Can bankruptcy be filed on college tuition?

Answer 1

Federal Appeals Court Construes Student Tuition Debt in Bankruptcy Proceeding
The United States Court of Appeals for the Second Circuit recently rendered an opinion in In re: Kevin Renshaw, Cazenovia College v. Kevin Renshaw and In re: David W. Regner, The College of St. Rose v. David W. Regner which may be of interest to you. Kevin Renshaw was a student at Cazenovia College and David W. Regner was a student attending the College of St. Rose. Both students failed to pay their tuition when it was due, yet both were allowed to attend classes after the date of default. Both students subsequently filed for Chapter 7 bankruptcy protection (liquidation). In both cases the Colleges objected to the debtors' discharge of their debts to the Colleges. The Colleges contended that by permitting the students to attend classes, they had extended to them education loans exempt from discharge in bankruptcy. Cazenovia College also asserted that Mr. Renshaw's class attendance was an educational benefit which was also exempt from discharge. Section 523(a)(8) of the United States Bankruptcy Code states as follows: (a) A discharge under section 727, 1141, 1228(a), 1288(b), or 1328(b) of this title does not discharge an individual debtor from any debt- (8) for an educational benefit overpayment or loan made, insured or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, or for an obligation to repay funds received as an educational benefit, scholarship or stipend, unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor's dependents. The Court held that the Colleges entered into contracts with the students, but that such contracts did not constitute an educational loan or an educational benefit overpayment within the meaning of Section 523(a)(8). The Court, borrowing from an earlier case it had decided, defined a loan as "a contract whereby one party transfers a defined quantity of money, goods, or services to another and the other party agrees to pay for the sum or items transferred at a later date." The students here unilaterally decided not to pay tuition when it was due. The Colleges could have forbidden them to attend classes, but they chose not to do so, nor did they come to any agreement with Renshaw or Regner about future class attendance or an extension of credit. In the Cazenovia case, Cazenovia relied on its "Reservation Agreement" that Mr. Renshaw, and all other students sign before enrollment, as evidence of a loan. This Agreement lists fees and charges and recites that the College has a security interest in the student's diploma and transcript. The Reservation Agreement is silent on the issue of an entitlement to attend classes despite unpaid bills. The Court found that Cazenovia's practice of executing Reservation Agreements undercut its position, because the Agreement is executed by every incoming student without inquiring as to their financial needs, credit-worthiness or intent to pay fees on time. The Agreement expressly states that "[it] does not reflect financial aid, if any." The Court determined that there was no intent by the College to create an educational loan. In the St. Rose case, Mr. Regner did not complete his financial aid paper work, but was allowed to attend classes anyway. Mr. Regner responded to a letter sent by the College, wherein he acknowledged his obligation to the school and made a few payments. Mr. Regner later stipulated to the debt in State Court and the College obtained a default judgment against him before he filed bankruptcy. The Second Circuit Court found that Mr. Regner's agreements were executed well after he was allowed to attend classes. The Court determined he had a past due account and not a loan. Finally, the Court determined that no "educational benefit overpayment" had been made in either case. The statute exempts "educational benefit overpayments" and loans from discharge. An example of an "educational benefit overpayment" is receipt of payments by a student under the GI bill where the student has left school. There was no educational benefit overpayment applicable to either the Cazenovia or the St. Rose case. Also, in both cases, no funds were advanced to either of the students. The Court declined to insert a comma between the words "benefit" and overpayment in the statute such that it would exempt educational overpayments, educational benefits and educational loans.