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Veteran Seeks to Discharge Student Loan Debt

On July 17, 2020, Cravath’s Financial Restructuring & Reorganization team submitted an amicus brief, working on a pro bono basis on behalf of Veterans Education Success (“VES”), in support of Plaintiff‑Appellee Kevin J. Rosenberg, a veteran who sought to discharge his student loan debts as part of his Chapter 7 proceeding. Student loan debt obligations are notoriously difficult to discharge even in bankruptcy, and Mr. Rosenberg’s success in the bankruptcy court was a rare victory for student loan debtors.

Mr. Rosenberg filed for relief under Chapter 7 of the Bankruptcy Code on March 12, 2018, and sought to discharge his student loans on the basis that repayment would cause an undue hardship pursuant to 11 U.S.C. § 523(a)(8). On January 7, 2020, the U.S. Bankruptcy Court for the Southern District of New York held that Mr. Rosenberg’s circumstances satisfied the undue hardship standard and thereby discharged his student loans.

Educational Credit Management Corporation (“ECMC”) appealed and its motion for leave to appeal was granted by the U.S. District Court for the Southern District of New York on March 4, 2020.

In response, Cravath submitted an amicus brief on behalf of VES, a nonprofit organization whose mission is to advance higher education success for veterans and service members. A central focus of VES’s brief was the importance of higher education as a means for veterans to reintegrate into civilian life and to achieve successful post‑service careers. VES also highlighted data suggesting that veterans face unique challenges paying off student loans. Against this backdrop, Cravath, on behalf of VES, analyzed the legal standard for discharging student loans.

VES supported the Bankruptcy Court’s assessment that the standard for undue hardship under 11 U.S.C. § 523(a)(8) (the so‑called Brunner test) has been misapplied over the last few decades, creating a standard that is effectively impossible to overcome. VES argued that by recalibrating the Brunner test, the Bankruptcy Court struck the right balance in preserving the undue burden test as intended by Congress (i.e., to discourage abuse of the bankruptcy system by students seeking to discharge their educational debts shortly after graduating) while allowing struggling borrowers to overcome overwhelming debt. VES supported the Bankruptcy Court’s interpretation that, contrary to ECMC’s position, the Brunner test’s “good faith” requirement does not take into account the debtor‑borrower’s reason for filing for bankruptcy (i.e., to discharge his/her student loans). VES further argued that the Bankruptcy Court properly focused on the debtor‑borrower’s past (i.e., prepetition) behavior in repaying the loans, rather than on what he or she may theoretically do in the future (as ECMC argues).

For these reasons, VES urged the District Court to affirm the Bankruptcy Court’s interpretation of the Brunner test and uphold the discharge of Mr. Rosenberg’s student loans. If the District Court affirms, veterans and other honest but unfortunate debtors burdened by student loan obligations will have a path to achieving the “fresh start” the Bankruptcy Code is designed to provide.

The Cravath team included partners Paul H. Zumbro and Lauren A. Moskowitz and associates Jessica I. Choi and Tammuz Huberman.

The case is Kevin Jared Rosenberg v. Educational Credit Management Corporation, No. 7:20-cv-00688-PMH (S.D.N.Y.).