New Bill Seeks to End Tuition Clawbacks
Posted on May 19, 2015 7:40am PDT
When parents file for bankruptcy after they have paid their child's college tuition, they may face scrutiny from bankruptcy trustees who contend that the money should have gone towards paying their own debts.
In the last several years bankruptcy trustees have been seeking to claw back tuition payments made by indebted parents in the months and years preceding their personal bankruptcy filings.
Trustees have been arguing that under state and federal statutes, the tuition payments were fraudulent transfers because the tuition didn't benefit the parents; therefore, the money should be recovered and distributed to the parents' creditors.
Bill Is Introduced to Block Tuition Clawbacks
On May 12, 2015, Congressman Chris Collins (R-NY) introduced a bill that would block bankruptcy trustees from filing lawsuits against universities and college students in an attempt to recover tuition that was paid years earlier.
Rep. Collins said that it is up to the parents to prioritize a child's education over other bills such as credit card or medical debt. He said that it's a personal decision on what bills you pay and which ones you don't.
He said that families all over America, when it's time to pay the tuition, are tightening their belts and paying the tuition since it's their children's futures.
The bill is called the Protecting All College Tuition Act of 2015. Rep. Blake Farenthold (R. Texas) also signed the bill. If the bill is passed, college tuition payments would be excluded from the list of financial transfers that could be clawed back in bankruptcy.
This isn't the first time that lawmakers have been shaken by the bankruptcy clawback mechanisms. When massive Ponzi schemes in Florida and Minnesota were exposed, trustees went after the money that collaborators of the schemes had donated to charities to recover money for the victims.
Shocked by these lawsuits, state lawmakers passed rules in both of the states that made it more difficult for the lawyers to recover that money by making it so older donations were untouchable.