On January 7, 2020, Chief Bankruptcy Judge for the Southern District of New York, Judge Cecelia Morris, entered an order granting summary judgment to the plaintiff-debtor, 46-year-old Kevin Rosenberg, and discharging his student loans under 11 U.S.C. §523 (a)(8). Rosenberg, a 2004 graduate of Cardozo Law School at Yeshiva University, represented himself pro se in the adversary proceeding seeking discharge of his student loan debt, which totaled $221,385.49 in November 2019.
Generally, student loan debt is not dischargeable under the Bankruptcy Code. However, §523 (a)(8) carves out an exception for “undue hardship.” The statute does not define what exactly “undue hardship” means, so courts have been left to interpret the exception on a case-by-case basis. In this case, the Judge Morris applied the majority view test for what constitutes “undue hardship” provided by 1987 case Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner). The Brunner test is:
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;
(2) 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
(3) that the debtor has made good faith efforts to repay the loans.
What makes the decision in Rosenberg’s case especially interesting is Judge Morris’ harsh criticism for the punitive standards often associated with the Brunner test. Her memorandum decision explicitly condemns the “retributive dicta” of decisions interpreting Brunner that 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.” The Court announced it would not “participate in perpetuating these myths,” but instead would apply the Brunner test, as intended.
In applying the Brunner test, the Court found that Rosenberg satisfied the first prong of the test based on the income and expenses listed on Rosenberg’s schedules, showing that he had a monthly negative income of over $1,500 a month. Because Rosenberg had a negative monthly income, the Court determined “he has no money available to repay his Student Loan and maintain a ‘minimal’ standard of living.”
The next step the Court considered is 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.” In this case, Rosenberg’s loan was in default, which meant the repayment period ended and made the full amount of the loan due and payable. The Court determined these circumstances would continue, and therefore the second prong of the Brunner test was satisfied.
The last prong of the Brunner test is whether the debtor has made good faith efforts to repay the loan. For this part of the test, the Court must look to the debtor’s previous behavior, not the reasons he filed for bankruptcy, to make this determination. Here, Rosenberg provided evidence of his payment record, periods of forbearance or deferment, and his continued efforts to make payments on the loan. Based on that evidence, the Court found that Rosenberg met the final prong of the Brunner test and concluded that his student loan imposed an undue hardship and should be discharged.
Memorandum Decision and Order
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