Ropes & Gray Attorneys Petition the U.S. Supreme Court to Restore the Availability of a Student Loan Discharge to Debtors Experiencing “Undue Hardship”

In The News
October 26, 2015
Douglas Hallward-Driemeier ,
James M. Wilton
D. Ross Martin

A team of Ropes & Gray attorneys filed a petition for a writ of certiorari in Mark Warren Tetzlaff v. Educational Credit Management Corporation to address outcome-determinative differences in how appellate courts evaluate “undue hardship” in determining whether debtors can discharge student loans.

Ropes & Gray represents petitioner Mark Tetzlaff, a 57-year-old facing difficult life circumstances and poor employment prospects whose student debt burden was nearly $260,000 when he filed for bankruptcy and sought to have his student loan debt discharged on the basis that the repayment constituted an “undue hardship.” The bankruptcy court held that Mr. Tetzlaff’s student loan debt could not be discharged, a decision that the U.S. District Court for the Eastern District of Wisconsin and the Seventh Circuit affirmed.

In particular, Ropes & Gray’s petition for certiorari examines the increasing rigor with which courts apply elements of the Brunner test, adopted by many circuits, including in Mr. Tetzlaff’s Seventh Circuit appeal. The test has three requirements that must be met for a borrower to be able to discharge student debt. Those requirements are whether a debtor has (a) a present sub-minimal standard of living, (b) demonstrates a future hardship as related to debt repayment, and (c) has demonstrated a past good faith effort to repay debts. Even circuits that apply the Brunner test do not do so uniformly, with some, like the Seventh Circuit, insisting that the debtor suffer a “certainty of hopelessness” before receiving a discharge. 

In the petition, Ropes & Gray argues that the Brunner test, which was founded on a misunderstanding of Congressional intent when decided, has become dangerously unmoored from the statutory text. Courts in two circuits have rejected the Brunner test altogether, adopting a more lenient “totality of circumstances” test, which has the bankruptcy court make an equitable determination based on all available evidence and is more closely linked to the “undue hardship” standard of the Bankruptcy Code.

The petition for certiorari presents two questions:

1. Whether the Brunner test is the proper standard for determining “undue hardship” for the discharge of student debt, and,

2. Whether, if the Brunner test is the proper standard, that test should be (i) modified to eliminate the requirement that a debtor in the past have “made a good faith effort to repay the loans,” and (ii) clarified to establish that a debtor need only prove by a preponderance of the evidence that his inability to pay is likely to persist for a significant portion of the repayment period,” not that there is a “certainty of hopelessness,” a standard that the Seventh Circuit employed.

The Ropes & Gray team is being led by appellate & Supreme Court partner Douglas Hallward-Driemeier and business restructuring partners James Wilton and Ross Martin.

The petition is available here.