Trustee Sues USC For Fraudulent Transfer On Behalf of Debtors (Parents) Who Paid $180k For Kids Education

These Trojans have more to ‘fight on.”

This adversary fascinated me.   Mom and Dad paid $180,000 for their two kids to go to USC.   They graduated.  Two years later, Mom and Dad filed for Chapter 7 bankruptcy.  Trustee Geoffrey Richards was appointed.

Trustee sued USC demanding the school return the $180,000 the parents (debtors) paid to USC as a fraudulent transfer under §548 arguing the parents got no value from the school.   Wow!  (as a UCLA alum, I giggle).

USC’s lawyers (Levene Neale) balked saying the parents did get value, in exchange for the $180k, because their college-educated kids now have a greater likelihood for obtaining well-paying jobs, which in turn, will alleviate the parents from having to care for their money-sucking children.  Also, these college educated kids will be able to support their parents later down the line.  What’s more, argued USC, is the parents got noneconomic benefits too —  feeling proud and a sense of fulfillment in having put their kids through college and having the chance to wear the cardinal and gold sweaters of “USC Mom or Dad.”

USC issued a warning —  if they lose and have to return the $180k, they will go after their beloved alumni (the recently graduated kids) for indemnification and until the kids pay, their transcripts will be frozen, which means that USC will deny – on paper at least – that the Debtors’ kids graduated from there.  Woah!   The next status conference is in January.

If you’re interested in the case, it’s in the Eastern District with Judge Klein, Case # 2:15-ap-2107.

Link to WSJ article:  http://blogs.wsj.com/bankruptcy/2015/11/17/usc-in-tuition-battle-former-students-will-face-consequences/

2 Replies to Trustee Sues USC For Fraudulent Transfer On Behalf of Debtors (Parents) Who Paid $180k For Kids Education

  1. I do not see how USC has any chance of winning! Furthermore, what will happen is USC will seek indemnification from the children which will lead to the children filing bankruptcy on the dischargeable $180k debt.

    After the discharge, any attempt by USC to collect the discharged debt, for example, by withholding transcripts, will be a violation of the children’s discharge injunction.

  2. This reminds me of the flurry, about 20 years ago, of trustees suing churches trying to get back the contributions. Congress got off its behind quickly and passed the “don’t sue churches” Act.

    Mike, there are cases that say the school can withhold the transcript if it is not paid. It’s possible that 524 was amended in 2005 to address that. Not sure.

    I have wondered why parents who are buried in their kid’s student loans don’t file 548 actions saying “I took on debt I couldn’t pay.” I assume it’s because the transferee cannot sue to avoid his own transfer?

    Do we know the case number of this case? It would be good to follow along.

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