In In re Tingling, __ F3d __, 2021 WL 922448 (2nd Cir. March 11, 2021) (click for .pdf), the Debtor filed an adversary proceeding seeking discharge of her student loans. The Bankruptcy Court determined that the debtor failed to meet the Brunner Test, and the District Court affirmed. The Debtor appealed to the Second Circuit, arguing that the lower courts abused their discretion in finding that she would not face an “undue hardship” if her loans were not discharged. The Debtor also argued that the Brunner Test has, over time, become too high a burden for debtors to satisfy. The Second Circuit disagreed, and affirmed. It is probably relevant that the Debtor was pro se for the latter part of the adversary proceeding and appeals. I do not really find this to be a close call on the Brunner Test, so perhaps the Second Circuit took the opportunity to let everyone know the test is still the test.
Section 523(a)(8) provides:
(a) A discharge under section 727, 1141, 1192, 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, for—
(A)(i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;
Pursuant to Brunner v. N.Y State Higher Educ. Servs. Corp., 831 F.2d 395 (2nd Cir. 1987) – the infamous “Brunner Test” –
[A] debtor who claims “undue hardship” to defeat the statutory presumption against a student loan discharge must make the following specific factual showing by a preponderance of the evidence:
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans;
(2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
(3) that the debtor has made good faith efforts to repay the loans.
The Court, in short order, confirmed that the Brunner Test was still the law, at least in the Second Circuit (and presumably in most other courts that follow it).
This so-called Brunner test reflects the Section 523(a)(8) statutory scheme exhibiting “clear congressional intent … to make the discharge of student loans more difficult than that of other nonexcepted debt ….”
As far as the specific facts of the case the Court referred to the thorough District Court Memorandum and Opinion (In re Tingling, 611 B.R. 710 (E.D. N.Y 2020) (click here for WL) in finding that the Debtor did not meet the Brunner Test:
First, the record shows that Tingling’s income (which exceeded federal poverty levels) and expenses allow her to make loan repayments while maintaining a minimal standard of living. Further, Tingling failed to undertake steps to improve her overall financial condition and reduce her discretionary expenses.
As for the second Brunner prong, Tingling is of relatively young age (52 years old), in good health, possesses two graduate degrees in healthcare administration, lacks dependents, and, by all indications, is able to maintain her current level of income. Tingling not only stipulated in the Pretrial Order that she had no medical or psychological disabilities, but she also introduced no corroborating evidence into the record that a recently diagnosed tumor affected her ability to continue working full-time.
Finally, turning to the third Brunner prong, Tingling failed to avail herself of repayment options available for the ECMC loans and put no discernible good faith effort into either negotiating or repaying the DOE loans. Specifically, although Tingling was eligible to consolidate her loans and enter into one of two available income-based repayment programs, Tingling never did so. In addition, Tingling received tax refunds totaling an average of over $4,000 each year for the years 2014 through 2017, but she put no portion of these refunds toward her student debt.
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