Bankruptcy Trustees going after Paid College Tuition

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Tuition recovery lawsuits are a growing trend and an example of creative use of fraudulent transfer law.

According to the article in the Wall Street Journal:

Tuition recovery lawsuits are a new phenomenon. Historically, tuition payments were so small that a court-appointed trustee wouldn’t waste time pursuing them. But as college costs rise and more parents chip in to help their kids, bankruptcy experts predict more of these lawsuits to come.

Why are trustees going after college tuition? Court-appointed trustees have a duty to recover as much money as possible to repay creditors. Apparently they are turning more and more to the tactic of suing universities, college students and sometime their parents, to take back tuition that had been paid years before. Under the U.S. bankruptcy code, trustees can sue to take back money that a bankrupt person (such as a parent) spent several years before filing for protection if a trustee finds that the person didn’t get “reasonably equivalent value” for that expense. The kicker, the law doesn’t define “reasonably equivalent value.”

The fairness of this practice comes under the scrutiny of a bankruptcy judge, some of whom don’t tend to agree on this practices of trustees recovering tuition. In addition, Congress is considering legislation that may prevent these types of lawsuits. If you find yourself in this situation, see a bankruptcy lawyer immediately. Cossitt Law can help you protect your assets and make bankruptcy a less stressful process.

Read the Wall Street Journal Story here:


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