Guiding You Toward A Brighter Financial Future

Parental Bankruptcy And College Tuition

On Behalf of | Aug 16, 2016 | Bankruptcy

Many parents dream of being able to send their kids off to a good college, and not have them worry about massive debt when they graduate. In some cases, parents align their financial priorities to pay for the tuition bill at the expense of their own bills. At times this approach has resulted in those parents being forced to seek relief via a Chapter 13 bankruptcy.

Parents Prioritizing Tuition Over Other Expenses

In cases where parents had paid for their child’s college education, some bankruptcy trustees have analyzed the unpaid bills of filers and questioned whether or not those bills could have been paid if those parents had not spent their money on tuition expenses. In some of these situations, colleges have been asked to return tuition payments made by parents who were otherwise struggling financially. Since 2014, more than a quarter million dollars of tuition payments have been returned to bankruptcy estate where they would be used to pay other bills.

Negotiation With Bankruptcy Trustees

Although some schools go to court to dispute having to return tuition payments, others have settled and returned large amounts of money to bankruptcy estates. In turn, that money can be redistributed creditors. The relatively new practice is somewhat controversial, and some lawmakers have proposed legislation that would stop bankruptcy trustees from going after money that has already been paid to colleges and universities.

Placing Responsibility On The Student

Meanwhile, one school that did return $17,000 to a bankruptcy estate did so with the stipulation that the actual student take responsibility for the debt. If she chose not to pay it, it could lead to a hold being placed on her diploma and transcript.

If you have helped you child through college by paying all or part of their tuition, and are considering filing bankruptcy it is important to discuss with your bankruptcy attorney how this may affect your filing. It may mean some of the tuition payments you originally made will be redistributed to other creditors, and it is also possible it could present your child with debt they had not expected. A knowledgeable bankruptcy attorney can work with you and your trustee to help you find a solution that works best for you and your family.