Queens Bankruptcy Attorney Bruce Feinstien, Esq. Expresses His Opinion About a Rare Legal Battle Between a University and a Bankruptcy Trustee for Tuition

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Queens Bankruptcy Attorney Bruce Feinstein, Esq. examines a loophole in in the U.S. bankruptcy code that allows trustees to recover tuition expenses they paid for their children.

Queens Bankruptcy Attorney Bruce Feinstein, Esq.

Queens Bankruptcy Attorney Bruce Feinstein, Esq.

...trustees are arguing that tuition money could have been better spent paying creditors, but parents often receive educational loans that are distributed directly to the schools making the funds impossible to spend anywhere else.

On June 27, 2015 the Wall Street Journal published an article about Johnson & Wales’ battle to keep tuition it received from a couple that later filed for bankruptcy. Under the U.S. Bankruptcy Code, trustees are able to sue to recover assets a debtor distributed several years before a bankruptcy filing if it is believed that these assets could have been use to pay creditors. Typically trustees look for money, homes, or cars given to family members, but the law states they can go after any transaction for which the debtor didn’t receive “reasonably equivalent value”. In an increasing number of tuition-recovery cases trustees are arguing that since the debtor’s children receive the benefit of paid tuition and not the debtors themselves, tuition is fair game.

“Although New York Republican representative Chris Collins has introduced a bill to block tuition-recovery by bankruptcy trustees, it will do little to stop this tactic. If tuition-recovery is blocked federally, trustees can still sue using similar state laws,” says Queens bankruptcy attorney Bruce Feinstein, Esq.

Mr. Feinstein adds that, “What should be most troubling to universities is that trustees are arguing that tuition money could have been better spent paying creditors, parents often receive educational loans that are distributed directly to the schools making the funds impossible to spend anywhere else.”

“I’ve never had a trustee go after my client’s tuition payments in close to two decades as a practicing bankruptcy attorney. However, as tuition expenses continue to rise it seems likely that unless this practice is banned, it may become more and more common,” warns Feinstein.

According to the Wall Street Journal, “25 colleges have been asked to return money in recent years. Most colleges choose to settle the dispute by paying some or all of the tuition back before a bankruptcy judge is asked to weigh in. Four judges who have ruled on the issue were split, siding with parents half the time.” Judge Julie Manning is scheduled to hear arguments in the Johnson & Wales lawsuit on Wednesday.

The Law Offices of Bruce Feinstein has nearly two decades of experience in bankruptcy law, helping clients and families resolve their issues and move forward with their lives. If you are struggling with debt and are thinking of filing for bankruptcy visit bfeinsteinesq.com for more information or call (718) 514-9770 to reach the New York office.
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