Authored by Scott St. Amandand J. Ellsworth Summers, Jr. of Rogers TowersTwenty-seven years ago the Second Circuit was faced with a debtor who proposed to use the Bankruptcy Code to avoid her student loan debt – only five months after graduation. The Second Circuit came down harshly on Ms. Brunner and established an “undue hardship” test, which few debtors have passed since the decision in the Brunner case. Eleven of the federal circuit courts, including the Eleventh Circuit, have adopted the Brunner “undue hardship” test, and there have been few significant challenges to the standard over the nearly three decades of its existence.
Since Brunner was decided, however, the Bankruptcy Code has changed significantly and the nation’s student loan debt has risen at an astonishing rate. In 1987, educational debt was approximately $42 billion. Fast forward twenty-seven years later, and there is nearly $1 trillion in outstanding educational debt – an increase of 2281%. This dramatic increase has led some commentators to argue that Brunner is outdated, and changes need to be made to bankruptcy courts’ approach to student loan forgiveness.