Brunner: Vicious, Stupid, and Stubborn

Trailer screenshot, The Ten Commandments, Paramount

When I say Brunner is vicious, stupid, and stubborn, I don’t mean Yul Brynner as Pharaoh in The Ten Commandments.  Even Ramses II cannot match this Brunner for the stubborn infliction of suffering on a multutude of innocents.

I’m referring to the “Brunner Test,” often simply called Brunner.  This test is the legal standard applied in the Second, Third, Sixth, Seventh, and Ninth Federal Appeals Court circuits for determining whether a student loan can be discharged in bankruptcy.  While not formally adopted, Brunner has been used in the Fifth, Tenth and Eleventh circuits.  The Eighth Circuit uses the “totality of the circumstances” test.

So stubborn and pernicious is the evil effect of Brunner that even the circuits not using Brunner have adopted legal standards closely mimicking Brunner’s next-to-impossible-to-meet test for discharging student loans.

The Brunner test was born in 1987, when the Second Circuit U.S. Court of Appeals decided the case of Brunner v. New York State Higher Educational Services Corp., 831 F.2d 395 (2d Cir. 1987).  At the time Brunner was decided, the bankruptcy code allowed a student loan to be discharged under either of two grounds: (1) if the student loan had been in repayment for five years or more, or (2) if repayment of the student loan would impose an undue hardship on the debtor.

The Brunner case attempted to interpret section 523(a)(8), now 11 U.S.C. section 523(a)(9), of the bankruptcy code, which contains the undue hardship standard.

The Brunner test says that a student loan is dischargable in bankruptcy as an “undue hardship”  only if the following are present:

1.  The debtor cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the student loan;

2.  Additional circumstances must exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and

3.  The debtor has made significant efforts to repay the loan.

At least one court has said that to meet the Brunner test, the bankruptcy debtor must show that there is a “certainty of hopelessness.”  In re Roberson, 999 F.2d 1132 (7th Cir. 1993).  All three prongs of the Brunner test must be met in order to discharge a student loan.

In practice, Brunner is an insurmountable obstacle to the discharge of student loans for all but the most impoverished bankruptcy debtors.  Brunner causes needlessly harsh consequences for debtors.  It fails to allow for the bankruptcy code’s goal of a fresh start for debtors and their families.

When Brunner was decided, student loans were fully dischargable in all chapter 13 bankruptcy cases, regardless of how long the loans had been in repayment.  And as noted above, at the time, student loans could be discharged in chapter 7 either by meeting the Brunner undue hardship standard, or if the loans had been in repayment for at least five years.

The harsh Brunner test may have been reasonable at the time it was begotten, because other bankruptcy means existed at the time for discharging student loans.

However, the noose soon began to tighten around the necks of student loan debtors.  In 1990, the five year repayment standard was lengthened to seven years, and this stricture was added to chapter 13 as well.

Next, in 1998, Congress eliminated the seven year repayment ground for discharge of student loans in both chapter 7 and 13.  This left undue hardship, under Brunner, as the only way to obtain discharge of a student loan in bankruptcy.

Even worse, in 2005 Congress made private student loans subject to the same non-dischargability standards as government student loans.    Private student loans have none of the protections for borrowers that government student loans have, and often have high interest rates, high origination fees, arbitrary default standards, 25% collection fees or worse for loans in default, and borrowers are often subjected to surprise lawsuits and abusive collection tactics.

Obviously, the bankruptcy code has changed dramatically since Brunner was born regarding the discharge of student loans, but the undue hardship standard of section 523(a)(9) remains unchanged.  In the the bankruptcy landscape of today, it is unlikely Brunner would have been born in the pitiless form it was.

Brunner forces debtors to try to prove the impossible, as one court noted.

 How does a debtor, for example, prove that financial circumstances will not improve in the future, a “future” which was five years long when the Brunner test was first adopted, but which may now be 25 years or longer?  How do debtors prove that in the midst of a “certainty of hopelessness,” they attempted to maximize their income?

Wolfe v. Department of Education, Northeastern University, No. 8:11-AP-638-KRM (Bky. M.D. Fla. Oct. 4, 2013).

Justifiably, lower federal court judges are beginning to speak out in published court opinions about Brunner’s unjust effects upon student loan debtors in bankruptcy.

According to Bankruptcy Judge Pappas, Brunner “is too narrow, no longer reflects reality, and should be revised by the Ninth Circuit when it has the opportunity to do so.”  Courts should “focus on the contemporary world of student loan debt, not circumstances that existed thirty or more years ago.”  Roth v. Educ. Credit Mgmt. Corp., 490 B.R. 908, 920 (9th Cir. BAP 2013).

It’s high time that circuit-level federal appeals court judges abandon their stubborn adherence to Brunner, and wake up to the terrible consequences that burdening, forever, young people with unmanageable student loan debt under Brunner has wrought.  It’s time for Brunner to be retired.

Image attribution: trailer screenshot, from DVD The Ten Commandments, 50th Anniversary Collection, Paramount, 2006 (The Ten Commandments trailer) (public domain), via Wikimedia Commons.