Discharging Student Loan Debt & the Brunner Test

Having your student loans discharged in a Chapter 7 bankruptcy case is very difficult; you must show that repayment would cause you “undue hardship.” Because of this, many courts use a three-factor test, called the Brunner Test, to determine if you can meet the undue hardship requirement for student loan discharge.

Recently, on April 19, 2017, in an unpublished decision, the Eleventh Circuit Court of Appeals clarified the factors that must be considered in applying the second prong of the Brunner Test used by most courts, including the Tenth Circuit (which covers Kansas), in determining whether student loan debt may be discharged in bankruptcy. In In re Alexandra Elizabeth Acosta-Conniff (ECMC v. Alexandra Elizabeth Acosta-Conniff), 16-12884, 2017 WL 1396164 (Apr. 19, 2017) the court set out the well-known Brunner factors:

1. That the debtor cannot maintain, based on current income and living expenses, a “minimal” standard of living for him/herself and 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 a good faith effort to repay the loans.

The bankruptcy court found that the debtor had satisfied the Brunner Test and that the student loans should be discharged. However, on appeal, the district court found that the debtor did not produce sufficient evidence to satisfy the second prong of the Brunner Test and reversed the prior decision without considering the evidence related to either of the other two prongs.

The debtor appealed to the Eleventh Circuit and the circuit court reversed and remanded to the district court. In doing so, the court noted the district court improperly considered certain evidence when assessing the second prong.

The district court, in determining that the second prong had not been satisfied, noted that the debtor essentially had no one else to blame for her circumstances than herself. She incurred substantial student loan debt to obtain advanced degrees in the field of special education, eventually obtaining a Ph.D. She did that knowing what the compensation in the field would likely be. The district court chastised the debtor for incurring significant debt for such degrees knowing the likelihood she would not have a significant income to repay the debt. The district court held that “[a]lthough [the debtor] admittedly finds herself in undesirable financial difficulties, she ultimately must bear the consequences of her decision to obtain loans in order to pursue her multiple educational goals.” The Eleventh Circuit reversed the district court and noted that the second prong of the Brunner Test is:

[A] forward-looking test that focuses on whether a debtor has shown her inability to repay the loan during a significant portion of the repayment period. It does not look backward to assess blame for the student debtor’s financial circumstances. Thus, even if the court concludes that a debtor has acted recklessly or foolishly in accumulating her student debt, that does not play into an analysis under the second prong.

The court noted in a footnote, however, that such evidence might be considered in assessing the third prong, which takes into account the debtor’s good faith. If you are considering filing for bankruptcy and have student loan debt, be aware of the Brunner Test and how it might affect discharging your debt. Having a skilled attorney to walk you through the steps will help you make those determinations before heading to court.