Student Loans and Bankruptcy: Brunner Test Alive and Well

Recent 6th Circuit BAP Decision Shows the Brunner Test is Alive and Well

On August 8, 2014, the 6th Circuit BAP reaffirmed a decision denying a student loan discharge for a 54 year-old-woman. The In re Trudel (citation unavailable) decision shows us that despite other districts turning away from the Brunner standard by calling the test harsh and antiquated, the Brunner standard is still very strictly followed in the 6th Circuit. If a Debtor is to be successful in discharging student loans, then all three prongs of the Brunner Test must be satisfied.

In order to obtain a student loan discharge in the 6th Circuit, a Debtor must satisfy three prongs set forth in Brunner:

(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) additional circumstances prevent repayment of the loans must exist and there must be an indication that this state affairs will continue to exist for a significant portion of the repayment period; and
(3) the debtor has made good faith efforts to repay the loan (In re Brunner, 831 F.2d at 396)

In this situation, Trudel owed roughly $130,000 in federally backed student loan debt from the 90’s. Trudel never completed her degree and was employed by Sterling, where she made roughly $12.50 per hour. On top of her low wage, Trudel has many medical aliments. Trudel argued that these aliments kept her from working anything above 32 hours per week. The BAP agreed with the Bankruptcy Court of the Northern District of Ohio that the first prong of Brunner had been satisfied. With this wage, the Debtor could not maintain a minimal standard of living if forced to repay the student loans.

So what went wrong? Why was Trudel denied a discharge?

It all came down to prongs two and three. The BAP agreed with the Ohio Bankruptcy Court in that additional circumstances were lacking to support a discharge. There must be a “certainty of hopelessness” in the repayment, not just a present inability to fulfill the financial condition (CITE). While Trudel was limited on when she could work, the BAP agreed with the Bankruptcy Court that the Debtor failed to convince them that her medical conditions were so severe that they would prevent her from performing her job. A limitation or absences from work that the Debtor and her physician described while limiting to the Debtor, did not prevent her from working at her current employment.

The BAP also noted that Trudel failed the third prong – good faith repayment efforts. Most notably of these is the federal governments income based repayment plan (“IBR”). The Debtor never applied or inquired about an IBR. The Debtor completed her own IBR analysis, which seemed to suggest that the payment for her loans each month would be roughly $54. The Debtor testified that she would be unable to make this payment, based on copays to her doctors and other expenses. The United States Department of Education stated that when working up a repayment plan, her copays would be taken into account. Trudel did not believe that was the case and felt she could not take the chance on all of her other expenses being calculated in. But the BAP and the Bankruptcy Court for the Northern District of Ohio both agreed that this prong was not satisfied as Trudel did not try or even inquire about an IBR.

The take away from Trudel is that before seeking a discharge of student loans in a bankruptcy, ALL prongs must be satisfied and your chances of getting a discharge are increased if ALL remedies are exhausted before seeking a discharge in bankruptcy.


One Reply to “Student Loans and Bankruptcy: Brunner Test Alive and Well”

  1. Pretty grim observation. Actually, what you are tkilang about is mortgagee insurance. This is the insurance that the lender takes out to protect its interest in the property in case of property damage loss, such as from fire or storm. This insurance is more expensive than your private insurance. As soon as you obtain your own insurance the mortgageee insurance policy will be canceled. Your mortgage policy always requires you to have property damage insurance. Your failure to maintain this insurance allows the lender to foreclosure just like when you fail to make payments.

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