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Bankruptcy Law Blog

Monday, August 17, 2015

Congress Considering Amendments to College Tuition ‘Clawback’

What is a college tuition ‘clawback’ in bankruptcy? 


Attending college can be one of the most costly expenses a family endures – and, for some, the increasing tuition rates ultimately prove fatal to their personal financial portfolio, resulting in consumer bankruptcy. 

Under current bankruptcy guidelines, debtors engaged in the bankruptcy process are sometimes able to recover money spent in the years immediately prior to filing that could have been spent on paying down debts and avoiding insolvency. In order to qualify for this recovery – known as a ‘clawback’ – the debtor must prove that he or she did not get a “reasonably equivalent value” for the expense. Historically, the clawback principle was applied to personal loans or money spent assisting family members; or to below-market asset transfers occurring immediately prior to the bankruptcy filing. 

However, in recent years, bankruptcy courts have seen a significant influx of debtors seeking to clawback tuition payments made on behalf of their children enrolled in a college or university. In so doing, parents assert that they did not receive a reasonably equivalent value for the tuition payment – the child did. As a result, bankruptcy trustees are engaging in increasing litigation against colleges and universities to recover the amount of money spent on tuition – and are for the most part successful in this endeavor. 

In response to this prevalent trend, lawmakers have proposed amendments to the Bankruptcy Code to prevent the clawback of college tuition payments. More specifically, the amendments would alter the current list of expenses eligible for clawback, which also includes charitable donations. The bill was introduced in the U.S. House of Representatives in May 2015, and is currently under review. 

According to a recent article published in The Wall Street Journal, 25 colleges and universities have thus far been asked to return portions of students’ tuition money under the tuition clawback allowance. 

If you are considering a consumer bankruptcy petition and would like to speak to a reputable attorney in Alabama, contact Padgett & Robertson today: (251) 342-0264. 

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”



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