It has been historically tough for borrowers to have student loans discharged in bankruptcy

By Rachel DeSantis
January 23, 2020 12:46 PM

A New York man’s $221,000 in student loans were recently wiped out by a judge after he filed for bankruptcy — and was able to prove in court that the payments provided him with “undue hardships.”

Kevin Rosenberg filed for chapter 7 bankruptcy in March 2018, and sought to have his massive student loan debt declared dischargeable that June, according to a court document obtained by Forbes.

“It is very difficult, although not completely impossible, for borrowers to discharge student loans in bankruptcy,” wrote student loan attorney Adam S. Minsky for Forbes. “The federal bankruptcy code treats student loans differently from other types of consumer debt (such as credit card debt or medical debt). In order to discharge their student loans in bankruptcy, student loan borrowers must prove that they have an ‘undue hardship’ that would prevent them from repaying their student loans.”

Rosenberg had been accumulating the debt since he first began borrowing money in 1993 to pay for his history degree from the University of Arizona. After a five-year stint in the U.S. Navy, he went back to school at Cardozo Law School at Yeshiva University, applying for and receiving more student loans to cover his tuition and board.

Upon graduation, Rosenberg consolidated his student loans to the tune of $116,464 in 2005 — but by November 2019, that balance had risen to $221,385 thanks to interest, according to the court document.

The judge’s decision to discharge Rosenberg’s debt hinged on what’s known as the Brunner test, named after a 1987 Second Circuit case that has since become something of a standard in similar student debt cases, according to the Federation of American Scientists.

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In that specific case, the court found that the debtor was unable to maintain, based on her current income, a “minimal standard of living for herself if forced to repay the loans,” but had made “good faith efforts” to do so, according to the document.

Those requirements became the three prongs of the so-called Brunner test: can the petitioner maintain a minimal standard of living, do any additional circumstances exist that indicate the financial situation will stay the same during the repayment period, and have they made good faith efforts to pay off the loans?

Rosenberg — who showed that he had a negative current monthly income — successfully met all three aspects of the test, according to the document, thereby allowing the judge to discharge his debt because the loans imposed “an undue hardship” on him.

“The judge rejected the rigidity of the undue hardship standards established by prior courts, writing that this particular court would not ‘participate in perpetuating these myths’ that it is impossible to discharge student debt in bankruptcy,” wrote Minsky for Forbes.

According to Minsky, student loan borrowers who want the same outcome as Rosenberg have to file an “adversary proceeding” in bankruptcy court as part of their case, which “involves suing your student loan lenders, who will fight tooth and nail to try to convince a judge that the borrower does not meet the legal standard for a discharge.”

The fight is reportedly set to continue for Rosenberg, as his student loan lenders have said they will appeal the decision to a higher court, according to Forbes.

The case is indicative of a larger problem within the United States, where some 44 million people owe nearly $1.5 trillion in student loans.