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The student loan industry is a wretched hive of scum and villainy and it’s spent the last couple of decades systematically molding a legal regime to protect the pound of flesh it extracts from students. While the Bankruptcy Code theoretically exists to allow people to rebuild from crushing financial pressures, one of the primary sources of debt in the country is functionally walled off from the bankruptcy process. “If student loan debt is the main reason you’re filing for bankruptcy, your lawyer should tell you not to expect it will be discharged,” Dan Austin points out in a quote that any impoverished law grad can easily find.
But while the hurdles have become so daunting that most debtors don’t even try to get student loans discharged, the fact of the matter is that the law does allow it under the 1987 Brunner test and Chief Bankruptcy Judge Cecelia Morris of the Southern District of New York just dusted off Brunner and discharged $220,000 in student loan debt for Cardozo Law School grad and Navy vet Jared Rosenberg.
The Chief offered harsh words for the powers-that-be that have whittled Brunner down to a long-forgotten myth of fair bankruptcy relief:
Morris said she was applying the so-called Brunner test for discharge of student debt as it was originally intended. Since the test was created in a 1987 decision, cases interpreting it have set out “punitive standards” and “retributive dicta,” she said. Those harsh cases “have become a quasi-standard of mythic proportions, so much so that most people (bankruptcy professionals, as well as lay individuals) believe it impossible to discharge student loans,” she said.
“This court will not participate in perpetuating these myths.”
One hopes this is the dawn of a new day that doesn’t afford student debt magical protections under bankruptcy law. But, if history is any guide, an appeal will swiftly follow. In a world where the Department of Education openly ignores court orders to keep student debt dollars following, the lenders will find a way to strike back.
Law grad wins discharge of his student debt in opinion criticizing ‘punitive standards’ [ABA Journal]
Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.