As with any major family event, the filing for bankruptcy protection can have a significant impact on those members of the family, usually children, who have no control over what has caused their parents to seek bankruptcy protection. This is especially true in the case of a Chapter 13 where the appointed Chapter 13 Trustee is examining the case under the good faith requirement, best interests of creditors test, feasibility test, and projected disposable income test, to name a few. How does private or parochial school tuition figure into this analysis? As is usually the case, it depends on the facts.
Fundamentally, private school tuition is a monthly household expense governed by the reasonable and necessary standard. Under the circumstances, is it reasonable and necessary for debtors' dependents to attend private school? Clearly the debtors are going to answer that in the affirmative, largely to avoid disruption to their children's lives as the debtors try to work through the financial circumstances facing them at that time. The Chapter 13 Trustee will always examine these expenses with a very critical eye as private school tuition can be substantial and is money that unsecured creditors are not receiving in the bankruptcy. In the end, Courts are going to examine the underlying reason for private school attendance.
Again, this analysis is very fact specific, but there are some generalities that can be gleaned from the case law. The length of time that the children have attended private school, especially parochial school, does carry some weight. Debtors' strong religious beliefs and strong desire to have their children educated in an environment with those beliefs also carries some weight. Two factors that tend to carry substantial weight are the child's medical needs or inadequate public school alternatives. These factors tend to exist when there is some specific problem or need of the child and the public school system is not equipped, willing, or able to address. Generally, there has to be some need specific to the child that the private school is better equipped to address. Additional circumstances could also include safety concerns with the public school system and concerns over potential bullying because of the child's specific condition or circumstances.
Courts will not just look at the child's circumstances when determining the reasonableness of private school tuition, Courts will also look at the actions of debtors. In particular, have the debtors done everything they can do to reduce other expenses? Courts are very interested in finding out if the private school tuition is actually necessary or is it just a preference. In other words, what sacrifices are the debtors making? In addition, Courts may look at the distribution to unsecured creditors in comparison to the private school tuition to evaluate reasonableness.
The reasonableness of private school tuition in the bankruptcy context is extremely fact intensive and varies greatly from jurisdiction to jurisdiction. This complexity is also present in the Chapter 7 context. If you are considering filing for bankruptcy and you have a private school tuition expense it is critically important to discuss your case with an attorney. The Trustee in your case may take a very hard line on this expense item and you will need someone to advocate on your behalf.