PBCBA BAR BULLETINS PBCBA Bulletin - February 2020 | Page 7

BANKRUPTCY CORNER
A Crack in the Brunner Test
JASON S. RIGOLI
On January 7, 2020, Chief Judge Cecilia
G. Morris of the United States Bankruptcy
Court for the Southern District of New
York, issued an opinion criticizing the
interpretation and application of the so-
called Brunner test, articulated in Brunner
v. New York State Higher Education Service
Corp. , 831 F.2d 395 (2d Cir. 1987), which has
made it almost impossible for anyone to
discharge student loan debts. Rosenberg v.
N.Y. State Higher Education Services Corp.
(In re Rosenberg) , Adv. Pro. No. 18-09023
(CGM), --B.R.--, 2020 WL 130302 (Bankr.
S.D.N.Y. Jan. 2020).
Section 523(a)(8) of the Bankruptcy Code
(11 U.S.C. §§ 101, et seq .) excepts from
discharge student loan debt, “unless
excepting such debt from discharge would
impose an undue hardship on the debtor
and the debtor’s dependents…” The test to
determine whether the debtor would suffer
a hardship from his discharge exception is
the Brunner test, that has been adopted by
most every court in the country, including
the Eleventh Circuit. See In re Cox , 338
F.3d 1238, 1240 (11th Cir. 2003) (adopting
Brunner ). The Brunner test has three
prongs:
(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.
Brunner , 831 F.3d at 396.
According to
Judge Morris, Brunner has been perpetually
misapplied where courts have read dicta
from an earlier opinion Briscoe v. Bank
of N.Y. (In re Briscoe) , 16 B.R. 128, 131
(Bankr.S.D.N.Y. 1981) (coining the infamous
and oft-repeated term “certainty of
hopelessness” but not applying the Brunner
test, which was established six years later),
into Brunner resulting in the now near
impossible standard for debtors to meet.
Brunner as applied in Rosenberg
A.Minimal Standard of Living
Judge Morris found the debtor could not
maintain a minimal standard of living
where the debtor had a negative monthly
income and the lender had accelerated the
loan making it due in full.
In her analysis Judge Morris locked on
to the word “current,” which requires
the Court to look at the Debtor’s “current
income and expenses” and determine if the
Debtor can maintain a minimal standard
of living, which can be based “using only
[p]etitioner’s ‘current monthly income and
expenses.” Rosenberg at *3 (citing Brunner
at 396). Looking to the Debtor’s bankruptcy
petition, Schedules I & J, and Means Test
(11 U.S.C. 707(b)(2)), demonstrated that
the Debtor had negative monthly income.
Rosenberg at *4.
Judge Morris found that with a negative
monthly income the debtor could not
afford to pay the loan in full or make the
necessary consecutive monthly payment
to rehabilitate the loan and cure the
default and maintain a “minimal standard
of living.” Id. at *4. Therefore, the debtor
satisfied the first prong.
B. Additional circumstances exist indicating
that the states of affairs is likely to persist
As for the second prong, Judge Morris
departed from decisions of other courts,
stating that the “ Brunner test does not
require the Court to make a determination
that the [debtor’s] state of affairs are going to
persist forever,” “[n]or does the test require
that the Court make a determination about
whether the [p]etitioner's “state of affairs”
was created by “choice”…” Rosenberg at
*4. The only question is whether the
circumstances will persist for “significant
portion of the repayment period.” Id.
Answering this question in Rosenberg, was
easy, because the repayment period had
ended as a result of the acceleration, and
therefore the second prong was satisfied.
PBCBA BAR BULLETIN
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C.Whether the Debtor Has Made Good
Faith Efforts to Repay
And, finally addressing the third prong
about the debtor’s “good faith” efforts to
repay the loan, Judge Morris, found in this
case that the debtor had made efforts to
repay the loans. Id. at *5-6. This prong is
more fact intensive and depends on the
circumstances of each case. As Judge
Morris described it, the debtor in this case
“did not sit back for 20-years but made a
good faith effort to repay his Student Loan.”
Conclusion
While the burden still lies with the debtor
to bring the adversary proceeding and
demonstrate to the Court that the student
loan exception will result in an undue
hardship, a debtor now armed with Judge
Morris’ well-reasoned opinion has a better
chance of persuading local courts to break
from the orthodoxy and application of
Brunner as it has been.
This article is submitted by Jason S.
Rigoli, Esq., Furr Cohen, 2255 Glades Road,
Suite 301E, Boca Raton, FL 33431, jrigoli@
furrcohen.com.