5th Circuit Finds No Room for Sympathy for Student Loan Debtor

Posted by NCBRC - September 11, 2019

In an exercise in disingenuous hand-wringing, the Fifth Circuit essentially acknowledged that its application of the Brunner test eviscerates the undue hardship avenue to discharge of student debts. In so holding, the court affirmed the denial of discharge and sent the debtor packing to perform, if not the impossible, at least the highly improbable task of finding employment. Thomas v. Dept. of Educ., No. 18-11091(5th Cir. July 30, 2019).

Vera Thomas worked at a call center for eight years at just over $11/hour when, in 2014, she developed diabetic neuropathy causing her to take numerous unpaid work days and incur extensive medical expenses. When the call center was sold in 2016, she lost her job for “company policy violations” and moved to Texas. From 2016 to 2017, Ms. Thomas acquired and lost three jobs—Whataburger, Perfumania and UPS—due to her diabetic neuropathy and consequent inability to stand for any length of time. By the time she filed chapter 7 bankruptcy, she was in her 60s and living off public assistance and private charity. Her monthly expenses were over three times her monthly income. After obtaining her bankruptcy discharge, Ms. Thomas sought to have her student loans discharged. The bankruptcy court, noting that in fifteen years on the bench it had never granted undue discharge of student loans, found that Ms. Thomas did not meet the standard for undue hardship discharge. The district court affirmed.

On appeal, the Fifth Circuit reiterated its adherence to In re Gerhardt, 348 F.3d 89 (5th Cir. 2003), which adopted the three-pronged 1987 Brunner test for analyzing undue hardship cases, finding that this case turned on interpretation of the second prong of that test: whether the debtor’s untenable financial condition is likely to persist for a significant portion of the repayment period. The court found that the bankruptcy court did not err in finding that Ms. Thomas failed to establish this prong of the test. It relied on the fact that Ms. Thomas admitted that she was capable of sedentary work and the fact that she was clearly hirable as evidenced by her having been hired for three jobs within the span of one year. The court thus concluded that there was no evidence that her present circumstances would persist through the life of the loan.

The court found support for its Draconian interpretation of the undue hardship provision in Congress’s consistent amendments to the Code making it more and more difficult to obtain relief from student debt. Rejecting a “nebulous” totality-of-circumstances test for undue hardship—which would have made room for sympathy, an accommodation the court felt compelled to reject—the court reasoned that the inconsistent results would weaken Congress’s clear intent to make discharge of student loan a rare exception. The court further reasoned that the dictionary definitions of the words “undue” and “hardship” required that the phrase be interpreted to preclude discharge of virtually all student loans unless repayment would impose “intolerable difficulties” on the debtor. Ironically, the court interpreted recent movement in Congress to look into legislation which would “make student loans dischargeable,” as further evidence that, as things stand now, those loans are properly deemed non-dischargeable.

The court rejected all calls, including the arguments presented in NACBA/NCBRC’s amicus brief, to update interpretation of the Brunner test to conform to current realities, finding that its hands were tied until such time as either an en banc panel overturned Gerhardt, the Supreme Court directed a different result, or Congress acted to lessen the burden on student loan debtors.

The court affirmed.


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