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Trustees suing to recover college tuition paid by bankrupt parents on behalf of kids

Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Are my 401k and IRA protected in bankruptcy?”


The University of Maryland, College Park is fighting in bankruptcy court to keep the $61,595.33 a now-bankrupt Connecticut couple paid the university. The couple’s son attended the university beginning in 2010. After making the tuition payments, the couple went bankrupt.

Classroom Charlotte Chapter 7 Lawyer Mecklenburg County Bankruptcy AttorneyNow the couple’s trustee in bankruptcy wants the money back, and is fighting in court to get it. The new trend—seeking to recover tuition payments from current or former college students and institutions of higher education—called tuition recovery law suits—are part of a new trend, according to the Wall Street Journal.

Bankruptcy trustees—appointed by the bankruptcy court to oversee the bankruptcy estates of debtors—have a duty to recover as much of a debtor’s assets as possible in order to pay off creditors. In some instances, trustees can seek to recover sums paid by bankrupt couples to creditors or others from four to six years before filing for bankruptcy.

A trustee can bring suit to recover money paid to third parties by a debtor if the debtor did not get “reasonably equivalent value” for the money that the debtor paid. The Bankruptcy Code does not define the term “reasonably equivalent value,” giving trustees some leeway when it comes to pursuing what they may consider to be improper pre-bankruptcy payments or transfers of money.

The Connecticut couple are only the latest debtors to see their bankruptcy trustee demand repayment of tuition paid on behalf of a child. In 2010, the Journal reports, the trustee overseeing the bankruptcy of Carmen and William Leonard sued Marquette University, seeking return of $21,500 they paid on behalf of their son.

The university argued in that case that the Leonards’ son would “be afforded opportunities throughout his lifetime that he would not have been offered if it were not for his education.” The judge overseeing the Leonard case, however, disagreed, writing in a 2011 opinion that the benefit to the Leonards themselves was not “concrete and quantifiable” The judge in that case ordered the money to be refunded to the Leonards’ bankruptcy estate.

Critics of tuition recovery law suits say they can tear families apart. The Journal recounts how a Boston College graduate was sued by his own parents’ bankruptcy trustee in 2006 and eventually agreed to repay $10,000 to their bankruptcy estate. Deborah Thorne, a professor of sociology at Ohio University, said tuition recovery lawsuits are horrible for students and parents alike.

While some observers do not approve of the practice, however, experts predict that tuition recovery law suits will be brought with increasing frequency in the future. In general, tuition at public and private colleges and universities is rising, and a recent study by a national student-loan lender shows nearly fifty-percent of parents with children under the age of eighteen are saving for college.

Piles of money paid on behalf of a third party to a college or university could prove far too sweet a target for bankruptcy trustees to let pass by.

If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.



About the Author

Bryan 1Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.

A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.

Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.

In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.







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