Judge Cecelia Morris. Photo: Rick Kopstein

Did a 2004 Cardozo law graduate-turned hiking guide just make it significantly easier for other J.D.s drowning in debt to discharge their student loans?

Stay tuned.

Bankruptcy experts are buzzing over an unusual decision issued Jan. 7 by Chief Judge Cecelia Morris of U.S. Bankruptcy Court for the Southern District of New York that enables law grad Kevin Jared Rosenberg to discharge the $221,000 loan debt he acquired as an undergraduate at the University of Arizona and later at the Cardozo School of Law. The win by Rosenberg, who represented himself in the matter, flies in the face of conventional wisdom that says student loan debt is all but impossible to shed in bankruptcy.

It's the bankruptcy judge's application of the so-called "Brunner test"—which lays out the three criteria student loan borrowers must meet to demonstrate that repaying their loans poses an undue hardship—that has caught the attention of the bankruptcy law world. Morris' opinion includes a strongly worded rebuke of how judges have traditionally applied the Brunner test, saying they have made it more onerous on borrowers than it was intended to be.

"Over the past 32 years, many cases have pinned on Brunner punitive standards that are not contained therein," Morris wrote. "Those retributive dicta were then applied and reapplied so frequently in the context of Brunner that they have subsumed the actual language of the Brunner test. They have become a quasi-standard of mythic proportions so much so that most people (bankruptcy professionals as well as lay individuals) believe it impossible to discharge student loans."

Jason Iuliano, a professor at Villanova University Charles Widger School of Law who has been studying student loan discharges since 2010, said he's not surprised that Morris sided with Rosenberg. His research shows that about 40% of the borrowers who ask a judge to determine that they meet the undue hardship criteria and discharge their student loans are successful. That's despite the widespread belief that such requests are almost always denied in court. (Of note is that a mere 400 to 500 borrowers a year ask a judge for a discharge, out of the approximately 250,000 student loan borrowers who declare bankruptcy annually.)

Even so, Iuliano said Morris' rebuke of how the Brunner test has historically been applied was unusual.

"It's the first time I've seen a judge call out the undue hardship standard so forcefully and attack the idea that the test is so burdensome," Iuliano said. "Even other judges who were granting discharges were finding ways to not call out the test this explicitly, and to fit [their opinions] within the existing standard."

To meet the Brunner test, borrowers must demonstrate that their current income does not enable them to maintain a "minimal" standard of living while repaying their loans, that their financial situation is likely to persist for a "significant portion" of their repayment period, and that they have made good faith efforts to repay their loans.

Matthew Bruckner, a professor at Howard University School of Law and a bankruptcy expert, said Morris' application of the second two prongs of the test in the Rosenberg case are somewhat unusual. Rosenberg claimed in court that his annual income as an outdoor guide is $37,000 and that he has a negative monthly outlay of $1,500. But Morris did not consider any potential increase in his earnings on the grounds that the entirety of his $221,000 loan balance is due because he went into default. Judges typically take a 10 or 25-year view of earnings based on the length of the repayment plan.

Similarly, Morris declined to use Rosenberg's decision not to pursue a legal career—he practiced law for just a few months after graduating from Cardozo—as evidence that he has not made a good faith effort to repay his loans.

"Right now, he can't repay," Bruckner said. "But he's got a law degree. What if he decided he wanted to be an associate at Wachtell and they would hire him? Then his income would spike. She doesn't hold against him his failure to be working as a lawyer, whereas lots of other judges have."

In finding that Rosenberg made a good faith effort to repay his loans, Morris credits him with making about 40% of his required loan payments, even though he was only required to make 26 payments over the course of 13 years due to securing multiple loan deferrals, Bruckner noted.

"There is some view—I don't know how well informed—that judges are increasingly eager for a different way of thinking about student loan discharge," Bruckner said. "In that case, Morris' decision could point them to a path forward that they can square themselves with intellectually."

But whether Rosenberg's case has any larger legal ramifications will likely boil down to whether Morris' decision is upheld on appeal. If the U.S. Court of Appeals for the Second Circuit sides with Morris, for example, that could open to door for more borrowers to see their loans discharged, Iuliano said.

For now, the biggest impact of the case may well be raising awareness among the bankruptcy bar that student loans are, in fact, dischargeable, he said.

"The important upshot of the case is that it's getting attention and bringing it to the knowledge of attorneys that, 'Hey, student loan debt is dischargeable,'" Iuliano said. "So many attorneys that I talk to think it's categorically non-dischargeable, and that's the advice they give their clients."