A district court judge recently overturned and remanded a known bankruptcy ruling that settled a sizeable student loan debt. In the southern borough of New York City, Judge Philip Halpern reviewed the bankruptcy court’s de novo judgment. found that neither the debtor nor the defendant are entitled to a summary judgment according to the known Brunner Test.

Prior decision by the bankruptcy court

On January 7, 2020, Chief Bankruptcy Judge Cecelia Morris of the New York City Southern Bankruptcy Court issued a ruling stating: “[t]his court will not take part in perpetuating these myths. ” In right Rosenberg, 610 BR 454 (Bankr.SDNY 2020). The “myth” as described by Judge Morris is the harsh standard the Brunner Examination of the excusability of student loan debts. It is generally considered that the student loan debts are not deductible in bankruptcy. The exception is when a debtor can demonstrate that “the exception of such debt from relief … would impose undue hardship on the debtor and the debtor’s relatives” (11 USC § 523 (a) (8)). The second cycle in Brunner v NY State Higher Educ. Serves. Corp. (To Brunner), 831 F.2d 395 (2nd Cir. 1987), specify the following test for “unreasonable hardship”:

• That the debtor cannot maintain a “minimum” standard of living for herself and her relatives due to the current income and expenses if she is forced to repay the loans;

• That there are additional circumstances that indicate that this condition is likely to persist for a significant portion of the student loan repayment period; and

• The debtor made good faith efforts to repay the loan.

Judge Morris criticized the “harsh results” that often come with Brunnerwhich she described as a “retaliatory dictate” in interpreting the case law Brunner instead of Brunner himself. Judge Morris tried to remove this “quasi-standard of mythical proportions”, instead he endeavored “the Brunner test as it was originally intended. “

After the comment above on the overly harsh interpretation of Brunner, the court analyzed the three-part test and found that the debtor was eligible to have their student loan debt cleared. The undergraduate and law school borrower loan debt became a federal consolidation loan totaling $ 221,385. The debtor filed adversarial proceedings to get his student loan redeemed. The matter was in court over counter motions for summary judgment. Judge Morris issued a summary judgment on the debtor, ruling that the debtor had the Brunner Examination imposed an undue hardship on the student loan and thus the repayment of the debtor’s student loan debts. The main reason the bankruptcy judge ruled was that (1) the debtor’s undisputed income and expense statement had negative monthly income of approximately $ 1,500 (top one); (2) the current condition of the debtor was likely to have persisted for a significant portion of the repayment period as the loan debt was accelerated and thus the repayment period had expired (two-point); and (3) the debtor has made good faith efforts to repay its loans as it has made approximately 40% of its payments in the 26 months in which it was responsible for making the payment (paragraph three).

District judge disagrees

After the defendant appealed, the district court overturned the summary judgment on the debtor, upheld the denial of the defendant’s request for a summary judgment, and removed the detention center. Judge Halpern collapsed the three Brunner Elements:

Bring away

Successfully Brunner, relief from unjustified hardship cases for student loan debts are rare. The debtor’s apparent victory in bankruptcy court was short-lived after the district court reviewed the decision and came to a different conclusion for each of the items. This is another chapter in the case law on the application of the Brunner Default. Student loan participants should understand the bottom line of the Rosenberg Fall now that it’s on remand.