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Student Debt

NY Bankruptcy Judge’s Ruling Could Help People Get Rid of Student Loans

The ruling hinges on an obscure test in bankruptcy law connected to a debtor's ability to pay

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What to Know

  • A lawyer with crippling student loan debt and negative monthly income had his debt discharged in a NY bankruptcy court
  • The chief U.S. bankruptcy judge in Manhattan said a crucial test had not been correctly applied for decades
  • The lawyer, a Navy veteran, had seen his debt almost double since 2005

A lawyer managed to get own his massive, years-old student debt thrown out in New York bankruptcy court this week, after he was able to prove the burden was so huge he could never afford to pay it.

The ruling potentially has huge implications for others suffering under crushing student debt loads, as it condemns the common belief that such debt can't be discharged in bankruptcy.

Kevin Rosenberg took out student loans from 1993 to 1996 to pay for college, spent five years in the Navy, then took out more loans to attend law school from 2001 to 2004.

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By the time he was done, he owed more than $116,000 -- but over the years, that ballooned to more than $221,000 as of last November, according to court papers.

In his bankruptcy filing, Rosenberg said that he was earning so little, and owed so much, that he was left with negative income of $1,500 a month.

Cecilia Morris, the chief U.S. bankruptcy judge in Manhattan, wrote in a 12-page opinion that Rosenberg had satisfied what is known as the "Brunner test," a three-pronged standard for dismissing student loans in bankruptcy.

(The prongs are: inability to maintain a "minimal" standard of living due to loan payments; the likelihood that it will stay that way for much of the loan period; and evidence that the debtor made a good-faith effort to repay the loan.)

Morris, in a scathing commentary, said courts had been incorrectly interpreting that test for decades in such a way that it had become almost impossible to use a bankruptcy filing to get out from under student loan debt.

"This Court will not participate in perpetuating these myths," Morris wrote.

The NY State Higher Education Services Corp, the defendant in the case, referred questions on the ruling to Educational Credit Management Corp., which holds Rosenberg's loan.

"We are reviewing the ruling to determine how we will proceed," an ECMC representative said.

The company, in an Oct. 2019 brief, argued that Rosenberg did not meet any of the prongs of the Brunner test -- in part, they said, because he had chosen not to earn a living as an attorney and take advantage of the education he borrowed to fund.

Copyright NBC New York
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