Most Florida residents know that Jacksonville, Florida is home to Florida Coastal School of Law, a private law school, and frequent readers of this blog, know that the discharge of student loans in bankruptcy is a hot topic. Today we’ll be talking about a recent bankruptcy decision that involves them both, Tetzlaff v. Education Credit Management Corporation.
The Debtor’s Situation
The debtor, Mark Tetzlaff, filed for Chapter 7 bankruptcy in 2012 seeking among other things, discharge of his $260,000 in student loan debt, guaranteed by Education Credit Management Corporation (ECMC), discharged.
The debt arose from his graduate education, including an MBA from Marquette University and attendance (but not completion) at DePaul University College of Law. As alluded to above, Tezlaff also obtained a law degree from Florida Coastal, but financed that through the school and did not seek its discharge.
Tetzlaff likely anticipated a bright future with two graduate degrees under his belt, but unfortunately, reality was not kind. Following law school, Tezlaff made two failed attempts at passing the bar. He is divorced, has multiple misdemeanor convictions, and has struggled with drug and alcohol issues. Finding a job has been difficult and Tetzlaff, at 56 years of age, lives at home with his 85 year old mother, living off income from her social security payments.
It is difficult, though not impossible, to discharge student loans. The standard for doing so is set forth in 11 U.S.C. § 523(a)(8) which permits discharge when it would impose an “undue hardship” on the debtor. The most common test for evaluating whether an undue hardship exists is the “Brunner Test.” The test considers three factors: an inability to meet minimum standards of living, a situation that is likely to continue throughout most of the loan repayment period, and a good faith effort to repay the loans.
The Teztlaff case centers around the third factor: good faith effort to repay. In determining good faith, the court noted that the key considerations are the debtor’s ability to “obtain employment, maximize income, and minimize expenses” and the debtor’s “demonstrated efforts to pay off his existing loans.” Tezlaff had repaid nothing on the loan he sought discharge of, but had paid off much of the private loan to Florida Coastal.
The bankruptcy court found that under these circumstances, Tetzlaff had not made a good faith effort to pay of the debt that would sustain dismissal of his $260,000 student loan debt to ECMC. The court emphasized that the good faith effort applies to paying off the debt that the debtor is seeking to discharge. The court pointed to and followed the rationale of a 4th Circuit case where the court had held that the debtors payment of some federal loans did not demonstrate a good faith effort to pay down the private loans she sought to discharge. In short, the court found that Tetzlaff’s payments to Florida Coastal provided no evidence of good faith in paying down his other loans.
Your Student Loan Debt
Tetzlaff provides warning that before seeking discharge of loan debt, it is important to make efforts to pay each loan sought to be discharged, not just some of your student loan debt generally.
If your financial situation has become unmanageable due to loans, a mortgage, or other student loan debt, the Jacksonville student loan attorneys at Adam Law Group can help you develop a plan for getting out from under the debt,