Judge: Suspended Lawyer Can’t Use Bankruptcy to Discharge $500K in Student Loan Debt

A federal judge wasn't very impressed with Donald Rosen's arguments
about why he should have his student loan debt discharged. Photo: Shutterstock

A Chicago federal judge has affirmed a bankruptcy court’s ruling that a 63-year-old attorney is still required to pay his student loan debt.

That wouldn’t be much of a surprise to anyone who has applied for bankruptcy protection in recent history. Most debtors can’t discharge student loan debt in Chapter 7 or Chapter 13 bankruptcy, unless they can prove that repaying the loans would cause an undue hardship and that they have made good-faith efforts to make the payments—that is, they can pass the Brunner Test.

The appellant in the Chicago case, Donald Rosen, had been practicing law, but he had his license suspended for allegedly misappropriating $85,000 in client funds, then hindering investigations into the matter by allegedly lying and providing fabricated bank records.

Worse yet, Rosen blamed his mother for the misappropriation. He said she had inadvertently used those funds to pay business expenses while she was working at his office. And then, of course, Rosen said that his mother was embarrassed by the error and falsified bank statements to cover it up.

Rosen had asked that the bankruptcy court not only discharge his student loan debt, but enter a declaratory judgment that the Illinois Attorney Registration and Disciplinary Commission (ARDC) had violated his rights.

The bankruptcy court dismissed the case, so he took it to the federal district court, where Judge Rebecca Pallmeyer found that the bankruptcy court was correct in its decisions.

Rosen had attempted to argue the Brunner Test in the case, saying that the ARDC’s “wrongful” suspension had violated his rights and forced him into sufficient hardship to have the loan debt discharged.

Pallmeyer wasn’t having it. “There is no serious argument that this declaratory judgment ‘could arise only in the context of a bankruptcy case’…Rosen cites no case law that challenges this conclusion. He merely repeats that vindication in his disciplinary proceeding will demonstrate that his hardship is not self-inflicted and therefore support his claim for a discharge.”

Pallmeyer applied the Brunner Test to Rosen’s arguments:

• Poverty: Rosen argued that the bankruptcy court erred in assuming his ability to maintain a minimal standard of living if forced to repay the loans. He also said he had struggled to find a job after his suspension, and even if he could, the repayment would not be complete until he was in his 90s. Pallmeyer said “the possibility that the plaintiff will not live until the end of the repayment period is not a factor that the court must consider in applying the Brunner Test.” 
• Persistence: Rosen argued that his current financial situation was likely to continue for a significant part of the repayment period. Pallmeyer said that as a person with a CPA, two master’s degrees, and a JD, there is no reason why he should be unemployable. 
• Good faith: Rosen argued he’d made good-faith efforts to repay his student loans. Pallmeyer disagreed. “Rosen managed to avoid default on his student loans for 31 years because he attended school (and kept taking out more loans) nearly the entire time. Even after graduating law school in 2001, Rosen kept his loans in deferment until 2007. This is not evidence of a good faith effort to pay.” 

Ultimately, Pallmeyer said, the primary driver of any sympathy toward Rosen is the size of his debt, adding, “The fact that he may be unable, practically, ever to repay the loan in full does not, however, move the court. Rosen appears to believe that because the likelihood of paying off the entire loan within his lifetime is slim, he should not bother trying…The court disagrees.”

Let that be a lesson to you: If you try to dodge your student loans by staying in school for your entire adult life, a court is unlikely to find any sympathy for you when you ask to have that debt discharged through bankruptcy. And if you dodge an ethics violation by blaming your mother, don’t expect a lot of sympathy in the court of public opinion, either.