Could Your Child’s College Tuition Be Taken Back in Greensboro Bankruptcy?

Be careful with college tuition payments when filing Greensboro bankruptcy

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If you have a student in college in Greensboro, North Carolina, are struggling with finances, and decide to pursue bankruptcy, some new case law is important for you to know. In some recent cases, bankruptcy Trustees have gone after money paid in tuition for a child’s college education and the colleges have been forced to pay it back. Will this trend catch on and could it affect your Greensboro student?

Court Rulings on Tuition in Bankruptcy

A number of court rulings have weighed in on the issue of college tuition during bankruptcy and courts are divided by district. If a case like this comes up in the Greensboro area, it could adversely affect parents paying their child’s college tuition. One of the phrases Trustees have used when suing to reclaim college tuition is that it is for an “adult” child.

Since most college kids are 18 and up, technically, they are adults. But if you have a Greensboro teen or young 20s age child in college, they are very likely still dependent on you. In some recent cases, bankruptcy trustees have sued a college to recover tuition payments on the basis that the bankruptcy filer did not receive a “reasonably equivalent value” for what was paid.

What Is the Logic Behind Taking Back Tuition?

To simplify, suppose you pay tuition to your student’s Greensboro college and then filed bankruptcy over your debt. You likely assume that paying tuition is the same as paying another expense like rent or utilities that are protected under bankruptcy law. The difference is, you get value for those expenses including a roof over your head and lights on in your home.

Where is your value paid for the college tuition? A Trustee could fairly argue that the parent gets no value, only the student does, and that makes it fair game for what is called a “claw back.” The same thing can happen if you pay back a personal loan to a family member before filing bankruptcy or any other payment that can be seen as preferential to one unsecured creditor over another.

What Happens When Tuition Is Taken Back?

If you file bankruptcy and the Trustee goes after tuition paid for your Greensboro student, and the college pays it back, you will likely see your student’s grades held, or they may be kicked out of school unless you can come up with replacement money. That can be a tough ask if you’re in the bankruptcy process. So, what’s the answer?

Funds in a college savings account should be safe from claw back, but it’s best to consult a bankruptcy attorney on this issue before you file. Another option is your student taking out student loans to pay for their education while you complete the bankruptcy process. If you have parents with money, perhaps they can float your student the tuition while you finish bankruptcy.

Colleges Have No Choice If Sued

The most recent case was in the Southern District of Georgia and that bankruptcy court ruled the college had to give the tuition paid to the Trustee to distribute to creditors. Last August, a Massachusetts bankruptcy court ruled against the Trustee on the basis that the child getting a degree would pay off in the future for the parents.

The Georgia court that allowed the Trustee to take back the tuition called the debt for college only a “moral obligation” and not a quid pro quo that benefited the parent. Whether this could happen to you in a Greensboro bankruptcy is not a settled issue. If you have a child in college and are paying some or all of the tuition out of pocket, definitely tell your bankruptcy attorney about it.

The path to getting the best results in Greensboro bankruptcy is to be totally transparent with your attorney. Tell them everything, hide nothing, and be sure to include tuition payments for college in with your expenses. Only then can you get the best advice.

If you’re struggling to pay your bills, there is help out there. Don’t live with debt you can’t afford. Contact the Law Offices of John T. Orcutt for a free Greensboro bankruptcy consultation. Call +1-833-627-0115 now for a free consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro or Wilmington.