A district court judge recently reversed and remanded a well-known bankruptcy decision discharging a significant student loan debt. In the Southern District of New York, Judge Philip Halpern, reviewing the bankruptcy court’s summary judgment decision de novo, found that neither the debtor nor the defendant were entitled to summary judgment under the familiar Brunner test.
On January 7, 2020, Chief Bankruptcy Judge Cecelia Morris in the Bankruptcy Court for the Southern District of New York issued a decision 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 harsh standard imposed by the Brunner test for dischargeability of student loan debt. Generally, student loan debt is presumed non-dischargeable in bankruptcy. The exception is where a debtor can prove 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.2d 395 (2d Cir. 1987), set forth the following test for “undue hardship”:
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;
That additional circumstances exist indicating that this state of affairs is likely to...
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