Mark Tetzlaff has close to $300,000 in law school debt and is seeking the U.S. Supreme Court’s help in getting it discharged in bankruptcy (Tetzlaff v. Educ. Credit Mgmt. Corp., petition for cert. filed, 84 U.S.L.W. 3222 (U.S. Oct. 15, 2015) (No. 15-485)).
Courts including the U.S. Courts of Appeals for the Seventh and Eighth circuits are split on what constitutes “undue hardship” that makes a debtor eligible for such a discharge. The U.S. Court of Appeals for the First Circuit is also considering this issue.
Tetzlaff has fallen on hard times, James M. Wilton of Ropes & Gray LLP, Boston, who represents Tetzlaff, told Bloomberg BNA.
He has massive debt and is “10 years from retirement age,” Wilton said.
The issue of law school debt has been getting more attention recently. Lawmakers on both sides of the aisle have “sharply criticized U.S. law schools” for burdening students with crushing debt and non-marketable degrees, according to Bloomberg Business.
More specifically, Tetzlaff’s alma mater–the Florida Coastal School of Law in Jacksonville, Fla.–has gotten some negative press about its graduates’ debt, Wilton said.
Those in the 2014 graduating class that had debt (93 percent) had a burden averaging “almost $163,000,” this New York Times editorial said recently.
Further, the median Law School Admission Test score for Florida Coastal students “was in the bottom 25%, which means that these are students who are marginal at best,” Wilton said. Marginal grades make it tough to land a lucrative legal gig.
“And so when you’re in that kind of a situation, it cries out for what the bankruptcy code calls a fresh start,” Wilton said.
In September, Tetzlaff learned he failed the bar exam for the third time, Wilton said. He “can’t get a job; he’s living at home below the poverty line on social security.”
That would be his elderly mother’s social security. He’s also struggled with depression and has misdemeanor convictions that make it difficult to find law-related work, according to his petition for certiorari.
Student loan debt can be discharged if repayment would constitute an “undue hardship” under 11 U.S.C. §523(a)(8).
The Seventh Circuit found that Tetzlaff didn’t meet that standard, in Tetzlaff v. Educ. Credit Mgmt. Corp., 794 F.3d 756 (7th Cir. 2015).
The court found that there wasn’t a “certainty of hopelessness” in his future ability to repay his loans, applying the test from Brunner v. N.Y. State Higher Educ. Servs. Corp., 831 F.2d 395 (2d Cir. 1987).
Instead, the Seventh Circuit was more optimistic about Tetzlaff’s ability to make a living. It even said his “capable pro se representation in this case is, in our opinion, an indicator of his marketable job skills.”
Can he put that on his resume?
Tetzlaff also hadn’t “made a good-faith effort to repay” his debt under Brunner, the court found.
“We think were it not for the overly burdensome test the Seventh Circuit puts in place for undue hardship, that you would have a discharge,” Wilton said.
“Unless you’re a quadriplegic from a car accident or you have Alzheimer’s disease” or another stark medical condition, “it’s going to be almost impossible to ever prove undue hardship in the Seventh Circuit,” Wilton said.
Regarding good faith repayment efforts, Wilton argues that “undue hardship is a forward looking thing.” A proper hardship analysis “doesn’t look back and say were you a good boy in the past, did you try to pay your debt.”
“The bankruptcy laws are supposed to be uniform—that’s in the Constitution,” Wilton said.
But there’s a circuit split on what counts as undue hardship, Wilton said.
The Eighth Circuit uses a “totality of the circumstances test, which is a much more flexible standard,” Wilton said.
It “allows for bankruptcy courts, which are courts of equity, to take and consider multiple factors and then make a decision” about undue hardship, Wilton said.
As a result, if a debtor lives in Arkansas—in the Eighth Circuit—“and you have the same situation that Mr. Tetzlaff has, the same fact pattern, you might very well have a different result,” Wilton said.
That disparity is “exactly why we think” there’s a “good chance” of the high court granting certiorari here, Wilton said.
Will this circuit split–and perhaps the increased political and media attention on law school debt–pique the court’s interest? Follow along with a free trial to U.S. Law Week.
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