## Facts

- Rafael Lozada filed a Chapter 7 case and sought to discharge about $338,000 in student-loan debt as an “undue hardship” under 11 U.S.C. § 523(a)(8).
- Educational Credit Management Corporation (ECMC) held an interest in the unpaid federally guaranteed student loan.
- At the relevant time, Lozada was 67, married, and had no dependents.
- Lozada was not working and received $1,296 per month in Social Security; his wife received about $4,685 per month from Social Security and a pension, for household net income of at least $5,942 per month.
- The household’s monthly expenses were about $4,499, leaving positive cash flow.
- Lozada held a B.A. and a J.D., never passed a bar exam, and previously earned up to about $75,000 per year, including about $70,000 as recently as 2013.
- Lozada made intermittent loan payments since 1990 and stopped paying in 2015; he did not use tax refunds or a sizeable inheritance to repay the debt.
- The Lozadas regularly made religious and charitable contributions exceeding $20,000 per year; Lozada refused to reduce giving even though it exceeded 10% of income and reducing it would allow repayment.
- After trial, the bankruptcy court denied discharge, treating the charitable and religious contributions as unreasonable expenses for the undue-hardship analysis; Lozada appealed.

## Issues

1. Whether the bankruptcy court erred under 11 U.S.C. § 523(a)(8) and the Brunner test by excluding the debtor’s substantial religious and charitable contributions from necessary expenses.
2. Whether, on the record, the debtor proved “undue hardship,” including inability to maintain a minimal standard of living and good-faith efforts to repay.

## Decision

- The district court affirmed the bankruptcy court’s judgment denying discharge of the student-loan debt.
- The court held that excluding the Lozadas’ level of charitable and religious giving from necessary expenses was permissible and not clearly erroneous.
- The court concluded Lozada failed to satisfy the Brunner standard, particularly as to maintaining a minimal standard of living if required to repay and demonstrating good faith.

## Legal Principles

- Student-loan debt is nondischargeable absent proof of “undue hardship” under 11 U.S.C. § 523(a)(8).
- Under Brunner, the debtor must prove: (1) inability to maintain a minimal standard of living if forced to repay, (2) persistence of that inability for a significant portion of the repayment period, and (3) good-faith efforts to repay.
- Courts may treat voluntary charitable or religious contributions as nonessential and exclude them from “necessary expenses” when assessing ability to pay under Brunner.
- A debtor’s financial choices—such as maintaining substantial discretionary giving, ceasing payments, and not applying windfalls (e.g., refunds or inheritances) to the debt—may support a finding of insufficient good faith.

## Conclusion

The court affirmed denial of discharge because the debtor’s household had positive income after reasonable expenses, his substantial tithing was a voluntary and unreasonable expense for the undue-hardship calculation, and his payment and financial history did not show the sustained inability and good-faith repayment efforts required to discharge student loans under § 523(a)(8).


In re Lozada, 604 B.R. 427 (S.D.N.Y. 2019)