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An attorney so overwhelmed with student loans and so disillusioned with the profession that he gave up his practice and moved to France cannot use the U.S. Bankruptcy Code to escape responsibility for his educational debts, a Northern District of New York Bankruptcy judge has held. Chief U.S. Bankruptcy Judge Stephen D. Gerling said that while he is sympathetic to the predicament faced by many debt-ridden law school graduates, the bankruptcy code allows discharge of their student loan debts only on a showing of “undue hardship” — a burden the court said James E. Stern cannot sustain. In re Stern, 01-64025, touches tangentially on an issue of concern to both the National Bankruptcy Review Commission and leaders of the New York State Bar Association: the extreme difficulty of discharging school loans in bankruptcy. Bar officials have expressed concern that the debt burden and the largely unavailable bankruptcy remedy is discouraging young attorneys from working in public interest law. “The court is not unreceptive to such arguments,” Gerling said. “However, it is for the Congress to enact legislation to allow students to discharge their loans on less than a showing of ‘undue hardship.’” Stern’s situation is not unlike that of many law school graduates. But the way he chose to address his financial plight — by dropping out of the profession — is somewhat unusual. And while Judge Gerling said the debtor has every right to pursue, or not pursue, a vocation, his decision to underutilize his educational advantages and to live in a country where he is virtually unemployable weighs heavily against discharge of the debts. Records show that Stern, who graduated from Bates College in Lewiston, Maine, with an interdisciplinary major of philosophy, psychology and anthropology before enrolling in Syracuse University College of Law, owes about $150,000 on educational loans. He opened a law practice in Syracuse, N.Y., in 1995, concentrating in civil rights litigation, criminal defense and cases referred to him through an assigned counsel program and the Teamsters Legal Benefit Panel. However, over the five years he practiced, Stern never made more than about $33,000, and typically earned less than half of that. In 2000, Stern became particularly discouraged largely because of two occurrences: After he successfully defended two malpractice claims, his insurance premiums increased to a level he could not afford on the earnings of a civil rights/assigned counsel attorney; and after his father’s jewelry business was robbed, Stern found it difficult to defend clients accused of violent acts of the type perpetrated against his father. UNEMPLOYABLE IN FRANCE Stern filed for Chapter 7 bankruptcy relief in June 2001, and the following month closed his practice and moved to France with his French wife. In France, Stern contends, he is “not even qualified to be a street sweeper” — let alone a lawyer — because he does not speak the language. The matter before Chief Judge Gerling was an adversary proceeding initiated by Stern against two creditors, The Educational Resources Institute Inc. and Educational Credit Management Corp., seeking discharge of student loans. Stern relied on Brunner v. New York State Higher Educational Services Corp., 831 F.2d 395, where the 2nd U.S. Circuit Court of Appeals in 1987 set forth the standard for “undue hardship” in the discharge of student loans. Under Brunner, Gerling said, a debtor must meet all three prongs of a “hardship” test to qualify for discharge: inability to maintain a minimal standard of living; evidence that the debtor’s state of affairs is unlikely to improve for a significant portion of the repayment period; and indications that the debtor made a good-faith effort to meet his or her obligations. BEYOND CONTROL Here, Chief Judge Gerling said, Stern demonstrated that he is not currently able to repay his loans. However, the court found that Stern has not sufficiently shown that circumstances beyond his control prevent him from improving his financial condition. With that finding, the court said, there was no reason to reach the third or “good-faith” prong of the Brunner test. “In this case, the debtor possesses both a bachelor’s degree and a Juris Doctorate,” Gerling said. “While unable to gain full-time employment since quitting his law practice in Syracuse and moving to France, it is evident to the court that he is bright, articulate, well educated and suffers from neither physical nor mental disability that would prevent him from earning a living in the future which would permit him to repay his student loans.” Additionally, Gerling declined to grant even a partial discharge. “While the debtor testified that he no longer wishes to continue in the legal profession … there are other career opportunities available to him by virtue [of] his education, training and experience,” Gerling said. Carl Worboys of Liverpool, Onondaga County, appeared for the debtor. The creditors were represented by John J. Henry of Whiteman, Osterman & Hanna in Albany, N.Y., for Educational Credit Management Corp., and Christopher P. Schueller of Buchanan Ingersoll in Buffalo, N.Y., for The Educational Resources Institute.

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