This has been happening more and more. Adult students especially do it. They pay their tuition and rack up huge debt on their credit cards and car loans and then after graduation, file bankruptcy.
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I suspect we are looking at cases where they chose to pay tuition or those loans bc the college loan is not discharge-able. So pay it off (or tuition in lieu of loan) and discharge everything else. <<<<
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I suspect that people do that with their mortgages as well…continue paying those (to keep the home), but declare bankruptcy on credit card debt.
I know about the clawback period and can understand if there has been a payment made with an unfair priority, unfair to the other creditors. but this story has examples that make no sense. One of the cases showed a student loan cosigned by the parent, the tuition paid with the loan, the tuition money clawed back and the loan not discharged. Now the person is paying the student loan and paying back the university, that is an abuse of the system.
I have seen a couple of clients go through BK, years ago, before the rules changed. It was incredible and disgusting to see a person with real assets have nothing to be distributed to the unsecured creditors. Things were sold, auctions happened, etc. All they did was pay the trustee bills. I was incredibly unimpressed with how the trustees appeared to work diligently, feverishly even, to turn up and confiscate assets, but not one penny went to unsecured creditors. Only the trustee was enriched. That was wrongful use of the system.
I cannot understand how these people are having years old tuition payments clawed back, I thought clawback was 90 days?
30 years ago it was probably not money-laundering, but it would likely fit that description in the post 9-11 world. I have a lot of experience working with those particular legal issues. The trick would be proving the over-payment is deliberate.
Re post #22: the clawback for preference payments is, I think, still 90 days. I used ‘preference’ above, and I’m sorry about that. I’ve since watched an interview with a trustee and he said they are considering these as fraudulent transfers, and the clawback for those are 3 years. The difference is benefit and obligation. A preference payment is one that still benefits the debtor and is his obligation, but is perhaps an amount above a normal payment or the minimum, like double paying the mortgage or paying one credit card in full while allowing the others to remain unpaid during the 90 day period before filing.
A fraudulent transfer would be paying or transferring money you are not obligated to pay and receive no direct benefit from. Tuition for someone else, the trustees argue, is not an obligation of the debtor and the debtor does not benefit. I agree that the one with the student loan co-signing was strange, but maybe the trustee also had the loan declared void because it was the actual co-signing that was the fraudulent transfer, not the payment from the lender to the university. I do think that was a step too far, but there may be no one to appeal (with money to appeal) except a bank that gets several of these co-signed loans cancelled.