Now we have a new reason to be concerned about parents helping their adult children when the parents have to file bankruptcy later. In a recent case in Connecticut, a bankruptcy trustee sued a college to get back about $21,000.00 the college had been paid by the parents of a student.
The trustee claimed that this money was “a fraudulent conveyance”, meaning that the parents did not get anything of financial value in return for paying their child’s tuition.
The parent who paid submitted an affidavit, saying that she “made the payments to [the college] because she wanted to reduce the amount of debt that Jeremy would graduate with and because she wanted to fulfill her Expected Family Contribution, a federally-imposed formula that is applied in determining a student’s eligibility for federal financial aid. The Debtor also believed that subsidizing Jeremy’s college tuition would help Jeremy become financially self-sufficient, which, in turn, would ultimately result in a financial benefit to her because Jeremy would be less likely to rely upon her for housing, food and other costs and more likely to be in a position someday to provide financial support to her, if necessary.”
The bankruptcy court found that ” …the Court finds that the Debtor did not receive any legally cognizable value under these statutes in exchange for the Transfers and therefore could not have received reasonably equivalent value.”
The risk, therefore, is that the college will have to pay to the parent’s bankruptcy trustee the amount she paid for tuition. It looks as though the trustee is “only” trying to go back two years.
At this stage the bankruptcy court is setting the matter for trial, ,so there may be a change.
I do not have a citation for this case yet, but it can be found on Pacer at:
Boscarino v. Bd. of Trs. Conn. State Univ. Sys. (In re Knight) (Bankr. Conn., 2017)