Navy veteran, Kevin Rosenberg, borrowed $116,000 in student loans from 1993 to 2004 to earn a bachelor’s degree and later a law degree. The loan amount ballooned to $221,000 by 2018, when he filed for Chapter 7 bankruptcy in New York. Mr. Rosenberg sought to have the student loan debt discharged in the bankruptcy because it would impose an undue hardship on him. Mr. Rosenberg was working, was not defrauded, and was not disabled when he sought the discharge of the student loan debt.
Mr. Rosenberg sued to have the student loan debt discharged in the bankruptcy proceeding. Surprisingly, the bankruptcy judge hearing his case ruled that he did not have to repay his student loans because repayment would cause him an undue financial hardship.
Student loans are notoriously difficult to discharge in bankruptcy. There are a few exceptions, including disability and undue financial hardship. The conditions for a discharge due to financial hardship are enumerated in the so-called Brunner test, which is used today in most federal circuits. The Brunner test is comprised of 3 factors: i) a debtor cannot maintain a minimal standard of living for herself and dependents based upon current income and expenses; ii) that additional circumstances exist that indicate the debtor’s state of affairs is likely to continue for a significant portion of the term of the student loan; and iii) the debtor has made a good-faith effort to repay the loan. The bankruptcy judge found that the Brunner factors were met and ordered Rosenberg’s student loan debt discharged.
It is important to emphasize that this is one bankruptcy court case, which is likely to be appealed. Whether this ruling is later affirmed on appeal or adopted by other courts remains to be seen. Regardless, the decision is a ray of hope in an otherwise very bleak and depressing area of bankruptcy law.
You may read the court’s opinion here.