According to The Wall Street Journal, trustees handling the collection of monies owed to creditors have come across a stealthy way to regain funds owed, by demanding the academic institution return a part of tuition received. These aggressive tactics to take back tuition payments are being used by parents filing for bankruptcy. As more and more Americans are sinking deeper in student loans and filing for bankruptcy, court-appointed trustees are seeking to recover as much money as possible in order to repay creditors.
“In a growing number of personal bankruptcy cases, trustees responsible for collecting money for creditors have moved to claw back tuition payments that insolvent parents made for their children. The trustees argue the funds should be recovered to pay off the parents’ debts instead. In many cases, they’re succeeding,” the Journal reports.
Originally, these cases were few and far but with increased tuition costs and heavy student loan debts, bankruptcy experts foresee more of these lawsuits to come. The University of Bridgeport paid $4,000 in such a lawsuit, over the last year. New York University was sued to claim tuition money by Trustees for a Minnesota couple last October. A spokesman for NYU, John Beckman called it “deeply unfair to that institution which has provided real value to the family.”
The reason these lawsuits are able to proceed is because of a loophole in the bankruptcy code, permitting trustees to sue in order to collect money that a bankrupt person spent several years before filing for protection. It is contingent on if a trustee finds that the person didn’t receive ‘reasonably equivalent value’ for that expense. The Journal reported, “But in the case of a child’s tuition payment, the filer didn’t get the value for the expenditure — the child did.”
Marquette University fought a lawsuit against them in 2010, arguing that Carmen and William Leonard’s the son had received “reasonably equivalent value” for their tuition amount. The court sided with the Leonards, stating they “did not receive any ‘value’ for their tuition payments to Marquette,” and that the school “points to no economic benefit to the Debtors, other than to speculate that a college education for Debtors’ son may in the future enable him to be financially independent of his parents, and thereby relieve Debtors of any need to financially support their son.” According to the Journal, Marquette was eventually compelled to repay $21,527 to the trustees, who had filed suit after both of the Leonards had lost their jobs during the recession.
Not all cases are successful. A New York bankruptcy judge ruled in favor of St. Andrews University and they were not required to repay $35,055 in demanded tuition costs. Also, unsuccessful lawsuits can be very costly for the families as well. Additionally some parents were afraid that their child might be expelled, denied a transcript or asked to repay tuition money received, according to the Journal. Trustees are less likely to go after tuition for private elementary and secondary schools, because in most states this money is protected by laws that require a parent to care for their children until adulthood.
If you are in a financial crisis and are considering filing bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.
http://blogs.wsj.com/bankruptcy/2015/05/06/whats-behind-bankruptcy-lawsuits-over-college-tuition/