Business Law: We can all agree that we never want to go through a bankruptcy. Ho
ID: 333824 • Letter: B
Question
Business Law:
We can all agree that we never want to go through a bankruptcy. However, it is in all of our best interests to truly understand the bankruptcy law and process. For this assignment, I would like you to read the following case and answer the questions presented. This may require that you do some research on bankruptcy. Remember, any sources you use must be cited and I do not want you to copy answers from the internet. Think about the situation and apply your knowledge, gained from your readings, to the questions. One to two paragraphs for each question.
Jane Doe, a teacher, obtained a master’s degree at Somewhere University (names have been changed). But when Doe asked for a transcript—which was required to receive an increase in salary from her school district—the university refused because she owed more than $6,000 in tuition. Doe offered to pay the nominal transcript fee, but not the tuition. She then filed a petition in a federal bankruptcy court, listing the university as her only creditor, and while the case was pending, again asked for a transcript. The university again refused unless she paid the tuition. Doe complained to the court, which ordered the university to provide a transcript. A federal district court affirmed the order. The university appealed.
The U.S. Court of Appeals for the Seventh Circuit affirmed. Doe had a right to a copy of her transcript, and the university’s refusal to honor that right until she paid her tuition was an act to collect a debt, in violation of the automatic stay. Property interests are created and defined by the law. Nothing in the Bankruptcy Code or other federal law creates or affects property rights in grades or the right to a transcript. No state statute applies either, but under the state’s common law, property rights may arise from custom. In the state, universities have consistently provided certified transcripts at or around cost. This indicates that providing a transcript is an implied part of the “educational contract,” covered by the tuition and other fees. Because a transcript is part of the package of goods and services that a college offers in exchange for tuition, a student has a property right to a certified copy. In this case, Doe was willing to pay the cost. The university’s only reason for refusing to provide the transcript was to induce Doe to pay her unpaid tuition. But the automatic stay prohibits a creditor from acting to collect a claim against a debtor that arose before the filing of a bankruptcy petition.
What actions might a college take to collect unpaid tuition that would not violate the Bankruptcy Code?
Does the longstanding existence of a custom—in this case, the nominal amount of the fee charged by a college for a transcript—mean that it cannot change?
To avoid conflicts such as the one in this case, could a college charge a student a high fee for a transcript—for example, one that would equal the amount of any unpaid tuition?
Suppose that instead of offering to pay for a transcript, Doe had tried to obtain one on credit. Would the university’s refusal to provide one on that basis have led to the same result? Why or why not?
Some might say that higher education institutions should be able to use all methods possible to collect unpaid tuition, including withholding certified grade transcripts. What ethical issues would this approach raise?
Explanation / Answer
What actions might a college take to collect unpaid tuition that would not violate the Bankruptcy Code? The court reasoned that “the University is unable to collect Kuehn’s tuition only because it was careless. When Kuehn failed to pay her mounting bills the University could have refused to let her enroll in new classes. It could have refused to let her take exams. It could have refused to award a degree. Or the University could have required Kuehn to borrow from a third party to pay for her education. Student loans are not dischargeable unless a debtor can show undue hardship, and it is unlikely that Kuehn could have shown undue hardship. She was gainfully employed, and her debt to the University was substantially less than the extra income the master’s degree afforded. Presumably the University will protect itself in one or more of these ways in the future.”
Does the longstanding existence of a custom—in this case, the nominal amount of the fee charged by a college for a transcript—mean that it cannot change? No, and increasing the fee would not undercut a student’s property right to a transcript. The court in this case offered as an analogy the fact that “airlines used to carry checked baggage without a fee. But nobody . . / would conclude that United Airlines is depriving passengers of their property when it now charges for checked bags. The cost of checking baggage is determined by contractual rights that can be altered by the parties.” Thus, in the case of a university, the school “could announce to future students that transcript fees would reflect the value of the education.”
To avoid conflicts such as the one in this case, could a college charge a student a high fee for a transcript—for example, one that would equal the amount of any unpaid tuition?
services is normally free to charge whatever the market will bear, and there is no law that limits the price of transcripts. Universities have consistently provided transcripts at or around cost, however. Along the line of reasoning in this case, it could be argued that providing a transcript is an implied part of the educational contract, covered by the fee for the course hours, for which a student has already paid. A college could not charge extra if the fee for instruction covers transcripts.
Suppose that instead of offering to pay for a transcript, Kuehn had tried to obtain one on credit. Would the university’s refusal to provide one on that basis have led to the same result? Why or why not? If Kuehn had tried to buy a transcript on credit—in other words, to borrow more than she already owed—the university could refuse without violating the automatic stay. The automatic stay applies only when a creditor acts to collect a debt. A creditor can consider a debtor’s creditworthiness in deciding whether to extend more credit.
Some might say that higher education institutions should be able to use all methods possible to collect unpaid tuition, including withholding certified grade transcripts. What ethical issues would this approach raise?
It may help students to understand how this material fits into the general scheme of creditors’ rights and remedies by briefly defining and classifying liens, and noting the priority of a lien creditor. For example: A lien is a claim against a debtor’s property that must be satisfied before the property (or its proceeds) is available to satisfy other creditors’ claims.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.