In its January 14, 2022 decision in In re Wolfson, the United States Bankruptcy Court for the District of Delaware discharged Chapter 7 debtor Ryan K. Wolfson of nearly $100,000 in student loan debt.[1] Chief Judge Laurie Selber Silverstein found that Wolfson, an often un- or underemployed and chronically ill man, met the three-prong “Brunner test” and proved that repayment of his student loans would result in “undue hardship” under Section 523(a)(8) of the Bankruptcy Code. Declaring most interpretations of Brunner “unmoored from the original test and the plain language of ‘undue burden,’” Judge Silverstein held that, under the Brunner test, a debtor need only show an inability to maintain “a minimal standard of living” while repaying his or her student loans, not a total incapacity to ever repay them. In discharging the nearly six-figure debt, Judge Silverstein’s opinion found that allowing lifelong student loan debts to escape discharge absent an onerous standard of undue hardship conflicted with the promise of a “fresh start” that the Bankruptcy Code offers.

Wolfson, who graduated from Penn State University in 2010 with a degree in business and marketing, had primarily worked “gig” and minimum-wage jobs following graduation, relying on his elderly father for financial assistance to supplement his income his entire adult life. Wolfson suffered from seizures, one of which occurred while he was a driver for a rideshare and food delivery company that led to him totaling his car in August 2019. At the age of 23, Wolfson began using medical marijuana, in accordance with Delaware law, to treat his seizures after his doctor warned him that the medication he’d been taking until then would cause major liver disease with continued usage. Since the 2019 crash, Wolfson had been unemployed although he’d applied for approximately 200 jobs and spent 1-2 hours per day job hunting. Wolfson’s medical issues, however, limited his job opportunities as he could not work a job that began before 9:30 am due to the risk of seizure or after 8 pm when he needed to start using medical cannabis to help him maintain consistent quality of sleep to manage his epilepsy. Furthermore, Wolfson could not take a job that required drug testing (despite having a valid medical cannabis card pursuant to Delaware state law). Since August 2019, Wolfson had lived at home with his elderly father, whose finances and credit had also been damaged as a result of supporting his son.

Under § 523(a)(8), student loans are dischargeable only if repayment “would impose an undue hardship on the debtor.”[2] Because “undue hardship” is undefined, courts typically use the Brunner test, first articulated in a 1987 Second Circuit decision, to determine whether a debtor meets this standard. The Brunner test requires that a debtor show by a preponderance of the evidence that:

(1) the debtor cannot maintain, based on current income and expenses, a minimal standard of living if forced to repay his or her student loans;

(2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period for the applicable student loans; and

(3) the debtor has made good faith efforts to repay the loans.[3]

Applying that standard to the facts at issue, the court found that Wolfson satisfied all three prongs of the Brunner test. As to the first prong, the court defined “minimal standard of living” as a debtor having the wherewithal to tend to their basic needs, such as food, shelter, utilities, transportation, healthcare, and some small source of recreation; a debtor is not required to live in “abject poverty” in order for their student loans to be deemed dischargeable. The court did not include the financial support that Wolfson received from his father in this calculus because the Brunner test inquires whether the debtor can support himself individually – i.e., not with familial or other charity. The court found that Wolfson met this first prong of the Brunner test because his monthly expenses were minimal (if not understated since he didn’t have health insurance), and his employment history and continued job hunting showed an effort to maximize his income. Thus, he would be unable to maintain a minimal standard of living if forced to repay the loans.

The second prong of the Brunner test required deeper analysis by the court since it was not clear what “repayment period” should apply because the regular payment period on Wolfson’s loans had already expired and the loans had, in any case, already been accelerated. With respect to the repayment period, the court ultimately found that the contractual repayment period should be considered – and found that that period had already passed – rejecting counterarguments that a hypothetical, new go-forward repayment term should be applied. With respect to the applicable “additional circumstances,” the court held that a fact-based, case-specific inquiry had to be applied. Wolfson, the court noted, had a history of only gig work and minimum wage jobs “punctuated by periods of unemployment” for the prior ten years, suggesting that any future employment would be of a similar nature. Thus, his earnings were unlikely to substantially increase over time to where he could afford to repay the loans and maintain a minimal standard of living. These “grim [employment] prospects” constituted sufficient “additional circumstances” that satisfied the second prong of the Brunner test.

Lastly, the court noted that the third prong’s good faith clause focuses on a debtor’s efforts to make payments on his or her student loans and not necessarily whether any payments have actually been made. In that regard, the court noted that although Wolfson had never made a payment on his student loans, he nonetheless could satisfy this third prong since he had never been in a financial position to do so given his history of low wage jobs. The court held that Wolfson satisfied the third prong because he made his best efforts to maximize his income and minimize his expenses, and thereby try and make payments on his loans, even though he never had the discretionary income to do so.

Although only one ruling, Wolfson could be a significant decision in bankruptcy jurisprudence on student loan dischargeability, particularly because it was issued by the chief judge of the Delaware bankruptcy court (a particularly influential venue in the bankruptcy space). Indeed, despite initially indicating that it would appeal the decision, the Department of Education quickly changed course, suggesting that there could be increasing political pressure on the Biden administration to provide relief to student loan borrowers. While some of Wolfson’s personal circumstances were unusual (e.g., his medical issues and use of medical cannabis), these were not factors the court focused on. Instead, certain aspects of the court’s ruling suggest that at least Judge Silverstein would favor a shift away from courts interpreting and applying the Brunner “undue hardship” test narrowly.

[1] Wolfson v. DeVos (In re Wolfson), No. 1:19-bk-50717 (Bankr. D. Del. Jan. 14, 2022).

[2] 11 U.S.C. § 523(a)(8).

[3] In re Faish, 72 F.3d 298, 304-05 (3d Cir. 1995).