New York Judge Erases Navy Veteran’s $221,400 of Student Loan in Bankruptcy

January 13, 2020 Updated: January 13, 2020

A U.S. bankruptcy judge in New York recently ruled in favor of a Navy veteran and lawyer, deciding he did not have to repay his $221,400 of student loan debt because it would impose an undue financial hardship.

Kevin J. Rosenberg began borrowing money in 1993 to pay for his undergraduate education at the University of Arizona, reported Wall Street Journal. After earning a bachelor’s degree, he enlisted and served active duty in the U.S. Navy for five years. Following his military career, he attended Cardozo Law School, obtaining a law degree in 2005 with student loans then totaling $116,500.

But by 2018, the amount of debt had stacked to $221,400, with the interest charges and penalties for missing payments over the years. This prompted Rosenberg to file bankruptcy and ask the court in June 2019 to have his debt discharged. At the time of filing, he had a negative net monthly income of $1,500 after all the expenses and debt payments.

In a 12-page opinion (pdf), Bankruptcy Judge Cecelia G. Morris for the Southern District of New York wrote that Rosenberg did not have to repay his debt because he met all three standards regarding dismissing student loans in bankruptcy. These standards, collectively known as the Brunner Test, state that:

  • The borrower must cannot maintain, based on current income and expenses, a minimal standard of living for the borrower and dependents if forced to pay off student loans;
  • The current financial situation is likely to continue for a significant part of the repayment period;
  • The borrower have made good-faith efforts to repay the loans.

For the first prong of the Test, the Court concluded that Rosenberg’s schedules demonstrated that he had negative income each month, therefor unable to maintain a living. As for the second prong, the Court held that his circumstances will certainly exist for the remainder of the repayment period. Finally, as for the “good-faith effort” prong, the Court found that he missed only 16 payments in the 13 years, and that should count as a demonstration of good faith.

“Over the past 32 years, many cases have pinned on Brunner punitive standards that are not contained therein,” wrote Morris, saying that courts had been misinterpreting the Brunner test in such a way that it had made people like Rosenberg believe it was impossible to actually use a bankruptcy filing to remove their student loan debts.

For example, some courts have set a high bar by asking people to prove that they would face “certainty of hopelessness,” despite the Test’s plain and straightforward language.

“This Court will not participate in perpetuating these myths,” she wrote.

By the end of 2019, there are 45 million borrowers who collectively owe more than $1.5 trillion in student loan debt, making the Federal Student Aid to surpass J.P. Morgan and Bank of America to become the largest lender in the country.