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Massachusetts Bankruptcy Court Allows Student Loan Discharge

Discharging student loans under federal bankruptcy laws is very difficult. Even if you have a good case under the law, getting a discharge for federal student loans would involve significant time and effort to convince the Trustee, the Court, and the educational funding company. A recent decision handed down by the US Appeals Court demonstrated just that.

In the case of Denise Megan Brondson a 64 year old recent law school graduate attempted to discharge her student loans because she could not get a job and was living on social security income of $946 per month. Thus, she attempted to discharge her $82,000 in student loans acquired while attending Southern New England School of Law. Attorney Brondson’s case first went before the Federal Bankruptcy Court where the Court held that she was unlikely to be able to work and that repayment would be “unduly burdensome.”
The case was appealed to the US District Court, which agreed with the Bankruptcy Court, but requested that Attorney Brondson participate in the Ford Direct Loan Income Contingent Repayment program. The Bankruptcy Court then, in a subsequent finding, found that not participating in the Ford Loan Program would not have helped, because it was “insufficient to overcome a finding of undue hardship.”
The recent appeal, by the lender, was to the US Court of Appeals for the First Circuit. This decision, issued September 21, 2010 studied the two different tests that must be undertaken to analyze whether a debtor qualifies to discharge student loans under Section 523(a)(8). The Court pointed out that in a recent case called In Re: Nash the First Circuit analyzed the situation and still neglected to determine what test to use. The Court noted that the law, written by Congress, does not define “undue hardship and the courts have struggled with its meaning.” The lender wanted the First Circuit to adapt the Second Circuit’s Brunner test. However, the Court rejected that test and will continue to use the “totality of the circumstances test” which requires the Court to evaluate the debtor’s likely future financial resources, future living expenses and any other relevant facts. In using that test, the Court held that the Bankruptcy Court had properly evaluated the facts.
In an interesting Concurring Opinion by Judge Haines, it was stated that the Court went too far in adopting a particular test when the facts in this case did not necessitate this.