LEGAL CASE:

First Circuit Court of Appeals

Robert E. Murphy (Debtor) v. U.S. Department of Education Educational Credit Management Corporation

(Other interested parties include Sallie Mae and College Board)1

FACTS OF CASE:

In the United States we currently have over 1.4 trillion dollars2 in outstanding student loan debt. Mr.

Robert Murphy signed for the federal PLUS loans (student loans taken out by parents to pay their children’s

college costs), after going into a large amount of student debt, he lost his position as the president of a

manufacturing firm. As of October 2015, Mr. Murphy now age 65 has been unemployed for 13 years, stating

that he is too old to find comparable employment and over qualified for lower-paying jobs in his field. Mr.

Murphy and his wife live on a very modest income of $15,000 a year, which his wife earns from working as a

teacher’s aide. Due to the modest income Mr. Murphy is unable to make payments on the PLUS loans taken out

for his children’s education. Mr. Murphy now owes almost a quarter of a million dollars due to lack of payment

and accumulated interested on the PLUS loans.

Mr. Murphy filed for bankruptcy, seeking relief for the PLUS student loans, the bankruptcy court

refused to discharge the debt, under the “Brunner Rule of Law.” Mr. Murphy is currently acting as his own

attorney and has appealed to the First Circuit Court of Appeals and is attempting to argue that the “Brunner

Test” should be abandoned as related to “Undue Hardship” for insolvent debtors to be forced to repay their

student loans as a parent borrower.

1 First Circuit Court of Appeals: Case No. 14-1691 

2 http://collegedebt.com/

LEGAL BACKGROUND OF DISPUTE (ISSUE):

Under the current laws and regulations “Brunner Test” in the United States, individuals who are

currently burdened with any amount of student loan debt are unable to discharge the debt during a bankruptcy

hearing; except as discussed below in rare cases. The majority of individuals must meet one of the following

categories in order to discharge student loan debt; “closed school discharge, total and permanent disability

discharge, death discharge, false certification of student eligibility or unauthorized payment discharge, unpaid

refund discharge, teaching loan forgiveness, public service loan forgiveness and borrower defense discharge.”3

Mr. Murphy is attempting to persuade the First Circuit Court of Appeals that the 1987 ruling in Marie

Brunner v. New York State Higher Education Services Corp., should be abandoned for being too harsh in his

situation as a parent borrower and current financial status. The “Brunner Test” has almost 30 years of precedent

and is currently used by many courts to define "Undue Hardship" for insolvent debtors in the repayment of

student loan debt. “The district court adopted a standard for “Undue Hardship” requiring a three-part

showing: (1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of

living for herself and her dependents and her dependents is forced to repay the loans; (2) that additional

circumstances exist indicating that this state of affairs is likely to persist for a significant position of the

repayment period of the student loans; and (3) that the debtor has made good faith efforts to repay the loans.”4

In summary, Mr. Murphy acting as his own legal council will try and convince the court that the current

rules under the “Brunner “Undue Hardship” Test” is too harsh and the student loan debt should be discharged.

3 https://studentaid.ed.gov/sa/repay-loans/forgiveness-cancellation

4 http://www.moranlaw.net/student_loan_brunner.htm United States Court of Appeals, Second Circuit. 831 F.2d 395

LEGAL ISSUE OF CASE:

The legal issue in this case as seen in other cases is whether the student loan debt can be discharged in a

bankruptcy proceeding, due to “Undue Hardship” that the student loan debt has caused and the individual is

unable to repay any amount of student loan debt. The court system(s) have been reluctant to discharge (only on

rare occasions) student loan debt in bankruptcy court or in any other court of law in the United States due to

“Undue Hardship,” under the current “Brunner Rule of Law.” Mr. Murphy and other interested parties whom

have submitted briefs in support of Mr. Murphy have stated that the “Brunner Test” no longer makes sense as

the test was written in 1987, prior to tuition costs and loan debt ballooning to 1.4 trillion dollars.

In summary, the legal issue of the case is whether or not student loan debt signed by a parent (PLUS

Loan) or the student is dischargeable under current bankruptcy law, in bankruptcy court or any other court during

the appeals process in the United States and the definition of “Undue Hardship” under the “Brunner Test.”

RELEVANT RULES OF LAW (RULE OF LAW):

The relevant rule of law is the three-part Brunner Test determined in a 1987 “Marie Brunner v. New York State

Higher Education Services Corp.” court case and the definition of “Undue Hardship.”5

ANALYSIS:

Mr. Murphy will argue, in an October of 2012, a ruling by the United States Bankruptcy Appellate Panel

of the Eighth Circuit, Susan M. Shaffer v. United States Department of Education6, the court affirmed the

bankruptcy court’s ruling that student loans could be discharged, because they created an “Undue Hardship,” for

the individual who obtained the educational loans. Ms. Schaffer at the time had over $200,000 in student loan

debt from multiple institutions of higher learning, never completing a degree program.

