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ITT Bankruptcy: Scandal, Student Loans, and Unexpected Creditors

Written by Bruce Feinstein, Esq. on . Posted in Bankruptcy Blog

ITT Bankruptcy: Scandal, Student Loans, and Unexpected Creditors

When you hear about student loans and bankruptcy, it’s usually the student who is filing for bankruptcy protection. Not so in the case of ITT Education Services.

This time it was the for-profit school filing for bankruptcy, and its students were left to deal with the economic consequences. Looking into the ITT case brings up several key issues concerning bankruptcy, such as managing with student loans, determining creditors, and establishing assets. An article by The Washington Post explained the students’ struggle to become creditors in the company’s bankruptcy, and in this post we look into some of the details of this unique case.

ITT filed for Chapter 7 bankruptcy in September 2016 amidst several federal lawsuits and allegations of predatory student lending. A business Chapter 7 bankruptcy is used to liquidate a business’s assets and pay off its debt obligations. Exemptions are not offered in a business bankruptcy, so all the corporation or LLC’s assets are sold, and proceeds are disseminated among its creditors. In the case of ITT, a wide mix of creditors, former employees, and federal regulators are fighting for these assets. However, irate former students are now entering the ring. These students were defrauded by ITT, and are suing to be creditors in its bankruptcy case, thus giving them a voice in the bankruptcy proceeding. This also entitles them to the company’s assets.

The students’ fight has several components. IN addition, they petitioned the Court to allow student loan forgiveness as part of ITT’s liquidation. Student loan debt is particularly hard for people to discharge in personal bankruptcy cases, and it’s a point of much dispute among Americans and federal agencies. According to the Wall Street Journal article, “the group is asserting claims against the company of consumer protection violations and breach of contract, and asks for class-wide status to cover anyone who attended ITT Tech in the past 10 years. The group is also seeking an injunction to stop the collection of private loans administered by ITT, which ran an in-house lending program that is at the center of two federal lawsuits.”

This case also raises the question of how to determine assets in a bankruptcy case. During Chapter 7 bankruptcy, a trustee is appointed to liquidate the debtor’s nonexempt assets/ This is done in a manner that most benefits the financial return to the debtor’s unsecured creditors. In the case of ITT, testimonials from former students and employees claims that the company pushed high-interest private loans that the students couldn’t repay,” says Mr. Feinstein. “So the Court must now decide whether the money collected by ITT and its uncollected loan debt can be considered a legitimate asset.

If you are an individual or business owner considering filing for Chapter 11 or Chapter 13 bankruptcy in Queens, New York, Contact the Law Offices of Bruce Feinstein, Esq. today for a Free Consultation.

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