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Prior to filing bankruptcy, the Debtor borrowed money to pay for his undergraduate education. After graduating and serving in the United States Navy for five years, he borrowed additional funds to attend and complete law school. After graduating from law school his consolidated debt was $116,464.75. The total outstanding balance as of November 2019 was $221,385.49.
The Debtor filed a chapter 7 bankruptcy in March of 2018 and filed an adversary proceeding to have his student loan debt declared dischargeable under 11 U.S.C. § 523(a)(8). This was a contested proceeding in which the Educational Credit Management Corporation (“ECMC”) successfully intervened. The Debtor represented himself pro se. Both parties filed motions for summary judgment.
The Court first distinguished the actual Brunner test[i] to determine dischargeability of student loans, with 32 years of subsequent cases which pinned punitive standards on Brunner that were not in the Brunner opinion. The result of the retributive dicta applied and reapplied in these cases became a quasi-standard of mythic proportions that it is impossible to discharge student loans. The Court stated clearly that it would not participate in perpetuating the myth.
In Rosenberg v. N.Y. State Higher Education Services Corp., et al (In re Rosenberg), Case No. 18-35379, Adv. No. 18-09023 (Bankr. S.D.N.Y. January 7, 2020) the Court discussed in length the misinterpretation of the Brunner standard as follows.
Brunner has received a lot of criticism for creating too high of a burden for most bankruptcy petitioners to meet. For petitioners like Brunner, who filed for bankruptcy approximately seven months after receiving a degree, the Brunner test is difficult to meet. See, e.g., Gesinde v. U.S. Dep’t. of Ed. (In re Gesinde), 2019 WL 5090080, No. 18-01434 (Bankr. S.D.N.Y. Oct. 10, 2019) (denying discharge of student loans where petitioner files for bankruptcy less than one year after graduating from school). However, for a multitude of petitioners like Mr. Rosenberg, who have been out of school and struggling with student loan debt for many years, the test itself is fairly straight-forward and simple.
The harsh results that often are associated with Brunner are actually the result of cases interpreting Brunner. Over the past 32 years, many cases have pinned on Brunner punitive standards that are not contained therein. See Briscoe v. Bank of N.Y. (In re Briscoe), 16 B.R. 128, 131 (Bankr. S.D.N.Y. 1981) (coining the infamous and oft-repeated term “certainty of hopelessness”[ii] but not applying the Brunner test, which was established six years later); see also Jean-Baptiste v. Educ. Credit Mgmt. Corp. (In re Jean-Baptiste), 2018 WL 1267944, *10 (Bankr. E.D.N.Y Feb. 23, 2018) (requiring proof of a “certainty of hopelessness” despite the plain and straightforward language of Brunner). Those retributive dicta were then applied and reapplied so frequently in the context of Brunner that they have subsumed the actual language of the Brunner test. They have become a quasi-standard of mythic proportions so much so that most people (bankruptcy professionals as well as lay individuals) believe it impossible to discharge student loans.
To this end, some courts have even called it “bad faith” when someone struggling with repaying a student loan attempts to discharge that debt in bankruptcy court.[iii] See In re L.K., 351 B.R. 45, 55-56 (Bankr. E.D.N.Y. 2009) (denying discharge to debtor whose student loan debt constituted 70% of debt scheduled in bankruptcy case); Holzer v. Wachovia Servs., Inc. (In re Holzer), 33 B.R. 627, 632 (Bankr. S.D.N.Y. 1983) (good faith prong not satisfied where student loans were only debts listed in debtor’s schedules); D’Ettore v. DeVry Inst. of Tech. (In re D’Ettore), 106 B.R. 715, 719 (Bankr. M.D. Fla. 1989) (dismissing debtor’s complaint where student loans constituted 82% of debtor’s total debts).
This Court will not participate in perpetuating these myths. See Krieger v. Educs. Credit Mgmt. Corp., 713 F.3d 882, 884 (7th Cir. 2013) (“It is important not to allow judicial glosses . . . to supersede the statute itself.”). Rather, this Court will apply the Brunner test as it was originally intended.
Rosenberg at 5-7. The Court applied the Brunner test as follows:
Whether the Petitioner cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loans.
The Court first examined the Debtor’s Schedules I and J and the means test and found that the Debtor had a current monthly income of -$1,548.74. The Court justified the use of the schedules because “[t]he Bankruptcy Code presumes that a petitioner who seeks its protection ‘will deal honestly and fairly with creditors by furnishing a complete and accurate schedule of assets.’ (Citation omitted.)” Rosenberg at 8. As no party in interest objected to the schedules or means test, and the Debtor had already received a discharge, the Court accepted the Debtor’s income and expenses as undisputed.
