) the debtor cannot maintain, based on current income and expenses, a minimal standard of living for herself/dependents if forced to repay the loans; (2) additional circumstances exist indicating this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) the debtor has made good faith efforts to repay the loans.[viii] Here, the Tenth Circuit held Nitka made a sufficient showing on the first and third elements.[ix] However, as to the second element, the court reasoned that Nitka showed strong potential for future employment should he choose to return to work.[x] The court’s determination was based upon, among other things, his young age, high-level of education, and previous history of holding steady employment.[xi] Also, Nitka’s work on the phone apps showed his technological proficiency which could be useful in obtaining employment.[xii] Moreover, Nitka was working on a vacation rental bus which he planned to rent for $100-$400 per night.[xiii] Consequently, the court held Nitka failed to satisfy the second element.[xiv]
In making these “undue hardship” determinations, the Tenth Circuit based its estimation of a debtor’s repayment prospects on specific, articulable facts and not on unfounded optimism.[xv] Furthermore, the court found that the proper inquiry into future circumstances is limited to the foreseeable future, at most over the term of the loan repayment period.[xvi] Here, Nitka failed to show that his financial situation was unlikely to improve and failed to prove that his financial difficulty would persist for a significant portion of the repayment period given his strong future employment prospects.[xvii]
[i] Nitka v. Dep’t of Educ. (In re Nitka), 2021 U.S. App. LEXIS 12105, at *13 (10th Cir. 2021).
[ii] Id. at *2
[iii] Id. at *3. Nitka earned $61,901 in 2015 and made no payments; $83,000 in 2016 and only paid $130.92; $31,000 in 2017 and paid $109; and $8,000 in 2018 and made no payments towards his loan. See id.
[iv] Id.
[v] Id.
[vi] Id. at *4.
[vii] Id. at *1.
[viii] Id. at *10–11.
[ix] Id. at *11.
[x] Id. at *13.
[xi] Id. at *12.
[xii] Id. at *12–13.
[xiii] Id. at *13.
[xiv] Id. at *14. Nitka was unable to satisfy the second element, thus the Tenth Circuit granted summary judgment for the Department of Education. See id.
[xv] Id. at *11.
[xvi] Id. at *12.
[xvii] Id. at *13.