Bankruptcy Appellate Panel Gets Student Loan Test Right

03 Oct Bankruptcy Appellate Panel Gets Student Loan Test Right

bankruptcy student loans Bankruptcy lawyers and their clients are plagued by the Brunner test when trying to discharge student loans.

While the Bankruptcy Code says that student loans may be discharged if the debtor shows “undue hardship,” the Brunner test provides that student loans may only be discharged if the debtor shows: (1) inability, at his current level of income and expenses, to maintain a “minimal” standard of living; (2) the likelihood that this inability will persist for a significant portion of the repayment period; (3) and the existence of good faith efforts to repay the student loans. In essence, it’s undue hardship on steroids—undue hardship in the most extreme. As I tell my clients, this really means you must be physically or mentally disabled to discharge your student loans. Not making enough money isn’t enough.

But last week winds of judicial change blew out of the northeast. In a well-reasoned opinion, the First Circuit Court of Appeals Bankruptcy Appellate Panel rejected Brunner in the case of In re Bronsdon, instead opting to follow the Eleventh Circuit Court of Appeals’ “totality of circumstances” test.

The issue before the Court was whether 64-year-old Denise Bronsdon could discharge $82,000 in student loans. Bronsdon, a law school graduate, unfortunately was unable to pass the bar exam and lives solely on Social Security. She also lives in her father’s den, unable to obtain her own home on her small income. As the Court noted, there was no way someone on Ms. Bronsdon’s income and at her age would pay back $82,000.

But, as I’ve said before, owing student loans is like owing the mob. And this case was no different. The student loan creditor, Educational Credit Management Corporation, (“ECMC”) fought poor Ms. Bronsdon in the Bankruptcy Court, District Court, back in the Bankruptcy Court on remand, and then eventually all the way to the First Circuit Court of Appeals. And at each step along the way, ECMC fought with tenacity only Tony Soprano could rival.

However, despite ECMC’s best efforts to keep Ms. Bronsdon in financial bondage, the Court rejected ECMC’s request for the Court to adopt Brunner and to deny Ms. Bronsdon discharge of her student loans. Instead, the Court, quoting two other Massachusetts bankruptcy cases opining that Brunner “tests too much” and was “overkill,” ruled against ECMC. The Court also stated that the good faith requirement of Brunner was “without textual foundation.” (In layman’s terms, that means it was just made it up.)

The Court explained that it would instead follow the “totality of circumstances” test, which it summarized as follows:

Can the debtor now, and in the foreseeable future, maintain a reasonable, minimal standard of living for the debtor and the debtor’s dependents and still afford to make payments on the debtor’s student loans?

The Court further explained that “courts should consider all relevant evidence–the debtor’s income and expenses, the debtor’s health, age, education, number of dependents and other personal or family circumstances, the amount of the monthly payment required, the impact of the general discharge under chapter 7 and the debtor’s ability to find a higher-paying job, move or cut living expenses.” Essentially, the Court said it would examine the debtor’s circumstances and determine whether repayment would cause the debtor, or the debtor’s dependents, undue hardship. No more, no less.

And in this case finding undue hardship was a no-brainer. In fact, the Court found that requiring repayment of the student loans might lead to Ms. Bronsdon becoming homeless. Given the facts of this case one wonders how ECMC believed that it had any good faith argument against allowing Ms. Brondson’s request to have her loans discharged. I’ll bet even Tony Soprano would have given her a break.

Author’s note: For more information on student loans, see parts one, two, and three of my series here on Bankruptcy Law Network entitled, “The Worse Kind of Debt You Can Have: Student Loans.” One last thought: I wonder how much cash ECMC burned through litigating against Ms. Bronsdon. $20,000? $30,000? More? Amusingly, Ms. Bronsdon, who, as the opinion notes, did not pass the bar exam, represented herself and beat this large corporation with virtually limitless resources. Congrats to Denise Bronsdon for a job well done! I wish you the best and hope your situation somehow improves.

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Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who represents consumer debtors in Chapter 7 and Chapter 13 bankruptcy. He is the author of the Charleston Bankruptcy Blog. He is also a member of the South Carolina Bankruptcy Blog. He files bankruptcy cases for clients in the Charleston, South Carolina division, which runs from Myrtle Beach to Beaufort. The DeMott Law Firm also represents clients in foreclosure defense and mortgage modification. You can also connect with Russ on Google Plus Russell DeMott. Russ can be contacted directly at (843) 695-0830 or by email at

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