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  1. #1
    Join Date
    Jul 2011
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    7

    Default Can You Discharge Therapeutic Boarding School Fees, Listed as Student Loans

    My question involves bankruptcy in the state of: Michigan


    Hello I have recently received a Chapter 7 discharge in the state of Michigan. For emotional reasons, my teenage daughter was unable to attend public school. We had a Psych Evaluation that reccomended she attend a Therapudic boarding school. To keep this short, their was wrist cutting involved. Originally, I sent her to Mission Mt in Montana, She ran from there and was referred to a 2 3 week Wilderness program at 13k. Along with another Psycholigist rec, I chose to send her to Cedar Mt, classified as a Residential Treatment Center. These costs were over 5k/ months including the medical element along with school costs. I just received a changed forbearance letter and a bill for 10k from AES American Education Services on June 26th. There is another loan amt for about 70k from a Key Bank Acheiver loan, whom I'm assuming will send the same letter.

    I told my layer up front about this, a few different times and explained that the IRS let me write these tuitions off my tax return as medical expences (please see IRS Regulation below) and even though they were listed on my credit report as student loans, they were medically necessary and hence should be dismissed IMO. I offered to get him supporting documents for review. His position, was that he thought they were still school loans and we would see what the trustee found. If they were not dismissed, we would worry about it then. My layer was somewhat short. Being as he was referred as one of the best BK Attournies in the area, I thought, He's the pro, let him handle it. To my suprise, at the 341 meeting of creditors, he sent a young attourney there to meet me 15 minuits before our appt. and I was supposed to brief him on my situation. That was extremely uncomfortable for me as I paid $2500 to be represented by the the premium Attorney I chose. I briefed lawyer 2 on the school loan situation as well and it never came up in our 341 meeting. Previously I didn't understand, that this could be our last meeting with the Trustee before he grants a dismissal. I thought the meeting was to grant creditors a chance to show up and voice concerns.

    I now feel, I was run through the BK process like a cattle and that he was supposed to be pro active from the start and prepare the Trustee for a decision to rule the loan as medical. Additional info to that comment was that my dismissal took about 6 mths from the 341 meeting. Lawyer said trustee dropped the ball, didn't file something and my case slipped through the cracks. I'm feeling is, something is not right and they should have been pro active and checking after 70 days with no dismissal. The staff answered my calls with "Just Wait for a letter"

    My questions are

    1) Were we supposed to be pro active up front and provide the trustee with proof and explaination as to medical care status of listed student loan or start an adversary hearing?

    2) How should I proceed now?

    3) Based on your answers, I will need to decide weather the attorney did me a dis service and should I look for another attourney to move forward?

    Thought it better to get the answer from an outside source before I called them.

    Thanks in advance for your help
    John

    Treasury Regulations 1.213-1 (shortened by me)

    Rev. Rul. 58-261
    Rev. Rul. 58-280

    1.213-1(e)(1)(v) The cost of in-patient hospital care (including the cost of meals and lodging
    therein) is an expenditure for medical care.
    For example, medical care includes the entire cost of institutional care
    for a person who is mentally ill and unsafe when left alone. While ordinary education is not
    medical care, the cost of medical care includes the cost of attending a special school for a
    mentally or physically handicapped individual, if his condition is such that the resources of
    the institution for alleviating such mental or physical handicap are a principal reason for
    his presence there. In such a case, the cost of attending such a special school will include the
    cost of meals and lodging, if supplied, and the cost of ordinary education furnished which is
    incidental to the special services furnished by the school and thus is within the meaning of the term 'medical care'.

  2. #2
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    Default Re: Can You Discharge Therapeutic Boarding School Fees, Listed as Student Loans

    You appear to be stating that you took out student loans to pay for your daughter's 'education' at therapeutic schools, and now want to be able to avoid the legal consequences of having taken out student loans by arguing that you used the proceeds of the loans for tuition that was in fact a form of medical care. I am not surprised that argument failed in court. The issue here is not that you could have discharged a debt owed directly to the therapeutic school - the issue here is that you took out student loans to pay for that care.

    Depending upon when the court ruled and the disposition of your case, you can discuss with your lawyer the possibility of asking for reconsideration or filing an appeal.

  3. #3
    Join Date
    Jul 2011
    Posts
    7

    Default Re: Can You Discharge Therapeutic Boarding School Fees, Listed as Student Loans

    "You appear to be stating that you took out student loans to pay for your daughter's 'education' at therapeutic schools, and now want to be able to avoid the legal consequences of having taken out student loans by arguing that you used the proceeds of the loans for tuition that was in fact a form of medical care"

    Yes, Your summation is correct, but my lawyer never made the pitch in trying to get the trustee to hear or make a ruling. No adversary hearing was requested. He took me to the 341 meeting and said nothing in regards to these loans.

