Expert: Mark J. Markus- California Bankruptcy Attorney - 8/4/2008

Question
QUESTION: Hi

Last year I accumulated debt with a state university on the basis of recieving financial aid and then withdrawing at a point in time after the funds were already sent out. Therefore the university repaid the government and billed me. My question is A.) Since I am in the process of filing bankruptcy can I also claim university debt such as this since I do not directly owe the federal government? B) How likely is it that the university will fight this bankruptcy in court? C) Does it matter that I signed something with the university after incurring the debt that agreed to paying and paying late fees if it is not repaid?? I am not sure if claiming bankruptcy holds precedence over something that I signed with the collections dept of the university.

Thank you so much for your time and assistance

Brad

ANSWER: It's not clear from your facts what the answer would be.  If the funds you received were for an educational benefit, scholarship or stipend, then the debt is not dischargeable in a bankruptcy case.  If the debt is merely for tuition or expenses you owe to the university, and not like a loan to you, then it's probably dischargeable, although there are cases that go different ways on that.  The subsequent agreement you signed won't affect anything unless it states in the agreement that the debt was for an educational loan, etc.   My gut level feeling is that you should be able to get rid of that debt in a bankruptcy, but there's no way I can tell for sure without analyzing all the relevant documents, and even then it may be uncertain.

---------- FOLLOW-UP ----------

QUESTION: Thank you for your help

The debt owed to the university was a refund check to cover living expenses/books for the semester. The actual funding came from a federal student loan, but because of the time that I withdrew, the university ended up sending the check back to FAFSA but then demanded that I pay the university the amount that was deposited into my acct. Therefore, I'm not sure. I mean it was a loan originally from FAFSA, but then the university reimbursed FAFSA.

The document that I signed stated that I agree to pay the university the sum of moning using financial aid monies I will be receiving in a new program

It also states that if I fail to make any payments as agreed, I will pay 40% collection charges on the balance more than 30 days past due

Can you provide any more guidance based on the facts provided?

Thanks so much again

Answer
No, but sounds like you have a decent chance of discharging the debt in a bankruptcy, but they might take the position that the loan was initially funded through an agency that was for an educational purpose.  No way you'll know until you file your case and see what happens.