A student loan servicer is appealing a bankruptcy judge’s watershed decision to discharge all of a U.S. Navy veteran’s student debt.
Educational Credit Management Corporation (ECMC) — a nonprofit that guarantees and services student loans on behalf of the Department of Education (ED) — is challenging the January 7 decision made by Chief U.S. Bankruptcy Judge Cecelia G. Morris, who discharged $221,385.49 in student loan debt for Navy veteran and lawyer Kevin Rosenberg under chapter 7 bankruptcy.
The decision belies the common notion that student debt is not dischargeable under chapter 7.
Judge Morris had applied the Brunner test — a three-factor standard used to identify if the borrower is facing undue hardship and cannot make repayments — to evaluate whether Rosenberg was eligible for discharge.
“This Court will not participate in perpetuating these myths,” Morris wrote her decision. “Rather, this Court will apply the Brunner test as it was originally intended.”
ECMC’s main contention in their appeal is that Rosenberg was licensed to practice law but did not pursue job opportunities in the same field: “Instead of pursuing those opportunities available to him, and paying back his taxpayer-backed federal student loans, Plaintiff, for the past 10 years, has held various positions in the outdoor adventure industry, including starting up and running his own tour guide business.”
The loan servicer also implied that Judge Morris’ interpretation of the Brunner test was lax.
“Inability to pay one’s debts by itself cannot be sufficient to establish an undue hardship; otherwise all bankruptcy litigants would have an undue hardship,” they stated. “The Bankruptcy Court in the case at hand rejected 32 years of case law applying the Brunner test in order to determine, on summary judgment, that Plaintiff met his burden to establish an undue hardship, thereby discharging Plaintiff’s entire student loan debt of approximately $221,385.”
Yahoo Finance reached out to ECMC, which said it does not comment on pending litigation.
‘Very few student loan cases get appealed’
Jason Iuliano, an assistant professor of law at Villanova University and an expert on bankruptcy, told Yahoo Finance that “very few student loan cases get appealed, so the Rosenberg case is unusual in that regard.”
Iuliano, who has done years of research related to student loans potentially being discharged in bankruptcy, added that the appeal rate is under 5% for student loan adversary proceedings.
“It’s not surprising that the Rosenberg case was appealed, though,” he added. “Given the publicity the case has received and the judge’s strong rhetoric against the undue hardship standard, ECMC had no choice but to appeal.”