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Discharge of Student Loan Debt OK'd Under Brunner Standard
In January, U.S. Bankruptcy Chief Judge Cecelia Morris of the Southern District of New York entered a decision granting summary judgment to pro se debtor, Kevin Jared Rosenberg, finding that Rosenberg had satisfied the "undue hardship" standard set forth in Section 523(a)(8) of the Bankruptcy Code, and ordering the discharge of Rosenberg's student loan debt of more than $220,000 in Rosenberg v. New York State Higher Education Services (In re Rosenberg), Case No. 18-35379 (Bankr. S.D.N.Y. Jan. 7, 2020).
The Brunner Test
The notion that student loans are generally nondischargeable in bankruptcy is, perhaps, one of the more familiar principles of bankruptcy law, even to nonlawyers. This concept has evolved from the case of Brunner v. New York State Higher Education Services (In re Brunner), 831 F.2d 395 (2d. Cir. 1987), which established a relatively straightforward three-pronged test:
- That the debtor cannot maintain, based on current income and expenses, a "minimal" standard of living for himself and his dependents if forced to repay the loans;
- That additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
- That the debtor has made good faith efforts to repay the loans.
Background
Before filing his Chapter 7 bankruptcy petition in March 2018, Rosenberg earned an undergraduate degree from the University of Arizona and a Juris Doctor degree from Yeshiva University's Benjamin N. Cardozo School of Law in 2004. He consolidated $116,464.75 of his student loan debt in 2005. By 2018, Rosenberg's student loan indebtedness had ballooned to $221,385.49. Three months after filing his bankruptcy petition, Rosenberg commenced an adversary proceeding seeking judgment declaring his student loan debt discharged under Section 523(a)(8) of the Bankruptcy Code.
Educational Credit Management Corp. (ECMC) obtained authority from the bankruptcy court to intervene in the adversary proceeding as the guarantor and holder of Rosenberg's consolidated student loan debt. As there were very few facts in dispute, the parties filed cross-motions for summary judgment on the issue of dischargeability, and agreed that the three-part Brunner test was the proper standard for the bankruptcy court to apply in deciding the motions.
The Rosenberg Court's Analysis
Section 523(a)(8) of the Bankruptcy Code excepts student loan debt from discharge "unless excepting such debt from discharge … would impose an undue hardship on the debtor and the debtor's dependents." The Bankruptcy Code does not define the term "undue hardship."
The bankruptcy court began its analysis of Section 523(a)(8) and the Brunner standard by highlighting the strong criticism that general application of the standard has received over the years. Interestingly, the court recognized the "harsh results" that have often prevailed from judicial application of the cases interpreting Brunner, rather than by applying Brunner itself, noting that "over the past 32 years, many cases have pinned on Brunner punitive standards that are not contained therein."
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