In McCoy v. United States, No. 20-886, 2021 WL 2519103 (June 21, 2021), the United States Supreme Court avoided a prime opportunity to bring some form of debt relief to student loan borrowers throughout America. Here, the Court denied Thelma McCoy’s petition for a writ of certiorari to the United States Court of Appeals for the Fifth Circuit. In effect, the Court yet again failed to formulate a uniform answer to resolve the important and recurring question of how to determine an “undue hardship” that qualifies a debtor to discharge student loans under 11 U.S.C. § 523(a)(8).
Title 11, more commonly known as the Bankruptcy Code, generally lists student loan debt as an exception to debts that are included in the general discharge provided to individual debtors once their case is concluded. However, an exception to the exception allows the discharge of a student loan debt where “excepting such debt from discharge . . .would impose an undue hardship on the debtor and the debtor’s dependents.”
Most federal courts use a three-part test adopted by the Second Circuit in Brunner v. New York State Higher Education Services Corp. 831 F.2d 395, 396 (2d Cir. 1987). Many legal experts, scholars, judges, and attorneys consider the test to be strict and inflexible.
The requirements of the Brunner test are as follows:
(1) The debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and her dependents if forced to repay the loan;
(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) the debtor has made good faith efforts to repay the loans.”
If a debtor fails to satisfy just one of these elements, the request for a discharge of the student loan debt must be denied.
One federal court, the Eighth Circuit, has rejected Brunner. It follows a “totality of the circumstances” test in each individual debtor’s case. This test requires the court to analyze all the “facts and circumstances surrounding each particular bankruptcy case” to determine whether the debtor’s “reasonable future financial resources will sufficiently cover payment of the student loan debt-while still allowing for a minimal standard of living.”
The Brunner test and the “totality of circumstances” test have little in common. They tend to have the potential to produce different results. While the Brunner test is rigid, the totality approach considers all relevant facts and circumstances. For example, the Brunner test fails to consider the debtor’s age, disability, or other mental and physical limitations that would otherwise make repayment an “undue hardship, while still requiring the debtor to show a “total incapacity” to pay the debt in the future.
This McCoy case presented an optimal chance to clarify the law and resolve conflict among federal courts. Applying Brunner, the courts that denied McCoy a discharge had no discretion to consider all facts relevant to undue hardship, including her age (62 years old), her debilitating disabilities (degenerative back problem, fatigue, chronic headaches, panic attacks, depression, etc.), and her exhaustive job search. Sadly, the Court failed to act and left hundreds of thousands of student loan borrowers any real hope of obtaining the fresh start promised by bankruptcy.
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