My firm does not handle bankruptcy cases. But, a recent decision made in the Southern District of New York may have long term and huge ramifications that may affect the 45 million borrowers of $1.5 trillion in student loans.
It was so strikingly unique, potentially affecting so many people, that I thought it important to share. Please consult a bankruptcy attorney for further help if you need it.
It has long been held that student debt is not dischargeable in bankruptcy. But, the Court in Rosenberg v. New York State Higher Education Services found differently.
The Brunner Test is the long-established test for discharge in the bankruptcy of student debt. This test has long been deemed an almost impossible one to pass.
The Brunner test requires a debtor looking to discharge student loan debt in bankruptcy to prove:
- That the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for his dependents and himself if forced to repay the loan
- That this state of affairs is likely to persist for a significant portion of the loan repayment period
- The debtor has made good faith effort to repay
Here is how Rosenberg overcame the Brunner test.
Rosenberg had accrued a consolidated debt of over $200,000.00 for college and law school. Since Rosenberg had defaulted, the entirety of the debt was accelerated and currently due and payable.
The Court found that under such a circumstance, he met the first prong of the test in that he did not have money available to pay that debt in full and maintain a minimal standard of living.
The second prong of the test, since the debt had been accelerated, and the payment period had ended, had also been met since “his circumstances will certainly exist for the remainder or the repayment period.”
For the third prong of the test, the Court looked to Rosenberg’s pre-bankruptcy petition efforts to repay the loan and that in the 26 months of the loan since consolidation it was not in deferment or forbearance and he had made 10 payments roughly equating to 40% of the payments he had been required to make. This, the Court found, was a good faith effort to repay the loan.
This case will be an important one to follow on appeal for those with crushing student loan debt.