On October 2, 2006, the Supreme Court of the United States denied Educational Credit Management Corporation's ("ECMC") petition for certiorari, thereby leaving in place the United States Court of Appeal for the Eighth Circuits' affirmance of the United States Bankruptcy Court's discharge of student loans held by Laura Reynolds. Flynn, Gaskins & Bennett partner, Jon Strauss, along with Monica Clark of Dorsey & Whitney LLP, were proud to represent Ms. Reynolds in these appellate hearings and the underlying trial.

In May 2001, Ms. Reynolds sought discharge of over $142,000 in student loan debt acquired while obtaining her law degree at the University of Michigan. Since high school, Ms. Reynolds has suffered from persistent, debilitating depressive conditions and received diagnoses of major depression, panic and anxiety disorder and borderline personality disorder. Although she passed the Colorado bar exam, she was never able to obtain employment as an attorney. At the time of trial, Ms. Reynolds held a clerical job that did not pay enough to cover her monthly student loan obligations. The Bankruptcy Code makes it difficult for debtors to discharge student loans, requiring that debtors prove it would be an "undue hardship" to maintain their loans.

Despite finding that Ms. Reynolds had some disposable income, the Bankruptcy Court discharged the entirety of Ms. Reynolds' debt. The bankruptcy court held “there is really no doubt that preserving the Debtor’s liability for even a portion of her educational loan burden would impose a hardship on her . . . [which] under the totality of her circumstances . . . would be ‘undue.’” Reynolds v. Pennsylvania Higher Educ. Assistance Agency (In re Reynolds), 303 B.R. 823, 840 (Bankr. D. Minn. 2004). The creditors appealed, but the United States District Court for the District of Minnesota affirmed, finding that “[t]he Eighth Circuit’s adherence to a highly particularized approach suggests that non-financial concerns may authorize discharge even when the debtor has some disposable income.” United States Dep't of Educ. v. Reynolds, 2004 WL 1745835, at *4 (D. Minn. Aug. 2, 2004).

Three creditors, including the United States Department of Education, appealed to the Eighth Circuit. The Eighth Circuit had recently affirmed that it relied on the more discretionary "totality of circumstances test," as opposed the the stricter "Brunner" test used in most other Circuits. Jon argued on behalf of Ms. Reynolds before an Eighth Circuit panel. In October 2005, the Eighth Circuit, noting that "a debtor's health and financial situations are inextricably intertwined," affirmed the Bankruptcy and District Court decisions. The Eighth Circuit emphasized, "[w]e will not adopt an interpretation of 'undue hardship' that causes the courts to shut their eyes to factors that may lead to disaster, both personal and financial, for a suffering debtor." Reynolds v. Pa. Higher Educ. Assistance Agency, 425 F.3d 526 (8th Cir. 2005). cert. denied, Educational Credit Management Corp. v. Reynolds, --- S.Ct. ----, 2006 WL 1130539 (U.S. Oct 02, 2006). In January 2006, the Eighth Circuit denied the creditors’ petitions for rehearing en banc, by a vote of 6 to 5.

With the Supreme Court's denial of certiorari, Ms. Reynolds' loans are officially discharged. Although this matter is at an end, the related Bankruptcy Court and Eighth Circuit opinions are cited frequently in cases where individuals with mental illness and other similar conditions, who would not have received any relief from the courts before Reynolds, are now having their student loans discharged in bankruptcy.