521 B.R. 875
Bankr. E.D. Wis.2014Background
- Debtor Mark Tetzlaff filed Chapter 7 (Feb 2012) and received a discharge (Jan 2013); Educational Credit Management Corporation (Educational Credit) holds his ~$260,000 federally guaranteed student loan.
- Tetzlaff earned an MBA and a law degree (graduated 2005) but never passed the bar and has not maintained steady employment since; he lives with his mother whose Social Security appears to be the household income.
- He alleged psychological and cognitive impairments (treating psychologist: narcissistic PD, anxiety, depression), a history of alcoholism, and misdemeanor convictions that hinder employment.
- Tetzlaff sought to introduce a forensic psychologist and a vocational counselor late (reports from Nov 2013–Apr 2014); the bankruptcy court excluded them for failure to disclose under the scheduling order.
- At trial the bankruptcy court credited Educational Credit’s forensic psychologist (testified Tetzlaff was feigning symptoms) and found Tetzlaff met the first undue-hardship element but failed the second and third (likely to persist; good-faith efforts).
- District court affirmed: exclusion of belated experts was not an abuse of discretion and the bankruptcy court’s credibility-based finding that Tetzlaff lacked good faith was reasonable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether bankruptcy court erred by excluding late-disclosed expert witnesses | Exclusion was unfair; memory issues arose after the disclosure deadline, so late disclosure was justified | Late disclosure prejudiced trial and violated scheduling order; no good cause | Affirmed exclusion: court did not abuse discretion under Rule 16(b) (diligence required) |
| Whether Tetzlaff proved "undue hardship" to discharge student loans under 11 U.S.C. § 523(a)(8) | Circumstances (disability, cognitive limits, criminal record, unemployment) make repayment unlikely to be maintained for a significant portion of repayment period | Credited opposing expert: Tetzlaff feigned symptoms and failed to make good-faith efforts to maximize income | Affirmed: debtor met element 1 but failed elements 2 and 3 (lack of good faith); no undue hardship |
| Standard for second element (likelihood repayment inability will persist) | The correct standard is "reasonably certain" that circumstances won’t improve; "certainty of hopelessness" is improper | Court applied proper standard and in any event relied on credibility/good-faith findings | Court found even the lesser standard failed, so no reversible error in any purported standard application |
| Whether tuition payments to law school counted as payments on the student loan (affecting good-faith finding) | Payments to Florida Coastal were payments on student loan and show some repayment effort | Characterization irrelevant; judge based good-faith finding on malingerer assessment and failure to maximize income | Irrelevant to outcome; even if characterized as loan payments, court would still find lack of good faith |
Key Cases Cited
- Krieger v. Educational Credit Management Corp., 713 F.3d 882 (7th Cir. 2013) (sets three-part undue-hardship test in Seventh Circuit)
- In re Roberson, 999 F.2d 1132 (7th Cir. 1993) (defines good-faith inquiry as efforts to obtain employment, maximize income, minimize expenses)
- Goulet v. Educ. Credit Mgmt. Corp., 284 F.3d 773 (7th Cir. 2002) (debtor must establish each undue-hardship element; failure of one is dispositive)
- Blue v. Hartford Life & Accident Ins. Co., 698 F.3d 587 (7th Cir. 2012) (abuse-of-discretion review for scheduling-order decisions)
- Alioto v. Town of Lisbon, 651 F.3d 715 (7th Cir. 2011) (diligence is primary consideration for Rule 16(b) good-cause inquiries)
- Perrian v. O’Grady, 958 F.2d 192 (7th Cir. 1992) (eleventh-hour disclosures prejudice parties and courts)
- Dynegy Mktg. & Trade v. Multiut Corp., 648 F.3d 506 (7th Cir. 2011) (Rule 37(c)(1) exclusion reviewed for abuse of discretion)
- Jones v. Phipps, 39 F.3d 158 (7th Cir. 1994) (pro se litigants are not exempt from procedural rules)
- Haines v. Kerner, 404 U.S. 519 (1972) (pro se filings entitled to liberal construction)