In our continuing effort to follow the dischargeability of student loans, a new case, decided by the Bankruptcy Court for the Eastern District of Pennsylvania, Price V. Devos has some note. The Bankruptcy Judge, sitting in the Eastern District of Pennsylvania, is bound by In re Brunner and the famous “Brunner Test”. That test, decided in the 1985 case of In re Brunner, 46 B.R. 752, has a very strong strict interpretation of what constitutes an “undue hardship” for purposes of dischargeability of a student loan. Essentially, the Debtor has to be very, very broke, her/his circumstances have to be proven to be likely to persist for a significant amount of time for a “significant portion of the repayment period” and the Debtor has to act in good faith.
The second prong of the test, an indication that the state of affairs will persist for a significant period of the repayment period, has been the subject of litigation, the Department of Education arguing that the “repayment period” can be up to 25 years (since there are programs that allow people to defer or have reduced student loan payments for that length of time). Judge Eric Frank, knowing he is bound by Brunner, did, at least implicitly, attack the test and did so by looking at the second prong and asking what the “repayment period” of the loans would be? Essentially, the Judge ruled that the “repayment period” is not 25 years nor any extended period of time. It is the time under which the loan should have been paid according to its terms. In Price that was seven years. The Judge ruled that he only had to forecast the Debtor’s circumstances for five years and no more. The Judge found that Ms. Price’s circumstances, including three children, being unable to find full-time work even though working part-time in the medical field and other miscellaneous circumstances compelling. The debt was discharged.
Brunner, decided in 1985, has been adopted by most of the Federal Circuits. However, it is flawed, although probably thought through when decided, the law in 1985 was dramatically different than the law as it stands today. In 1985, a student loan could be discharged if it was more than five years old. Now it can’t be discharged at all, unless there is an undue hardship. Brunner needs to be re-examined (and Courts are doing so) in light of the huge amount of student loan debt and the difficulty in sometimes proving an “undue hardship”.