In re Lozada

Rafael Lozada (debtor) filed for chapter 7 bankruptcy in 2017 and sought the discharge of nearly $338,000 in student-loan debt in which Educational Management Corporation (ECMC) (creditor) held an interest. Lozada claimed that discharge was proper under 11 U.S.C. § 523(a)(8) because not discharging the debt would impose an undue hardship on him. Lozada was 67 years old, married, and had no dependents. Although Lozada had attended law school, he never practiced law and instead held various social-services and nonprofit jobs until he stopped working in 2014. Lozada had made intermittent payments on the ECMC loan since 1990, but he stopped making payments in 2015. Lozada had received tax refunds and a sizeable inheritance in the years preceding his bankruptcy filing but had not used that money to repay the loan. The Lozadas’ monthly income was at least $5,942, and their monthly household expenses totaled $4,499. The Lozadas also regularly made religious and charitable contributions that exceeded $20,000 per year. Lozada asserted that the Bible taught the importance of 10-percent tithing, and he refused to reduce his charitable giving, even though the Lozadas’ contributions exceeded 10 percent of their income and reducing the giving would have allowed Lozada to repay the loan. The bankruptcy court refused to discharge the student-loan debt, finding, among other things, that Lozada’s charitable and religious expenditures were unreasonable and should not be included in the court’s undue-hardship assessment. Lozada appealed to the federal district court.