Judge Revoked Veteran’s $ 221,000 Student Loan Forgiveness
- Last year, a veteran was granted a student loan forgiveness of $ 221,000 due to bankruptcy.
- But a federal judge overturned that ruling due to the inability to prove the hardship caused by the loans.
- Lawmakers are pushing for bankruptcy reforms to make it easier for borrowers who have no other way to repay their debt.
In 2020, a bankruptcy judge awarded Navy veteran Kevin Rosenberg $ 221,000 in student loan forgiveness from his undergraduate and law school studies. A year later, a federal judge overturned that ruling, leaving Rosenberg responsible for his massive debt.
And it comes down to the complexity of bankruptcy law that keeps many borrowers trapped in student debt.
Lawmakers have pushed to reform bankruptcy standards for student loan discharges due to the difficulty of proving hard enough to qualify for a forgiveness, and Rosenberg’s initial ruling showed possible hope for debtors trying to do the same. But now the case is back to square one.
United States Bankruptcy Court Judge Cecilia Morris forgave Rosenberg’s loans through bankruptcy last year using the Brunner Test – a legal test created in 1987 that requires borrowers to show ” undue hardship âcaused by their student debt. The test defines this ordeal as meaning that they cannot maintain a minimum standard of living, that their situation is unlikely to improve, and that they have made a good faith effort to repay their debt.
Morris wrote in her ruling that Rosenberg had passed the legal test, saying she would not perpetuate “myths” that you can’t pay off student debt through bankruptcy.
But New York federal judge Philip Halpern may have just proven that the issue is not so mythical after all. Shortly after Morris’ decision, the Educational Credit Management Corporation (ECMC) – the company that held Rosenberg’s student debt – challenged the decision on the grounds that although Rosenberg was going into debt to practice law, he was seeking jobs in the “outdoor adventure industry”. and the company also criticized Morris’s interpretation of the Brunner test.
“Failure to pay debts on its own cannot be sufficient to establish undue hardship, otherwise all bankruptcy litigants would be under undue hardship,” the ECMC wrote in its appeal.
Halpern sided with the student loan company and revoked Rosenberg’s loan cancellation last month because he failed to prove why his college and law school loans were creating problems. “Undue hardship,” saying Rosenberg had to go back to bankruptcy court and reassess the case.
The challenges of forgiveness through bankruptcy
After his loans were first canceled, Rosenberg told Yahoo Finance it was “really insane” that borrowers couldn’t pay off their debt through bankruptcy when “executives get golden parachutes.” for making mistakes.
This notion is something that advocates and lawmakers have pointed out as a reason for making bankruptcy student loan discharge a more accessible method for borrowers. Insider reported in August that Senate Majority Whip Dick Durbin and Senator John Cornyn of Texas introduced the FRESH START Through Bankruptcy Act of 2021, which would allow borrowers to apply for the release of their federal student loans after 10 years. .
The bill would seek to eliminate the requirement to prove “undue hardship”, which would greatly increase the chances of student debtors to obtain loan forgiveness.
âStudent loan debt follows you to your grave,â Durbin said in a statement. “Our bipartisan bill finally gives student borrowers – some who have been misled into taking expensive loans by predatory for-profit colleges – a chance to get back on their feet when they have no other. realistic way to repay their loans, “he added.
While veterans like Rosenberg had the option of requesting loan forgiveness through the Public Service Loan forgiveness program (PSLF), which forgives public servants’ student debt after ten years, the program had a rate of 98% refusal before major reforms announced last week, going bankrupt is the fastest and most viable option.
“Undue hardship should not be the only way to settle student loans in bankruptcy,” Durbin said at a hearing in August. “There should be another option.”