Adversary Proceeding Question

[Rogers]

My ex-fiance made some payments to my college account with his credit card (payments to my account paid for tuition, etc). Less than 2 years later, an involuntary petition for bankruptcy was filed against my ex. The Trustee has filed an adversary proceeding against me and the college to avoid or recoup the payments.

Can the trustee do this?

The thing is that I don't even think my ex- paid his credit card after he made the payments for me?

What can I do?

Thanks

Regina.

[justbroke]

Can the trustee do this?

Absolutely. The reason why is that (for the most part) taxes and student debt are non-dischargeable. Because he put it on a credit card, doesn't matter. He cannot avoid paying the student tuition charged to the card.

(Otherwise, people could just charge up their credit cards with property taxes and student loans and then file Chapter 7 and have it all discharged. While this actually does happen sometimes, it is not the norm.)

The thing is that I don't even think my ex- paid his credit card after he made the payments for me?

Sounds like he hasn't made any payments. This is the first involuntary case I've seen on this site!

What can I do?

Make sure that the Trustee is going after the money directly from the University and not you (which is probably the case). The reason why you are a party (defendant) in this matter, is because once the school pays back the money to the Trustee... the school will probably come after you.

You may need to seek legal counsel. It could be a good strategy for you to go get a student loan and be prepared to use it to offset what's about to happen. I'm pretty sure that the Trustee will win the case.

[Rogers]

Hi Justbroke,

Thanks for your prompt response. You are right. The trustee seems more interested in going after the college than me. The college has a lawyer. However, I expect that the college will then come after me. Basically what you are saying is for me to get ready to pay it back because the college will lose. Is that right?

[justbroke]

Basically what you are saying is for me to get ready to pay it back because the college will lose. Is that right?

Exactly!

[catleg]

Absolutely. The reason why is that (for the most part) taxes and student debt are non-dischargeable. Because he put it on a credit card, doesn't matter. He cannot avoid paying the student tuition charged to the card.

Maybe I'm splitting hairs, but it sounds like just because it was money paid to a college does not make it non-dischargable student loan debt.

I think you need a good story about why this happened. Everything was done in good faith but something later went wrong. Since he is your ex-, maybe it is a disputed debt in that he changed his mind on paying it after you split up, but that doesn't transfer it back onto you. You weren't a party to the contract that was breached.

You need some kind of response to rebut the assumption that he was going under anyway and made this payment with no intention to perform on the contract (credit card).

[Rogers]

Hi Catleg,

The trustee claims that he is going after the college because the debtor (my x) received no value for the money he paid to the college and that because the payments were made within two years of the bankruptcy petition, the trustee can recoup the money from the college under bankruptcy code.

Thanks for your help.

Regina

[Rogers]

I think i didn't make my self clear, my x is not trying to discharge the debt. He is not even involved because he left the country. The trustee is trying to recoup the payments made to the college for the benefit of my x's creditors.

[catleg]

Oh I see. Very interesting. Has he responded at all or is it being handled entirely by the trustee? I wish you the best, probably your best bet is that the college goes to bat for you, right? Might be worth having a confab with the college's lawyer, since if they throw you under the bus you probably don't have the resources to fight it, I'm assuming.

[justbroke]

Maybe I'm splitting hairs, but it sounds like just because it was money paid to a college does not make it non-dischargable student loan debt.

No hairs to split. This is pretty well settled caselaw on this topic. You cannot doge this bullet. It is non-dischargeable because using the credit card, means that you took a "loan" (incurred debt) to pay for tuition.

You need some kind of response to rebut the assumption that he was going under anyway and made this payment with no intention to perform on the contract (credit card).

There's not much you can do on this. The Trustee (or moving party) wins 99.9% of the time. There is no rebuttal except that the "loan" was otherwise dischargeable. The reason for the avoidance is that the debt is non-dischargeable. The Trustee is not pursuing this -- as I read it -- on any basis of fraud. It's purely that it's a "student loan" and it's non-dischargeable.

I will say this, it's not even her fight... unless the School loses and then goes after her for the money.

I will add that the School has a defense. The School's defense (not her defense) is that it's not an Education Loan under Section 221(d)(1) of the Internal Revenue Code. Therefore, it's dischargeable. But that's the School's defense. Many courts (including the 9th and 11th circuit), have found that the use of the credit card constitutes a "loan" by definition and therefore, use of a credit card to pay for student debt... is a "student loan". (Statutory construction being equal.)

The Creditor/Trustee bringing this AP about is telling. No one brings forth an AP unless they are sure they can win. They are expensive to litigate! I would bet that the Trustee has done these before and has been triumphant.

[HHM]

Ok, let's all back up.

This sounds like a 548(a)(1)(B) complaint since the timeline is outside of 1 year and you mentioned that the grounds of the complaint is that the debtor did not receive any value.

This issue has nothing to do with the nature of the debt. Bankruptcy trustees don't care about what debts can and cannot be discharged and that fact has nothing to do with the mechanisms available to the BK trustee to recapture assets for the benefit of the BK estate.

The trustee is acting like any other debt collector, they send out these suits hoping that most will default.

Is there a defense, well, that depends. The main defense would be that the debtor was not insolvent at the time. I think you can probably get yourself out of this one since you didn't actually receive the funds.

If you don't mind my asking, what did your Ex do...involuntary petitions are rare; first, you need 3 creditors to join together to even file one. I have only seen it used for larger general contractors who didn't pay union benefits, so the 3 unions will join and file the involuntary petition.

[albacore44]

JB, you also mentioned Property Taxes. It has been my custom for the last several years to pay my PT with a CC through my counties website. I would usually pay off the balance on the card except this year. I assume it would be up to the CC to decide to file and advisary proceding or not, and not just the trustee deciding to make recovery on his own whim ??

[HHM]

JB, you also mentioned Property Taxes. It has been my custom for the last several years to pay my PT with a CC through my counties website. I would usually pay off the balance on the card except this year. I assume it would be up to the CC to decide to file and advisary proceding or not, and not just the trustee deciding to make recovery on his own whim ??

Correct, the creditor would need to file an AP disputing discharge.

[justbroke]

As HHM already posted, the creditor would need to bring forth an AP in order to ahve it declared to be non-dischargeable. There is a bar date for determination of non-dischargeability in your case. I think it's about 60 days after the 341 meeting of creditors.

When the Trustee takes actions, it's usually not on dischargeability (which I got caught up with and HHM is correct), it's usually about avoidance. Trustees are looking to make money... not have a non-dischargeability claim.

[Rogers]

clarification and questions

Thanks for all the replies.

This sounds like a 548(a)(1)(B) complaint since the timeline is outside of 1 year and you mentioned that the grounds of the complaint is that the debtor did not receive any value.

I looked at the paperwork, you are right it is a 548(a)(1)(B).

As background I should say my boyfriend had businesses in the US and many many more debts. That is why it is involuntary I guess. He left the country when he realized that he was in too deep and is not involved. (Short story, he is a liar and a thief).

I guess I can get out of it, but can the college get out of it? Because I guess if they are required to pay the money back, they will come after me. What can the college do?

How can the trustee go after the college? My boyfriend didn't pay any money to the college, he incurred a debt on his credit card to pay? Is a debt an asset?

Any help or guidance is appreciated. If you can point me to an article that I can read I would be most grateful.

Regina

[HHM]

Yes, it does seem odd that the trustee would be trying to unwind a credit card transaction. 548 complaints tend to deal with assets. Granted, it does say the trustee can avoid a transfer of property or "obligation incurred" by the debtor. Thus, the trustee may be veiwing the credit card transaction as an obligation incurred.