A district court docket decide lately reversed and remanded a widely known chapter choice discharging a big student loan debt. In the Southern District of New York, Judge Philip Halpern, reviewing the chapter court docket’s abstract judgment choice de novo, discovered that neither the debtor nor the defendant have been entitled to abstract judgment beneath the acquainted Brunner take a look at.
Bankruptcy Court’s Previous Decision
On January 7, 2020, Chief Bankruptcy Judge Cecelia Morris within the Bankruptcy Court for the Southern District of New York issued a choice declaring that “[t]his Court will not participate in perpetuating these myths.” In re Rosenberg, 610 B.R. 454 (Bankr. S.D.N.Y. 2020). The “myth,” as described by Judge Morris, is the cruel customary imposed by the Brunner take a look at for dischargeability of student loan debt. Generally, student loan debt is presumed non-dischargeable in chapter. The exception is the place a debtor can show that “excepting such debt from discharge…would impose an undue hardship on the debtor and the debtor’s dependents” (11 U.S.C. § 523(a)(8)). The Second Circuit in Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner), 831 F.2nd 395 (2nd Cir. 1987), set forth the next take a look at for “undue hardship”:
That the debtor can’t keep, based mostly on present earnings and bills, a “minimal” lifestyle for herself and her dependents if pressured to repay the loans;
That extra circumstances exist indicating that this state of affairs is prone to persist for a good portion of the reimbursement interval of the student loans; and
That the debtor has made good religion efforts to repay the loans.
Judge Morris decried the “harsh results” usually related to Brunner, which she described as arising from “retributive dicta” in caselaw deciphering Brunner reasonably than from Brunner itself. Judge Morris sought to eliminate this “quasi-standard of mythic proportion,” as an alternative endeavoring to “apply the Brunner test as it was originally intended.”
After the above commentary on the overly harsh interpretation of Brunner, the court docket analyzed the three-part take a look at and located the debtor certified to have his student loan debt discharged. The debtor’s undergraduate and regulation college loan debt turned a federal consolidation loan totaling $221,385. The debtor filed an adversary continuing professional se to have his student loan discharged. The difficulty was earlier than the court docket on cross-motions for abstract judgment. Judge Morris granted abstract judgment for the debtor, discovering that the debtor glad the Brunner take a look at, the student loans imposed an undue hardship, and due to this fact discharging the debtor’s student loan debt. Critical to the chapter court docket’s willpower was (1) the debtor’s undisputed assertion of earnings and bills confirmed a adverse month-to-month earnings of about $1,500 (prong one); (2) the debtor’s current state of affairs was prone to persist for a good portion of the reimbursement interval as a result of the loan debt was accelerated, therefore, the reimbursement interval had ended (prong two); and (3) the debtor confirmed good religion efforts to repay his loans as a result of he made about 40% of his funds through the 26 months he was chargeable for making funds (prong three).
District Judge Disagrees
After the defendant appealed, the district court docket reversed the grant of abstract judgment for the debtor, affirmed the denial of the defendant’s cross-motion for abstract judgment, and remanded. Judge Halpern broke down the three Brunner components:
Successful Brunner, undue-hardship discharges for student loan debt are uncommon. The debtor’s seeming win within the chapter court docket was brief lived after the district court docket reviewed the choice and got here to a distinct conclusion for every of the weather. This is yet one more chapter within the case regulation making use of the Brunner customary. Participants within the student loan area ought to control the ultimate end result of the Rosenberg case now that it has been remanded.
© 2021 Bradley Arant Boult Cummings LLPNational Law Review, Volume XI, Number 333