Need input. RE: College Expenses

[despritfreya]

I need some input from any of you fine folks who have dealt with this situation. We are dealing with a Chapter 11 case but experiences from any who have filed Chapter 13 should help.

We have a Chapter 11 client who has two children, ages 20 & 22. Both children are full time college students attending relatively expensive schools. Both are still considered “dependants” for tax purposes. Our client was a very high income earning but the income, while still high, is quite reduced. The college expenses however are not. Besides the normal college expenses (tuition and books) the client is paying for all living expenses and auto expenses. I do not want to give amounts as I do not want to sway the responses one way or the other.

For those of you who have “adult” children, who are still dependants and are in college, what, if any, objections were raised in your cases to diverting income away from creditors to pay for such expenses? What were you allowed to pay vs. what you wanted to pay?

Now, remember, this is a Chapter 11. We are the Trustee therefore there is no Trustee who is going to look at the diversion of income for the college expenses. Another difference is that the debtor is not making payments to anyone (exluding any secured debt such as a home or car). Funds are deposited into a Debtor-In-Possession account and are spent by the debtor on a monthly basis. The debtor files monthly operating reports which are quite detailed, showing where the funds are going so there is no “fudging” the numbers. Payments to creditors (unsecured) do not start until the Plan is Confirmed.

What we have is one nasty unsecured creditor who is most likely going to object to the payment of the college related expenses for the 2 children. I am trying to get a feel for what is “reasonable” based upon objections that have been raised in your cases, either by your Trustee or a creditor.

Thanks in advance.

Des.

[RunningMan]

Des, This probably won't help you. I have an 18 year old daughter who is living at home and is going to start college in a couple of months (she messed up her application for the fall). At our 341 hearing a couple of weeks ago, our trustee thought we shouldn't even claim her as a dependent. I would still like to help her with college expenses, but I don't know where it is going to come from.

[lrprn]

When we filed in June 2006, a large number of cases were being filed that tested the recently activated 2005 BAPCPA law. Our adult daughter was living with us and was due to finish her last year of a four-year certified massage therapy program. Given that our lawyer anticipated we would have several objections to our plan because we were the perfect test case for several "gray" areas of Ch 13 law at the time, he advised us to not attempt to include our daughter's tuition as an expense when we filed. We did not. (By the way, we ended up making case law in our district for two areas - Means Test vs Schedule I and J disposable income calculations for disposable income (lost this one), and whether we both could continue to make 5% retirement contributions each during our Ch 13 (won this one).)

Although you've already probably found and thoroughly reviewed every case decision related to your question, I did a quick online search and unearthed the following cases online:

- In re Baker, 400 B.R. 594, 598-601 (Bankr. N.D. Ohio 2009) - court held that the debtor’s proposed payment of her daughter’s college tuition was an abuse of the provisions of Chapter 7

- In re Saffrin, 380 B.R. 191 (Bankr. N.D. Ill 2007) - the Bankruptcy Court held that the debtors could not deduct their daughter's college expenses on the means test because the Bankruptcy Code only allows elementary or secondary educational expenses for dependent children under 18 - http://scholar.google.com/scholar_ca...dt=20000000002

- In re Boyd, 378 B.R. 81 (Bankr. M.D. Pa. 2007) - Bankruptcy Court found that the debtors could not deduct their adult daughter's college education on the means test because the Bankruptcy Code does not expressly provide such deduction, and college tuition does not qualify to be included on line 59 of the means test under "Other Necessary Expenses." - http://scholar.google.com/scholar_ca...dt=20000000002

- An interesting 2006 Commentary from Emory Law School with multiple case citations related to how the bk courts up to that time evaluated a debtor's adult dependents and their related expenses titled "IT DEPENDS: PRIORITIZING FUNCTION OVER FORM TO EVALUATE A DEBTOR’S DEPENDENCY RELATIONSHIPS IN CONSUMER BANKRUPTCY" - http://www.law.emory.edu/fileadmin/j...22.1/Healy.pdf

- A blogpost on the Bankruptcy Law Network by Cathy Moran, CA bk lawyer, about parents trying to claim tuition costs as expenses in Ch 13 and Ch 7 - no case citations but a shared legal viewpoint - http://www.*************************...uptcy-bargain/

Hope this helps a little! Good luck and keep us posted how this turns out for your Ch 11 client.

[despritfreya]

lrprn,

Thank you for your thoughtful response. Yes, we are familiar with the cases you cite and they are instructive.

I should have been more clear about the problem. Sorry. My issue is less with Means Testing (not applicable in a Chapter11) and more with Schedule J. (support of "dependant" children not living at home). What I am looking for is anyone who has listed college expenses and has then been required to exclude such expenses in either whole or in part thus increasing funding in their Plan. We have had one other Chapter 11 where this was an issue but it was a different Judge who handles cases in a different light than most and the client in that case was ok with reducing the expense.

Anyone out there with such an issue?

Des.

[Pandora]

Hey Des..

dont know if these will help you or not -but the U.S. Trustee v. Harrelson, 323 *below* gives figures at what was reasonable and objectionable. While its a Ch. 7 case - it may help - I dont know

http://www.leagle.com/xmlResult.aspx?xmldoc=2005499323BR176_1479.xml&docbase=CSLWAR2-1986-2006

Here's a CH. 12 case (In re Knudsen, 356 B.R. 480, 483)

Also:

In re Hess, No. 07-31689

In re Featherston, No. 07-60296,

In re Goins, 372 B.R. 824 (Bankr. D. S.C. 2007)

In re Hicks, 370 B.R. 919

In re Staub, 256 B.R. 567, 571

In re Studdard, 159 B.R. 852, 856 (

[despritfreya]

Pandora comes through again!

That Studdard case was right on point dealing with a Chapter 11.

Great stuff.

Thanks.

Des.

[Pandora]

Glad it helped

BTW - that site above is pretty handy for cases. Not sure how I found it..but...hope it can help you / everyone else looking for things!

have a good day!