Bankruptcy Law

Law grad wins discharge of his student debt in opinion criticizing 'punitive standards'

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In what is being described as a “stunning” decision, a bankruptcy judge has ruled that a 2004 graduate of Yeshiva University’s Cardozo Law School may erase more than $220,000 in student loan debt.

The law grad, 46-year-old Kevin Jared Rosenberg, represented himself. His annual income is less than $38,000, and his monthly income after expenses runs at a deficit of about $1,500, according to the Jan. 7 opinion by Chief U.S. Bankruptcy Judge Cecelia Morris of the Southern District of New York.

The Albany Times Union, which noted the “stunning decision,” and the Wall Street Journal have coverage.

Rosenberg’s consolidated student loan was in forbearance or deferment for 10 years beginning in April 2005. He made 10 payments of varying amounts during the next 26 months.

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.”

The Brunner test considers whether the debtor can maintain a minimal standard of living if forced to repay the loans, whether an inability to maintain the minimal standard is likely to persist for a significant portion of the repayment period, and whether the debtor had made a good faith effort to repay the loans.

Morris said Rosenberg was entitled to relief under the test.

Rosenberg lives in Beacon, New York, according to the Wall Street Journal. For a short time after graduation, he worked at a law firm and as a part-time contract attorney. For the last 10 years, he has owned an adventure tour guide business and worked in the outdoor adventure industry. Before attending law school, he served in the U.S. Navy.

Rosenberg told the Wall Street Journal that the decision discharging his debt “leaves me with a feeling of relief, not celebration.”

“I’m thankful that I get to recover from a crushing financial blow and have a chance to get up, dust myself off and keep going,” he said.

If Morris’ decision is affirmed on appeal, it could have an impact in other parts of the country, according to Kingston, New York, bankruptcy lawyer Peter Frank, who spoke with the Albany Times Union.

“All of us have been discouraged from attempting to discharge student loans because it appeared that the law was a wall too high to climb for most debtors other than those with severe disabilities,” Frank said. “If the district court affirms Chief Morris’ order, there will be a lot more filers for bankruptcy all over the country.”

The Wall Street Journal spoke with Villanova University bankruptcy law professor Jason Iuliano, who said Morris is among a small number of bankruptcy judges who are becoming more sympathetic to student debtors. Still, it is rare to obtain cancellation of student debt, and most people don’t even try. About 250,000 student loan borrowers file for bankruptcy each year, and only about 400 sue for discharge of their student loans, his research indicates.

“There’s so many people who file bankruptcy each year and have student loan debt,” Iuliano said. “But they don’t take the steps to even request the discharge because their attorney is sort of under the spell of this myth that’s out there that student loan debt can’t be discharged in bankruptcy.”

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