High court may weigh bankruptcy, student debt

Man fights DOE to have loans canceled

Mark Tetzlaff is a 57-year-old recovering alcoholic who has been convicted of victim intimidation and domestic abuse. He also may be the person with the best shot at upending the way U.S. courts treat student debt for bankrupt borrowers.

Tetzlaff has spent three years battling lawyers for the Department of Education over the right to have his student loans canceled in bankruptcy. On Thursday, he appealed his case to the Supreme Court. If the nation’s highest court takes the case, it will be one of the rare occasions when it has addressed the $1.3 trillion in student debt held by 41 million Americans.

Tezlaff got a new attorney after representing himself for most of his case. Douglas Hallward-Driemeier successfully argued part of the landmark June case that made same-sex marriage a legal right in all 50 states.

Hallward-Driemeier and his team

have asked the court to clarify 1970s-era rules that prevent borrowers from getting rid of education debt in bankruptcy, except in cases in which repaying it would constitute an “undue hardship.” Lawmakers never defined “undue hardship,” leaving it to the courts to define these rare circumstances in individual cases. Tetzlaff says the standard being applied to his case is unconstitutional.

The Supreme Court may consider the case partly because it would be able to resolve a split between federal courts in their interpretation of the law, according to court documents. Courts disagree mainly on which of two tests should be used to determine whether someone can erase his or her debt in bankruptcy.

The so-called Brunner test, used in most federal courts, was applied in Tetzlaff’s case. It requires debtors to prove that they have diligently tried to repay their loans, that making any payments would deprive them of a “minimal” standard of living, and that the hardship affecting them today will persist long into the future.

Tezlaff’s legal team has said the Supreme Court should apply a less harsh alternative known as the “totality of the circumstances” test, which has been gaining ground. That option does not require debtors to show they made “good faith” efforts to pay their loans or that their lives will be characterized by unmitigated financial pain for the foreseeable future.

A federal court in Chicago said Tetzlaff needs to show his future will be characterized by a “certainty of hopelessness, not simply a present inability to fulfill financial commitment.” Tetzlaff argued that the standard should be whether he can reasonably expect his life to get better, not whether he is certain it will get worse.

The Wisconsinite amassed $260,000 in student debt after getting an MBA at Marquette University; attending, but not graduating from, law school at DePaul University; and finishing his law degree at the for-profit Florida Coastal School of Law. He failed the bar exam twice. He has been out of work since 2004 and says he cannot get a job because employers repeatedly reject him on the basis of his criminal record. He lives with his 86-year-old mother, and the two survive on her Social Security income.