Discussion Week 1
Each
of you has probably been affected, either directly or indirectly through your
friendship with others, by student loan debt. As you know, student loan
debt can accumulate very quickly and is often ignored until after the degrees
for which the loans creating the debt are taken are completed.
But,
then reality hits. Sometimes, student loan debt becomes almost insurmountable
as graduates have difficulty paying living expenses and their indebtedness
while earning only entry level salaries. Faced with what may seem like a futile
effort to repay their student loans, many attempt to discharge student loan
debt by filing for bankruptcy protection.
However,
the federal bankruptcy statute itself, and the case law applicable to
discharging student loan debt, has made it very difficult to discharge it by
filing for bankruptcy.
11 U.S.C. 523.pdf, specifically addresses student loan debt and provides
for a discharge only if the petitioner can show that not being allowed to
discharge the debt in bankruptcy would cause “undue hardship on the debtor
and the debtor’s dependents.”
Procedurally,
one attempts to show “undue hardship” under Subsection 8 of Section
523 by filing a proceeding in a federal bankruptcy court. Decisions of
the bankruptcy court may be appealed to a Federal District Court, and Federal
District Court decisions may be appealed to a Federal Circuit Court. From
there, one may petition the US Supreme Court to hear an appeal from a decision
of a Federal Circuit Court in a bankruptcy case. To date, however, the
Supreme Court has refused to render a decision on what constitutes “undue
hardship” under Section 523 of the Bankruptcy Code.
Most
US Circuits (recall from Chapter Two that there are 13 Federal Circuit Courts
that span the USA–we in New York are located in the Second Circuit) follow
what is known as the “Brunner Test” in deciding whether someone
has met Section 523(8)’s test of “undue hardship.” However, a
minority of federal circuit courts follow the “Long Test” established
by the Eighth Circuit in Long v. Educational Credit Management Corp.,
322 F2d 549 (8th Cir. 2003).
After
reviewing the text of Section 523(8) linked to above, review the text of
the Brunner decision that was decided by the Second Circuit
Court of Appeals. A link to the case appears here: Brunner v. NY Higher Educ. Servs Corp. 831 F.2d 395.pdf.
The Second Circuit’s decision is brief.
Also
review the student article Student Loans can be Discharged (at Least Partially) in
Bankruptcy After All | ABI.pdf.
The article describes a different and more flexible
test for establishing “undue hardship.” That test was established in
the Long case referred to above (a link to the case appears at
the end of this post).
Brunner has been criticized as being too inflexible. In fact,
as you will see from reading the linked article ABI Journal Article.Student Loan Discharge Decisions Poke
Holes in the Brunner Test.. By J. Jackson Waste and Michael J. Fletcher.pdf, the
courts seem to be moving away from the Brunner test.
After
reviewing each of linked materials, explain which test you think should be
applied in the case of someone seeking to discharge student loan debt by filing
for bankruptcy relief. Defend your position by explaining the reasons why
you believe the interests of justice will be better served by the test you have
chosen. Point out the flaws in the test NOT chosen.
Secondly,
apart from the student loan example, explain WHY you agree or disagree that
debtors should be allowed to discharge their debts in a bankruptcy proceeding.
Is the bankruptcy mechanism for discharging debt fair to creditors?
