May 8, 2017

“Thus, even if the court concludes that a debtor has acted recklessly or foolishly in accumulating student debt, that does not play into an analysis under the second prong.”

In an important decision last week, the 11th Circuit Court vacated and remanded Alabama District Court Judge W. Keith Watkins’ judgment concerning a single mother’s $112,000.00, $915/month student loan debt.

Through her individual bankruptcy proceedings, the debtor’s student loan debt was considered discharged under Section 523(a)(8) of the Bankruptcy Code.  This section of the code is referred to as “undue hardship,” it reads:

“(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt— ….(8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.”


This means, it was the opinion of the bankruptcy court that the continued, required payment of $915/month for 15 years was sure to impose an “undue hardship” on the debtor and her family.  On appeal, district court Judge Watkins reversed this decision, once again binding the debtor to the full student loan debt amount. 

Judge Watkins’ cited the second prong of the Brunner Test for why the debtor should not be able to discharge her student loan debt.  The Brunner Test is a three-pronged test used widely by courts to determine if a debtor meets the undue hardship requirement. 

The Brunner Test:

Factor #1: You cannot maintain a minimal standard of living for yourself and your dependants if you are forced to repay the loan;

Factor #2: It is unlikely your current financial situation will change;   

Factor #3: You have made a good-faith effort to repay the debt.

It was the district court’s opinion that the debtor could attain other, higher paying employment to off-set her burdensome student loans; even though this would mean sacrificing her tenure.  Since the district court held the debtor’s current financial situation could change, the debtor did not satisfy the requirement under Factor #2 of the Brunner Test, thereby disqualifying the student loan debt for discharge.  Judge Watkins’ stated: “(the debtor) ultimately bears the consequences of her decision to obtain loans in order to pursue her multiple educational goals.”

On April 19, 2017 the 11th Circuit vacated and remanded this decision.  This does not mean the debtor is in the clear—yet—but there is still hope for her.  The Court of Appeals found that the District Court had erred by 1) Failing to identify the proper standard of review and 2) only analyzing one prong of the Brunner Test instead of all three. 

The Court of Appeals concluded:

“Given this uncertainty, we remand the case to the district court with instructions to apply clear-error review to the bankruptcy court’s factual findings as to each prong of the Brunner test and de novo review to any of the bankruptcy court’s legal conclusions.”

This is just a snap-shot of the ever-changing, unclear landscape of bankruptcy and student loan debt.  As more and more debtor’s filing for bankruptcy are carrying massive loads of student debt, there will only be more and more difficult decisions to be made by courts at all different levels across the nation. 





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