On Monday, the United States Supreme Court denied Thelma McCoy’s petition for a writ of certiorari to the United States Court of Appeals for the Fifth Circuit, passing up a golden opportunity to bring uniformity to the “important and recurring question” of how to determine the sort of “undue hardship” that qualifies a debtor for a discharge of student loans under 11 U.S.C. § 523(a)(8). [1] 

The Bankruptcy Code generally excludes student loan debt from the general discharge individual debtors are entitled to receive upon the conclusion of their case.  11 U.S.C. § 523(a)(8).  But, in an exception to the exception, student loan debt is dischargeable in cases where “excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents.”  Id. 

To determine what constitutes an “undue hardship,” most courts apply the inflexible and rigorous three-part test adopted by the Second Circuit in Brunner v. New York State Higher Education Services Corp.[2] A debtor seeking a discharge of her student loans under the Brunner test must show: “(1) that [she] cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that [she] has made good faith efforts to repay the loans." [3]  If a debtor cannot satisfy any one of these elements, then a Bankruptcy Court in a Brunner jurisdiction has little discretion to fashion relief:  the request for a discharge must be denied. 

The Eighth Circuit has rejected Brunner.  It requires courts to consider the “totality of the circumstances” in each individual debtor’s case.[4]  Under this approach, bankruptcy courts must analyze all the “facts and circumstances surrounding each particular bankruptcy case” to determine whether the debtor’s “reasonable future financial resources will sufficiently cover payment of the student loan debt-while still allowing for a minimal standard of living.”[5]

Seizing on this clear split of authority, McCoy made a persuasive case for the Supreme Court to weigh in on the question. 

These approaches diverge sharply in both application and outcome. Whereas the totality approach permits courts to consider all relevant facts and circumstances [. . .] the Brunner test categorically disqualifies even the most downtrodden debtors from discharge if they fail to satisfy any one of its three elements. For instance, the Fifth Circuit in applying the Brunner test requires a debtor to show a “total incapacity” to pay the debt in the future, regardless of whether the debtor’s age, disability, or other mental and physical limitations would otherwise make repayment an “undue hardship.”

This case presents an ideal vehicle to resolve the conflict. The courts below denied discharge on the view that Ms. McCoy might be able to repay some of her student loan debt in the future, which they treated as dispositive under Brunner’s second prong. Had Ms. McCoy filed for bankruptcy in a non-Brunner jurisdiction, the court would have exercised its discretion to consider all facts relevant to undue hardship, including her age (62 years old), her debilitating disabilities (degenerative back problem, fatigue, chronic headaches, panic attacks, depression, etc.), and her exhaustive job search.[6]

Unfortunately, the Court did not act, leaving countless individual debtors – often pro se and with a limited understanding of the complex procedural and substantive requirements for seeking and obtaining a discharge – with little real hope of obtaining the fresh start that bankruptcy promises.

[1] McCoy v. United States, No. 20-886, cert. denied, 2021 WL 2519103 (U.S. June 21, 2021), Brief for Petitioner (Available at: https://www.supremecourt.gov/DocketPDF/20/20-886/165012/20201230142505658_McCoy%20Cert%20Petition.pdf).

[2]831 F.2d 395, 396 (2d Cir. 1987).

[3] Id. 

[4] In re Long, 322 F.3d 549, 553 (8th Cir. 2003).

[5] Id. at 554-55.

[6] Brief for Petitioner, 2-3.