    I am wondering if and when he was supposed to bring up the request that they be ruled dismissed as I gave him my request to do so several times? If he chose to not do something, when he should have done something, than I may want to move forward with another attorney.


    I took the loan out because my daughter had a disability that only a private therapeutic school could accommodate and treat. I'm hoping the court will find it to be a compelling circumstance for private schooling. There is a case out there that apparently used this argument successfully. I have limited information but found this- "Savage’s son had “a medically-documented learning disability and a social disorder, and assimilation into the public school had failed due to the lack of a therapeutic educational environment.” CASE 30.2—WHAT IF THE FACTS WERE DIFFERENT? (PAGE 618) from the following link. See note #8

    http://www.bap1.uscourts.gov/bap.pdf...s/04-004P1.pdf

    As to taking out student loans to pay for that care. These institutions/schools supplied the names to the 2 private loan creditors I used. They regularly worked with these types of institutions/schools to provide the loans. They were fully aware that the largest portion of the moneys loaned was going towards the medical component and boarding. While a residential treatment center has a school, their business is coded as an RTC. Their were no secrets or deception.

    Possibly these are not
    (1) Qualified education loan ?
    The term "qualified education loan" means any indebtedness
    incurred by the taxpayer solely to pay qualified higher education
    expenses -

    Please sir, understand that this choice was a matter of life of death for my daughter and the public school was not capable. I am looking for the best way to move forward now in trying to get them dismissed and to find out if they should be dismissed.

    Thank You for your time so far

  4. #4
    Join Date
    Jul 2011
    Posts
    7

    Default Re: Can You Discharge Therapeutic Boarding School Fees, Listed as Student Loans

    Key Bank Achiever Loans advertised on the RTC, Boarding school, wilderness camp institution listings. For description, they all list the therapy component first followed by the education content of the program. Thats why I'm contending that these loans are for a medical programs that had school as a component and there by should be treated like the IRS treats these programs for tax purposes.

    Special Ed Tax Deduction and Def of Medical Care
    Treasury Regulations 1.213-1

    Rev. Rul. 58-261
    Rev. Rul. 58-280



    1.213-1(e)(1)(v) The cost of in-patient hospital care (including the cost of meals and lodging
    therein) is an expenditure for medical care. The extent to which expenses for care in an institution
    other than a hospital shall constitute medical care is primarily a question of fact which depends
    upon the condition of the individual and the nature of the services he receives (rather than the
    nature of the institution). A private establishment which is regularly engaged in providing the
    types of care or services outlined in this subdivision shall be considered an institution for
    purposes of the rules provided herein. In general, the following rules will be applied:
    (a) Where an individual is in an institution because his condition is such that the availability of
    medical care (as defined in subdivisions (i) and (ii) of this subparagraph) in such institution is a
    principal reason for his presence there, and meals and lodging are furnished as a necessary
    incident to such care, the entire cost of medical care and meals and lodging at the institution,
    which are furnished while the individual requires continual medical care, shall constitute an
    expense for medical care. For example, medical care includes the entire cost of institutional care
    for a person who is mentally ill and unsafe when left alone. While ordinary education is not
    medical care, the cost of medical care includes the cost of attending a special school for a
    mentally or physically handicapped individual, if his condition is such that the resources of
    the institution for alleviating such mental or physical handicap are a principal reason for
    his presence there. In such a case, the cost of attending such a special school will include the
    cost of meals and lodging, if supplied, and the cost of ordinary education furnished which is
    incidental to the special services furnished by the school. Thus, the cost of medical care
    includes the cost of attending a special school designed to compensate for or overcome a
    physical handicap, in order to qualify the individual for future normal education or for
    normal living, such as a school for the teaching of braille or lip reading. Similarly, the cost
    of care and supervision, or of treatment and training, of a mentally retarded or physically
    handicapped individual at an institution is within the meaning of the term 'medical care'.

  5. #5
    Join Date
    Jul 2011
    Posts
    7

    Default Re: Can You Discharge Therapeutic Boarding School Fees, Listed as Student Loans

    523. Exceptions to discharge
    (8) unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents, for—
    (A)
    (i) an educational benefit overpayment or loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; or
    (ii) an obligation to repay funds received as an educational benefit, scholarship, or stipend; or
    (B) any other educational loan that is a qualified education loan, as defined in section 221(d)(1) of the Internal Revenue Code of 1986, incurred by a debtor who is an individual;

    26 USC 221(d)(1) of the Internal Revenue Service code defines “Qualified Education Loan” to Mean
    “any indebtedness incurred solely to pay qualified higher education expenses.

    Higher Education expenses are defined as Education past High school.
    My daughter was 16 when she enrolled. Shouldn't that loan be dismissed on that basis?

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