Maryland Court Cancels Student Debt | Patterson Belknap Webb & Tyler LLP
As we reported, on June 21, 2021, the United States Supreme Court refused to review the rigidity Brunner standard for determining “undue hardship” capable of discharging student debt. On the same day, U.S. bankruptcy judge Michelle M. Harner applied the Brunner standard, paying off $ 178,000 in student debt.
Judge Harner explained that “[a]although the Bankruptcy Code reflects Congress’ intention to provide debtors with as wide a discharge as possible, Congress expressly excluded [student loan] bankruptcy discharge debt. In re: Terry Lucille Randall, 19-21815, 2021 WL 2550034, at * 1 (Bankr. D. Md. June 21, 2021) (“En re Randall”). But, the Bankruptcy Code includes an exception with the exception of the student loan, where failure to repay such debt “would place undue hardship on the debtor and his dependents.” 11 USC § 523 (a) (8).
Congress has not defined “undue hardship,” but most courts “have adopted the test developed by the Second Circuit. . . commonly called the Brunner test.” In re Randall to * 5 (citing Brunner v. NY Higher Educ. Serves. Corp., 831 F.2d 395 (2d Cir. 1987)). the Brunner the test requires debtors to show:
(1) They cannot maintain, on the basis of their current income and expenses, a “minimum” standard of living for themselves and their dependents if they are forced to repay loans;
(2) There are additional circumstances indicating that this state of affairs is likely to persist for a significant portion of the student loan repayment period; and
(3) They made good faith efforts to repay the loans.
Identifier. Justice Harner found each of these requirements to be met.
Regarding the “minimum” standard of living, the parties disputed (1) whether the applicant / applicant (the “applicant”) had money after the monthly expenses and (2) whether the applicant could reduce their expenses. by moving into a cheaper apartment. . Harner J. rejected the position of the defendant Navient Solutions (the “defendant”) that the plaintiff had money to spare. The plaintiff claimed excess income, but it depended on her working 40 to 100 hours of overtime per pay period. As for a cheaper apartment, Judge Harner credited the complainant’s testimony that she was concerned about moving to the city of Baltimore and that apartments outside of town were more expensive than her current home. Identifier. to * 6-7 (“This Court is unwilling to require a debtor to move into unsafe or unhealthy living conditions just to pay off student loan debt.”).
Regarding the second Brunner element — indications that the situation is likely to persist — the court cited, among others, (1) the complainant’s advanced age (68) and (2) that her overtime was likely to decrease after the end of the COVID-19 pandemic. “The [c]We must also observe[ed] one requiring a 68-year-old to continue working more than 80 hours per week for a significant period of time (or even assuming it can do so) is unreasonable. Identifier. at 8.
Finally, with respect to the good faith efforts to repay the loans, the plaintiff had only repaid $ 3,764.43 of the $ 190,000 owed to the defendant (which was only part of the $ 500,000 in debt. applicant’s student). Nonetheless, as the plaintiff had “made certain payments on her student loan debt, has not completely ignored these debts and appears to have managed her financial affairs to the best of her ability”, the court found that “within its limits, [the Plaintiff] made good faith attempts to repay or otherwise settle their student loan debt. Identifier. at 9 o’clock.
Thus, the court concluded that “require the plaintiff to reimburse the defendant in full would impose undue hardship on the applicant. . . . Having said that, the [court could] not ignore that the applicant ha[d] some ability to repay some of their student loan debt. Identifier. to 10. To determine the amount, the court reassessed the same factors demonstrating undue hardship, including current income, potential changes in income and expenses. Identifier. to 11. “By balancing all the evidence and taking into account the language and purpose of the [Bankruptcy] Code, the [c]our duty to determine[d] that the plaintiff should be required to pay a total of $ 12,000 (plus interest at the federal judgment rate). Identifier.
In so ruling, the court rejected the precedent “that any capacity to repay requires a complete denial of release”. Identifier. at 10. Instead, Harner J. concluded that in order to achieve the intention of Congress, 11 USC § 523 (a) (8) should be read to allow for a partial cancellation of student debt. Identifier. Other courts have taken the opposite approach. Identifier. at * 10 & n.22 (discussing the previous one). Unfortunately, the Supreme Court recently refused to resolve the conflict between this rigid standard, the slightly more flexible approach taken by Justice Harner (allowing partial discharge) and the unrestricted test of “all the circumstances” approved by the Eighth. circuit. See In re Long, 322 F.3d 549, 554 (8th Cir. 2003) (rejecting Brunner).