Supreme Court Declines to Revisit Overly Rigid Standard for Discharge of Student Loans in Bankruptcy

On Monday, the United States Supreme Court dismissed Thelma McCoy’s petition for a certificate in the United States Court of Appeals for the Fifth District, missing a unique opportunity to unify the “important and recurring question,” like the one kind of “unreasonable Hardship ”qualifying a debtor for student loan exemption under 11 USC § 523 (a) (8). [1]

The bankruptcy code basically excludes student loan debts from general relief to which individual debtors are entitled after their proceedings are completed. 11 USC § 523 (a) (8). However, as an exception to the exception, student loan debts are recoverable in cases where “exempting such debts from the exemption under this paragraph would impose undue hardship on the debtor and the debtor’s dependents”. I would.

To determine what constitutes “unreasonable hardship”, most courts use the inflexible and rigorous three-part test given by the Second Circuit in Brunner versus New York State Higher Education Services Corp.[2] A debtor who wants to exempt her student loan after the Brunner test must prove: “(1) that [she] cannot maintain a “minimum” standard of living for herself and her relatives due to current income and expenses if she is forced to repay the loans; (2) that there are additional circumstances that indicate that this condition is likely to persist for a significant portion of the student loan repayment period; and (3) that [she] has tried in good faith to repay the loan. ” [3] If a debtor cannot fulfill one of these elements, an insolvency court in a Brunner place of jurisdiction has little discretion to remedy the situation: the application for discharge must be rejected.

The Eighth Circle rejected Brunner. It requires the courts to consider the “totality of the circumstances” in each individual debtor case. [4] With this approach, bankruptcy courts must analyze all of the “facts and circumstances surrounding each individual bankruptcy” to determine whether the “reasonable future financial resources of the debtor can adequately cover the payment of the student loan debt – while still maintaining a minimal standard of living. ” [5]

McCoy took advantage of this clear division of powers and argued convincingly that the Supreme Court should weigh the issue.

These approaches differ greatly both in application and in result. While the holistic approach allows courts to consider all relevant facts and circumstances [. . .] the Brunner test categorically excludes even the most oppressed debtors from exoneration if they fail to meet one of the three elements. For example, the Fifth District, when using the Brunner test, requires that a debtor be “totally insolvent” to pay the debt in the future, regardless of whether the debtor’s age, disability, or other mental or physical limitations otherwise a repayment at an “undue hardship.”

This case is an ideal vehicle to resolve the conflict. The courts below denied discharge on the grounds that Ms. McCoy might be able to repay part of her student loan debt in the future, which they treated as dispositive under Brunner’s second prong. Had Ms. McCoy filed for bankruptcy in a non-Brunner jurisdiction, the court would have considered, at its own discretion, all facts relevant to undue hardship, including her age (62 years), debilitating disabilities (degenerative back problem, fatigue, chronic headaches, panic attacks, Depression etc) and their exhaustive job search. [6]

Unfortunately, the court did not act, which leaves countless individual debtors – often per se and with a limited understanding of the complex procedural and material requirements for applying for and obtaining discharge – little hope of the new beginning promised by bankruptcy.

source https://collegeeducationnewsllc.com/supreme-court-declines-to-revisit-overly-rigid-standard-for-discharge-of-student-loans-in-bankruptcy/