Debtor’s Prepetition ParentsPlus Loans for his Children to Attend Penn State were Not Fraudulent Transfers that Trustee Could Avoid

Debtor’s Prepetition ParentsPlus Loans for his Children to Attend Penn State were Not Fraudulent Transfers that Trustee Could Avoid

A Chapter 7 Trustee filed adversary complaints against  Pennsylvania State University (Penn State) under a relatively novel legal theory. The U.S. Dept. of Education paid the proceeds of ParentPlus loans directly loans to Penn State.

Prior to filing his Chapter 7 bankruptcy petition, the Debtor applied, and was approved, for several Parent Plus loans to pay tuition and other qualified educational expenses of two of his children so they could attend Penn State. The proceeds from the Parent Plus loans were paid directly from the Department to Penn State without passing through either the Debtor or his children. The total balance owed by the Debtor on the Parent Plus loans, as of June 13, 2016, was $142,990.46.4 The Trustee filed the complaints to recover the Parent Plus loan proceeds that were paid by the Department to Penn State as fraudulent transfers under both the Bankruptcy Code and PUFTA.

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