In Re: Educational Credit Management Corporation

Background

Kevin Jared Rosenberg filed for Chapter 7 bankruptcy and separately sought to discharge a consolidated federal student loan held by Educational Credit Management Corporation (ECMC). Under 11 U.S.C. § 523(a)(8), student loans generally cannot be discharged in bankruptcy unless requiring repayment would impose an “undue hardship” on the debtor and the debtor’s dependents.

The Bankruptcy Court granted Rosenberg’s motion for summary judgment, denied ECMC’s cross-motion for summary judgment, and discharged the student loan. ECMC appealed. Summary judgment is a decision without a trial when the evidence shows no genuine dispute about an important fact and the moving party is entitled to judgment under the law.

The district court reviewed the Bankruptcy Court’s summary-judgment decision without deference to its legal conclusions. The appeal concerned whether either party had proved entitlement to judgment, not whether the loan was ultimately dischargeable.

Undue-hardship standard

The court applied the three-part test used in the Second Circuit to determine whether a student loan may be discharged for undue hardship. Under that test, the debtor must show:

The court explained that the debtor bears the burden of proving these requirements. At the summary-judgment stage, however, the party seeking judgment must also show that no genuine dispute of material fact exists and that the law requires judgment in that party’s favor.

First factor: current income and expenses

Rosenberg reported monthly expenses of $4,005 and monthly income of $2,456.24. The district court held that those figures alone did not establish that every claimed expense was necessary to maintain a minimal standard of living or that Rosenberg could not make payments under an available repayment plan.

The court found that Rosenberg had not provided sufficient evidence or explanation to support summary judgment. ECMC also had not made the necessary showing about the necessity of the expenses or Rosenberg’s ability to maintain a minimal standard of living. The court therefore concluded that neither party was entitled to summary judgment on the first factor.

Second factor: circumstances likely to continue

Rosenberg argued that injuries and poor employment prospects showed that his inability to repay would continue. The district court found that he had not submitted admissible evidence establishing the severity of his injuries or their effect on his ability to work. It also found that he had not adequately addressed his earning potential, available legal or other employment, or whether he had maximized his income.

The court likewise found ECMC’s showing inadequate. Although the evidence appeared unfavorable to discharge, factual questions remained about the effect of Rosenberg’s injuries and surgeries on his future earning potential. Neither party was therefore entitled to summary judgment on the second factor.

Third factor: good-faith efforts to repay

The record showed that Rosenberg had used deferments and forbearances for roughly a decade, paid less than $3,000 on a loan that grew from an initial principal balance of $116,465 to more than $220,000, left the legal profession, and stated that he had no interest in rehabilitating the loan through a repayment program. The court said these facts could support a finding that he had not acted in good faith, but they did not justify summary judgment for Rosenberg.

ECMC also was not entitled to summary judgment because the record did not adequately explain the reasons for the deferments and forbearances, how Rosenberg’s income had been used, or the significance of his alleged injuries. The court concluded that factual disputes remained on the good-faith factor as well.

Disposition

The district court held that the Bankruptcy Court should not have granted summary judgment to either party. It reversed the January 7, 2020 order insofar as it granted Rosenberg’s motion for summary judgment, affirmed the order insofar as it denied ECMC’s cross-motion for summary judgment, and remanded the matter to the Bankruptcy Court for further proceedings.

The court expressly did not decide whether the student loan was dischargeable. It stated that either party could prevail at a trial based on the facts. The Clerk was directed to terminate the district-court case.