by NACBA and the NCLC have added their voices to an Eleventh Circuit student loan discharge case. Acosta Conniff v. ECMC, No. 16-12884 (11th Cir.). The amicus brief, filed August 22, begins with a direct attack on the Brunner, hardship test as straying too far from the plain language of section 523(a)(8) and from congressional intent to permit discharge of student loans under certain circumstances.
In arguing that the four-part test set forth in Brunner v. New York State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987), is obsolete, amici point out that Brunner came into existence at a time when, by statute, student loans could be automatically discharged five years after they became due. Brunner addressed the perceived problem of debtors seeking discharge of student loans almost as soon as they came due rather than waiting the five years. But given changes in bankruptcy law and the student loan industry that issue is no longer a problem as student loans are no longer automatically dischargeable after five years and, under current law, debtors typically live with student loan debt for decades. Also, since Brunner, student lenders have greater access to various collection methods, such as garnishment pursuant to the Higher Education Act, that were not available when Brunner was decided.
Even if the court continues to apply Brunner, however, amici argue that application of the test must be reined in to conform to the text of section 523(a)(8) and the need to base discharge on current facts rather than conjecture and speculation. The brief advocates for a standard of “undue hardship” as requiring that the debtor show that, “repayment of the student loan would prevent the debtor from satisfying ordinary and necessary living expenses so that a debtor could not effectively ‘make ends meet.’” Citing In re Skaggs, 196 B.R. 865, 868 (Bankr. W.D. Okla. 1996). In looking at whether paying the loans would result in undue hardship the court should take a realistic view of reasonable expenses and the debtor’s ability to maintain the necessities of life, such as housing, food, medical care, vehicles, etc. When the debtor’s income is far below what it necessary to meet those daily requirements, courts should not deny discharge on the basis that the debtor had some unnecessary expenses. Nowhere did Congress make “certainty of hopelessness” the standard for undue hardship.
Further, while extraordinary circumstances may be useful in helping a debtor show undue hardship, such circumstances should not be a requirement for meeting that standard. “Rather than require elements of undue hardship that are simply beyond proof in most cases, the debtor should be required to show that it is more likely than not that the financial difficulties causing undue hardship will continue into the immediate, foreseeable future. The likely persistence of hardship may be due to health problems or physical or mental disability of the debtor or a dependent. But it may also stem from more mundane causes, such as financial barriers that the borrower faces in his or her economic environment. The court should evaluate only realistic expectations rather than speculate concerning improved future prospects.”
The brief argues against courts that have applied a good faith component within the Brunner test to justify morality-based examination of the debtor’s past life choices that may have contributed to her financial distress.
Finally, the brief argues that the existence of an IBRP should not be considered in the “undue hardship” context, as undue hardship is statutorily and logically based on repayment of the student loans according to the terms of the lending agreement. The potential for forgiveness of a loan after twenty-five years, is simply not equivalent to, nor should it replace, discharge in bankruptcy. In fact, IBRPs may have the opposite effect of the fresh start offered by a bankruptcy discharge by increasing indebtedness over the long-term, adding to the emotional distress of the financial burden, and destroying the debtor’s credit.
The brief seeks reversal of the district court’s decision.
Thanks to John Rao and Geoffry Walsh for writing the brief.