In re Barrett

Thomas Barrett (debtor) incurred student-loan debt in 1999. Due to serious long-term illness, the inability to work, and accumulated medical bills, Barrett filed for Chapter 7 bankruptcy in 2001. Barrett never made payments on his student loans because, through coordination with his creditors, he received hardship deferments each year due to his health. Barrett worked part time, as his health allowed, and his monthly expenses were more than double his monthly income. Barrett was unable to find full-time employment due to his health. Due to the tax consequences, Barrett did not enroll in the Income Contingent Repayment Program (ICR), under which student-loan payments would be adjusted based on income, loan forgiveness would occur after 25 years, and the forgiven loan amount would be treated as taxable income. Barrett’s inability to pay his student loans was likely to persist for a significant portion of the loan-repayment period, meaning the taxable amount would be significant. In 2004, the bankruptcy court issued an opinion concluding that Barrett had demonstrated it would be an undue hardship if his student loans were excepted from his Chapter 7 discharge. Education Credit Management Corporation (ECMC) (creditor) appealed. The Bankruptcy Appellate Panel affirmed the bankruptcy court’s conclusion. ECMC appealed, asserting that Barrett did not make a good-faith effort to repay his student loans because he did not enroll in ICR.