5 http://www.moranlaw.net/student_loan_brunner.htm United States Court of Appeals, Second Circuit. 831 F.2d 3956 https://www.gpo.gov/fdsys/pkg/USCOURTS-ca8-12-06010 United States Court of Appeals, Eighth Circuit. 12-6010

Mr. Murphy will also argue, in a March of 2016, a ruling by the United States Bankruptcy Court Eastern

District of New York, Lesley Campbell vs. Citi Bank, N.A., The Student Loan Corporation, Two Square

Financial, Inc., CACH, LLC, and First Step Group, LLC, the court rule in favor of the plaintiff (Ms. Campbell)

discharging a portion of her student loans related to expenses incurred when studying and taking the bar exam, as

the money owed created “Undue Hardship.” The discharged amount was $15,000, currently Ms. Campbell

owes close to $300,000 in total student loan expenses for law school and at the time was current on repayment.7

The U.S. Department of Education will argue, in a January of 2016, the Supreme Court turned down an

appeal by Mark Tetzlaff attempting to have his $260,000 in student loan debt for business and law school

discharged in bankruptcy court. The United States Court of Appeals for the Seventh Circuit affirmed a ruling in

Mark Warren Tetzlaff v. Educational Credit Management Corporation, that the bankruptcy court did not error

and Mr. Tetzlaff had not made a good faith effort to pay his student loans debt.8 The U.S. Department of

Education will also reference re Gerhardt9 in a 2003 ruling, Jonathon Gerhardt owed $77,000 in student loan

debt and filed for bankruptcy after attending multiple institutions of higher learning. At the time Mr. Gerhardt

had paid a total of $755 on the outstanding student loan debt. The Court of Appeals for the Firth Circuit struck

down the “Undue Hardship” claim by Mr. Gerhardt, holding the debt could not be discharged as Mr. Gerhardt

had not met the current “Brunner Test” guidelines, by making a “Good Faith Effort” for repayment of the debt.

The final case the U.S. Department of Education will reference, in a March of 2016, a jury in a 9-3

verdict, ruled in favor of Thomas Jefferson School of Law in the Alaburda v. Thomas Jefferson School of Law10.

A case in which Ms. Alaburda sued the law school for all of her student loan debt ($150,000) over fraudulent and

7

http://www.nyeb.uscourts.gov/sites/nyeb/files/opinions/opinion_cec_16-03-24.pdf Bankruptcy Case No. 14-45990-CEC

8 http://www.scotusblog.com/wp-content/uploads/2015/10/tetzlaff-op-below.pdf United States Court of Appeals, Seventh Circuit. No. 14-3702

9 https://law.resource.org/pub/us/case/reporter/F3/348/348.F3d.89.03-30040.html United States Court of Appeals, Fifth Circuit. 348 F.3d 89

10 https://www.tjsl.edu/sites/default/files/files/Order%20Denying%20Class%20Certification.pdf Superior Court of California. Case No. 37-2011-OOO91898—CU-FR—CT

misleading employment statistics, claiming that over 80% of graduates are employed upon graduation. Ms.

Alaburda was a 2008 honors graduate from Thomas Jefferson School of Law in California and was unsuccessful

at obtaining legal employment upon graduation, applying to many law firms. In referencing the case, it is not

specifically related to bankruptcy proceedings however, it provides more evidence of the court systems

reluctance to grant relief on student loan debt in legal proceedings or cases related to financial bankruptcy.

CONCLUSION:

The “Brunner Test” was set as precedent at a time when student loan debt was manageable and had not

ballooned into an almost 1.5 trillion-dollar problem in the United States. The language in the precedent is almost

30 years old, and should be reviewed as related to current student debt issues and the definition under the test of

“Undue Hardship.”

Mr. Robert Murphy owes in excess of $200,000 in PLUS student loan debt, not for his own educational

debt, but his children’s. As the courts have consistently followed the “Brunner Test” as precedent (except in

very rare situations) in the past and defined “Undue Hardship,” I do believe the court will rule in favor of the

U.S. Department of Education and the student loan debt will not be discharged. I do believe the amount of

student loan debt does create an “Undue Hardship” by definition on Mr. Murphy and his wife, but the courts

have been consistent on interpretation of the law. However, the court must also consider if Mr. Murphy at the

time of employment was making payments on the debt and made “Good Faith Effort” in paying down the loans.

As we approach 1.5 trillion dollars in student loan debt, the student loan bankruptcy debate will continue

to become a topic in the media, as education will become the biggest expense many people will incur in their

lifetime. The “Brunner Test” as currently defined needs to be redefined in relation to ballooning higher

education costs. Presidential candidates have indicated new systems for student loan debt relief however; change

has not happened and the court system(s) continue to deny rule against individuals with student loan debt.