Education Credit Management Corporation (“ECMC”), the guarantor of the student loan debt ruled dischargeable last month by the Chief Judge of the United States Bankruptcy Court for the Southern District of New York, is appealing that decision to the United States District Court for the Southern District of New York.
On January 17, ECMC filed a notice of appeal from Judge Cecilia G. Morris’ momentous January 7 opinion, granting summary judgment in favor of a student loan debtor seeking to discharge $221,385.49 in federal student loan debt. As we previously reported, Judge Morris applied the three-part test set forth by the Second Circuit in its 1987 decision in Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner) to resolve competing motions for summary judgment submitted by the debtor and ECMC on the dischargeability of the debtor’s student loan debt. Based on the papers submitted by each of the parties, and without hearing oral argument, Judge Morris concluded that the debtor had satisfied each of the three prongs of the Brunner test, and ordered the debtor’s student loan debt be discharged, challenging the commonly held assumption that student loan debt is not dischargeable in bankruptcy.
ECMC is now appealing that decision, arguing that the Bankruptcy Court “rejected 32 years of case law applying the Brunner test, in order to determine, on summary judgment, that [the debtor] met his burden to establish an undue hardship.” In her opinion, Judge Morris examined the line of cases applying Brunner, many of which have stated that a debtor must demonstrate a “certainty of hopelessness.” She concluded that later cases applying Brunner with this language have added a punitive standard to Brunner that is not part of the test.
By contrast, other courts looking at the information that was available to Judge Morris may well have concluded that the debtor failed all three parts of the Brunner test because: (1) based on current income and expenses, the debtor was able to maintain a minimal standard of living, by pursuing work as a lawyer, rather than as a tour guide in the outdoor adventure industry; (2) the debtor would likely have been able to continue to maintain a minimal standard of living over the time period during which repayment would have been required in the absence of acceleration; and (3) a payment history showing only 10 payments over a 13-year period was insufficient to demonstrate good faith efforts by the debtor to repay his student loan debt.
Through ECMC’s appeal, Judge Cathy Seibel of the United States District Court will determine whether Judge Morris correctly applied the facts in this case to conclude that the student loan debtor satisfied the Brunner test. The student loan debtor, who had been representing himself pro se, has now retained Austin C. Smith of the Smith Law Group, LLP to represent him in the appeal. The outcome of this decision will impact how other courts view Judge Morris’ application of the Brunner standard, and the assumption that student loan debt is not dischargeable in bankruptcy. If the decision is upheld, student loan debtors in similar factual circumstances will be encouraged to consider seeking discharge of their student loan debt.