Debtor Loses Appeal at the 7th Circuit on Student Loan Discharge Case | Wisconsin Bankruptcy Law Blog | Bankruptcy Lawyer | Tax Attorney | Wausau | Krautkramer & Block LLC Law Firm

Debtor Loses Appeal at the 7th Circuit on Student Loan Discharge Case

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On July 22, 2015, Mark Tetzlaff lost his appeal seeking to discharge his student loans in front of the United States Court of Appeals for the Seventh Circuit in
Tetzlaff v. Educational Credit Management Corporation, No. 14-3702 (7th Cir. 2015).


Mark Tetzlaff is 56 years old, lived with his 85 year old mother, was unemployed, and was dependent on his mother’s social security payments. Tetzlaff pursued a Masters in Business Administration from Marquette University and a law degree from Florida Coastal School of Law. Tetzlaff filed a chapter 7 bankruptcy and sought to discharge $260,000 of student loan debt guaranteed by Educational Credit Management Corporation. Tetzlaff argued that various factors made it difficult for him to secure employment, including his struggles with depression and alcohol abuse and several misdemeanor convictions.

At trial, the bankruptcy court determined that Tetzlaff failed to show that repaying his student loans would constitute an “undue hardship.” On appeal, the United States District Court for the Eastern District of Wisconsin affirmed the bankruptcy court’s decision.

Brunner Test

Bankruptcy Code Section 523(a)(8) provides that student loans are not dischargeable unless the debtor proves that payment would act as an undue hardship on the debtor. The Bankruptcy Code does not define what constitutes an “undue hardship,” so the Seventh Circuit adopted the Brunner test. Under the Brunner test, a debtor is required to show that:

(1) [he] cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay [his] loans;
(2) additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period; and
(3) [he] made good faith efforts to repay the loans.


It appears that the main problem in Tetzlaff’s case was that although the Court found he was able to obtain employment, Tetzlaff instead lived off of his mother’s social security payments and failed to make a good faith effort to obtain a job and pay his student loans.

Student Loan Discharge Cases Are Fact Specific

The Seventh Circuit does acknowledge that the “undue hardship” inquiry as a whole is “a case-specific, fact-dominated standard, which implies deferential appellate review.” Tetzlaff at 5. The Court notes that “a judge asked to apply a multi-factor standard interpreting an open-ended statute necessarily has latitude; the more vague the standard, the harder it is to find error in its application.” Tetzlaff at 5. In other words, the bankruptcy court’s decision on undue hardship is given great deference.

In addition to giving the bankruptcy court the complete story of hardship facing the debtor, the debtor should show the court his or her good faith efforts. The Court noted that: “A debtor’s good faith efforts to repay his student loans are measured by his ability to obtain employment, maximize income, and minimize expenses.” Tetzlaff at 8. If Tetzlaff obtained employment, maximized his income, and minimized his expenses, then perhaps he would have had a better chance of discharging his student loans.

If you have student loan debt problems or are considering filing bankruptcy to tackle your student loan debt, make sure you have a bankruptcy attorney review your options.

For more information about this and other bankruptcy law issues, please call at 715-842-2162.

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