Brunner Test Reexamined in Western District of New York

By: Shane Malone

St. John’s Law Student

American Bankruptcy Institute Law Review Staff


Despite failing to apply for an income-based loan repayment plan, the Bankruptcy Court for the Western District of New York (the “Court”) held in In re Bene[1], that Donne Bene (the “Debtor”) satisfied the “undue hardship”[2] test and discharged her student loans.  The Debtor was an elderly Chapter 7 debtor who owed $57,298.70 to Educational Credit Management Corp., a student loan lender (the “Lender”), for loans she took out between 1981 and 1987. The Debtor voluntarily withdrew from school in 1987 before earning a degree or any professional license in order to care for her incapacitated parents.[3]  Although she had recently received a termination notice from her employer,[4] at the time of her discharge, she worked—as she had for the last 12 years—on an assembly line earning $10.67 per hour.[5] Her impending job loss and minimal level of education left her with little hope of improving her financial situation.[6]  The Debtor had no other debts, and had made good faith efforts to repay her student loans, but those payments only totaled $2,400.[7]  The Lender argued that the Debtor should be ineligible for a discharge of her student loan debt because she had not enrolled in income-based repayment plans for which she was eligible, such as the William D. Ford Program (the “Program”).[8]

Courts in the Second Circuit use the Brunner[9] test to establish whether student loan debts are dischargeable. In order to grant a discharge, the Brunner test requires, among other things, that the court determine that the Debtor would be unable to maintain a “minimal standard of living” if compelled to repay their student loan debt. The Bene court supplemented the Brunner analysis with a test first formulated in a dissenting Fourth Circuit opinion.[10] The Court defined Brunner’s “minimal standard of living” prong as requiring a determination that the debtor’s income exceeds two hundred percent of the federal poverty line.[11] In addition to redefining the “minimal standard of living,” the Court applied the Brunner test without considering how participation in the Program would have altered the Debtor’s payment obligations. Declining to consider the Debtor’s possible participation made it much easier for the Debtor to satisfy the first prong of the test, which asks whether the debtor could maintain a “minimal standard of living” if compelled to make loan payments.[12]  The Court chose to include an estimated monthly payment as calculated through the “standard (i.e. non-Ford program) manner,”[13] and the addition of this standard payment to her current monthly expenses placed her below the newly defined minimal standard of living. The Court then took a “totality of the circumstances” approach after it determined the Debtor satisfied the Brunner test but for her option to enter into the Program. In this approach, the Court included an analysis of the Debtor’s option to enter into the Program and the subsequent financial burden the monthly payments would place on her quality of life.[14] The Court concluded that the loan must be discharged rather than “indenture” the Debtor to the Program for the next twenty-five years.[15]

The Court’s decision to conduct its analysis of the Brunner test as if the debtor would be subject to pre-Program monthly student loan payments is a very pro-debtor outcome.  The Court broke new ground in focusing on the many changes to the “bargain” of government guaranteed student loans through Congressional amendments to 11 U.S.C. § 523(a)(8) since the Debtor originally took out her student loans over 25 years earlier.[16]  In a way, the Court rewarded the Debtor for opting to not discharge her student loans through bankruptcy before Congress amended the Bankruptcy Code in 1998, making all government educational loans non-dischargeable, regardless of when they first became due.[17]  The Court’s holding will likely only be significant to current debtors with student loans that pre-date Congress’ 1998 amendments, as those debtors were unaware of the non-dischargeability of the student loans when they took out their educational loans.[18]  Bene’s analysis will probably be adopted by other courts in determining the dischargeability of student loan debt because of these amendments to the student loan bargain, as well as changes to the common understanding of the sociological terms “poverty” and “minimal standard of living” over the twenty-five years since the Brunner decision.[19] If other courts chose to adopt such analysis, it will likely be narrowly tailored to such debt incurred before the 1998 amendments that called for a stricter approach to the discharge of student loans.



[1] 474 B.R. 56 (Bankr. W.D.N.Y. 2012).
[2] 11 U.S.C. § 523(a)(8) (2006).
[3] In re Bene, 474 B.R. at 58.
[4] Id.
[5] Id. at 70.
[6] Id.
[7] 59.
[8] The William D. Ford Program allows for a student loan debtor to make income-dependent payments for a 20 or 25-year period and have any remaining balance of their debt “forgiven” at the end of the payment term. Id. at 59
[9] 831 F.2d 395 (2d Cir. 1987). The test that emerged from In re Brunner is a three-prong test: 1. Debtor cannot maintain “minimal standard of living” if forced to pay student loan debt; 2. Additional circumstances exist indicating Debtor’s state of affairs is likely to persist for significant portion of repayment period; 3. Debtor has made good faith efforts to repay loans.
[10] See HHS v. Smitley, 347 F.3 109 (4th Cir. 2003) (equating the ‘minimal standard’ with the average family income of twice the government set poverty figure).
[11] In re Bene, 474 B.R. at 73 (discarding creditor’s suggested “Self-Sufficiency Standard” in favor of income of twice government set poverty level).
[12] The Program structures the Debtor’s monthly payments so as to still maintain a “minimal standard” of living for the Debtor, thus excluding them from relief under the “undue hardship” exception. Cf. In re Derose, 316 B.R. 606 (Bankr. W.D.N.Y 2004); see also In re Melton, 187 B.R. 98, (Bankr. W.D.N.Y 1995).
[13] In re Bene, 474 B.R. at 73.
[14] Id. at 75
[15] Id. at 58.
[16] Id. at fn. 15 (discussing Congress’ many revisions to 11 U.S.C. § 523(a)(8) over the 25 year period from when the Debtor first took out her student loans).
[17] 11 U.S.C. § 523(a)(8) (1998).
[18] The Bene Court used a “predictive model” to detemrine that the Second Circuit  conclude that “although the Brunner Test remains strong, a bankruptcy court must, after the 1987 Brunner Test is otherwise satisfied,  look to the “totality of circumstances” to the extent that the current flexibility of the Ford Program is to be reconciled with the intent of the Brunner Test.” In re Bene, 474 B.R. at 74-75.
[19] Id. at 75.