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Eric Goldstein

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Eric Goldstein practices in the areas of bankruptcy and creditors’ rights, representing clients throughout the United States. He has served as lead national or regional bankruptcy counsel for a variety of businesses, including Fortune 500 companies. Eric has extensive experience handling complex commercial litigation matters and foreclosure actions.

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Back in December 2017, we wrote about Chapter 7 bankruptcy trustees’ attempts to claw back the distribution of Parent Plus loan proceeds to college and universities when the parent that obtained the loan for their child’s education later files for bankruptcy. We explained that such efforts had so far been rejected by bankruptcy courts in Pennsylvania and Michigan. In a pair of recent decisions, the Bankruptcy Court for the District of Connecticut has joined the fray and similarly rejected these claims. If this trend holds, this will be good news for colleges and universities because trustees may no longer feel obligated, as a fiduciary for creditors, to bring such claims in Connecticut and potentially in jurisdictions across the country.

As discussed in our prior article, the Department of Education makes Parent Plus loans to parents to pay for tuition and related costs for their dependents’ attendance at a participating undergraduate institution. The Department of Education pays the loan proceeds directly to the school, and if the student withdraws from school, the unused loan proceeds are paid back to the Department of Education.[1]Continue Reading Connecticut Bankruptcy Court Rejects Claw Back of Parent Plus Loan Proceeds

Over the last few years, Chapter 7 trustees of the bankruptcy estates of parents that paid college tuition for their children in the years before their bankruptcy filings have actively pursued the recovery of those tuition payments as constructively fraudulent transfers. While the case law on the viability of these claims is mixed, the success of some of these claims has appeared to set a new standard of care for trustees. Trustees likely will continue to feel compelled by their fiduciary duty to creditors to assert these fraudulent transfer claims for the foreseeable future.

Trustees now appear to be pushing the boundary of these claims by pursuing the recovery from colleges and universities of the distribution of the proceeds of federal education loans (the so-called “Parent PLUS loans”) made to parents for the educational expenses of their dependent children. There are some key differences between the typical case of a parent paying tuition directly to the undergraduate institution and a distribution of Parent PLUS loan proceeds. Unlike the direct payment of tuition from the parent to the child’s undergraduate institution, Parent PLUS loan proceeds are paid directly from the lender to the school. Moreover, federal law governing these loans prohibits the use of loan proceeds for anything other than the student’s educational expenses. In the few decided cases to date, these distinguishing factors have so far stymied trustees’ attempts to avoid and recover the distribution of these loan proceeds.
Continue Reading Claw Back of Parent PLUS Loan Proceeds to Pay College Tuition Hits a Roadblock