The Court found that the Debtor was not in a repayment plan nor eligible for one. As he was in default, the Debtor would have to rehabilitate his loan according to an agreement. The Court found that no agreement was admitted and the Court would not rule on a hypothetical agreement. The Court found
As the Petitioner has a negative income each month, he has no money available to repay his Student Loan and maintain a “minimal” standard of living. This prong of the test is met.
Rosenberg at 9.
Whether 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?
The Court first held that Brunner does not require the Court 1) to make a determination that the Petitioner’s state of affairs are going to persist forever, or 2) to make a determination about whether the Petitioner’s “state of affairs” was created by “choice.” Instead
The Court need only consider whether the Petitioner’s present state of affairs is likely to persist “for a significant portion of the repayment period of the [current contractual] student loans.” See ABI Commission on Consumer Bankruptcy, Final Report of the ABI Commission on Consumer Bankruptcy 2017-2019 Final Report and Recommendations, at 12 Robert M. Lawless (2019) (recommending that “the court consider ‘the debt’ and not some different contract the debtor and the creditor might have made under different circumstances.”).
Rosenberg at 10. The Court found that since the student loan was in default and accelerated, the Debtor was responsible to repay $221,385.49 now.
His circumstances will certainly exist for the remainder of the repayment period as the repayment period has ended and the loan is due and payable in the full amount. The second prong of the Brunner test is, therefore, satisfied.
Id. The Court also rejected an unpublished opinion of the 2nd Circuit Court of Appeals that required the debtor to be disabled to satisfy the second prong of the Brunner test.
In an unpublished decision, the Court of Appeals for the Second Circuit stated that “the second prong was not satisfied where the debtor was not disabled or elderly, had no dependents, and no evidence was presented indicating a total foreclosure of job prospects in her area of training.” Traversa v. Education Credit Management Corp. (In re Traversa), 444 Fed. Appx. 728 (2d Cir. Oct. 28, 2011). Neither the Bankruptcy Code nor Brunner requires that a Debtor be disabled or elderly. Section 523(a)(8) requires only that a bankruptcy court find that excepting a student loan debt from discharge would impose an “undue hardship” on a bankruptcy petitioner.
Rosenberg at 9-10, n.5.
Whether the debtor has made good faith efforts to repay the loans?
The Court reiterated that the Brunner test only requires the Court to examine whether the Debtor has made “good faith efforts to repay the loan, which indicates that the Court should only consider Petitioner’s past (i.e. prepetition) behavior in repaying the loans.” Id. at 10-11. The found that it was “inappropriate to consider: reasons for filing bankruptcy; how much debt he has; or whether the Petitioner rejected repayment options.” Id. at 11. The Court held
Petitioner made 10 payments, in varying amounts, during the 26 months that the Petitioner was responsible for making payments, which is approximately a 40% rate of payment over a thirteen-year period. Additionally, the Petitioner did not sit back for 20 years but made a good faith effort to repay his Student Loan. He actively called and requested forbearance on at least five separate occasions, all of which were granted by the servicer. See Ex. F.
The Petitioner has demonstrated a good faith effort to repay the loan and has satisfied the “undue hardship” standard of 11 U.S.C. § 523(a)(8).
Rosenberg at 12.
The Court concluded that the debt satisfied the Brunner test and discharged the student loan.
- This case can be used to reexamine the additional punitive standards pinned to the Brunner test including the requirement that a debtor demonstrate a “certainty of hopelessness.”
- When presenting these arguments to your court, please notify Tara Twomey, Executive Director of the National Consumer Bankruptcy Rights Center (NCBRC) at ncbrc.org. Tara is an invaluable resource to help guide your argument.
- Pick your case to reexamine the local interpretation of Brunner to insure that you have good facts. Good facts make good law.
A copy of the opinion is here: In re Rosenberg
[i] Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner), 831 F.2d 395, 396 (2d Cir. 1987).
[ii] “Of course, a harsh standard made sense when student loans were fully dischargeable after making only five years of payments and when the total due on the loan was approximately $9,000 for both undergraduate and graduate student loans. See Brunner v. N.Y. State Higher Ed. Serv’s. Corp. (In re Brunner), 46 B.R.753, 753 (S.D.N.Y. 1985).” Rosenberg at 6, n.3.
[iii] “The Court is not insinuating that filing a bankruptcy petition in order to rid oneself of a crushing $300,000+ of student loan debt could ever be considered “bad faith.” Bankruptcy is an available and beneficial option for anyone struggling with debt and a petitioner under the Bankruptcy Code always has the option to come before the Court and ask, in good faith, that a debt be discharged—no matter what kind of debt it is.” Rosenberg at 6, n.4.
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