General Rule: In bankruptcy cases, private school tuition that is more than *$156.25 per month per child is generally not a reasonably necessary expense.
* Amount is subject to adjustment on 04/01/2016 and every three years thereafter.
Exception – Compelling Circumstances: Private school expenses above the statutory allowed maximum are reasonably necessary if a compelling reason (or special circumstances) exists for such expense.
Examples of compelling purposes include an academic or educational need such as, for example:
Academically inadequate public schools; or
Special medical condition, disability or particular educational need that makes private school necessary.
A mere religious purpose or mere preference for private schools is NOT considered a compelling purpose. Compare Tithing.
Exception – Sacrificing Other Expenses: Parents sacrifice other reasonable and necessary expenses to fund the tuition (e.g. not having and paying for health insurance) can justify a holding that private school expenses above the statutory amount allowed are permitted.
Why this issue is important: In some cases, not allowing the full amount of private or religious school expense could possibly result in a debtor not qualifying for a Chapter 7 bankruptcy discharge, not being able to create a feasible Chapter 13 bankruptcy payment plan, and/or having to pay a higher percentage of unsecured non-priority debts in Chapter 13 bankruptcy.
Other factors that might possibly favor of allowing the full private school expense:
Church literature that actually or almost mandates such religious education for children (and/or that condemns public school’s moral agenda).
Pro-rate some of the private school expenses as daycare if factually logical and if both parents (or an unmarried single parent) are working.
Health / Uprooting issue: It is harmful psychologically on the child to change schools when child attended same school for an extended period of time.
Some cases that have ruled on this issue:
In re Golematis, 2012 WL 3583154 (E.D. Mich. 8/17/2012) Case No. 11-52238. Federal Bankruptcy court dismissed a Chapter 7 bankruptcy filing because the judge held that: Private school tuition of $1,000 per month for their two children was NOT a “reasonably necessary expense.” No compelling circumstances existed. A mere preference for private school is not sufficient. “Debtors' reason for sending their children to private school is chiefly ideological rather than educational.”
In re Cleary, 357 B.R. 369, 374 (Bankr. D.S.C. 2006) [under the special circumstances of the case, the debtors were not limited to the statutory ceiling (maximum expense) set for in 11 U.S.C § 707(b)(2) for private school tuition each dependent child less than 18 years of age to attend a private or public elementary or secondary school based on the facts that: The family holds Catholic Church membership. The wife received a private Catholic school education as a child and teenager. She works outside the home only and solely to fund the children’s private school tuition. A Catholic Church based education is very important to the couple. They reduced other necessary expenses to provide funds for private school tuition. Many of the reported expenses are well below reported averages. Lastly, the public schools in their area do not enjoy a good educational reputation and overall student population does not score well on standardized tests. The public policy notion that private school tuition is a luxury expense is swept aside by BAPCPA which allows up to $1,500 per year per minor dependent child to attend a private school. The pre-BAPCPA cases (pre-2005 cases) setting forth special circumstances are helpful in this analysis, although care must be shown to the public policy shift.
In re Watson, 299 B.R. 56 (Bankr. D. R.I. 2003), affirmed 403 F.3d 1 (1st Cir. 2005), holding that a mere preference for private schooling is not sufficient. Debtors, as devout Catholics, spent $750 per month for parochial school tuition for their two minor children. They did not claim their children's educational needs required private schooling. Instead they simply wanted their children educated within a religious atmosphere. While the Watson’s placed great importance to the religious Christian values of a parochial school education, those values can possibly be indoctrinated outside of a school. The children's educational needs could be met in the public schools."
Additionally, the Watson court held that parochial school tuition is not an allowed "charitable contribution" (gift) expense because, under both legal and non-legal definitions, a "gift" is something for which the giver receives nothing in return. But, with tuition, they receive educational services in return for their tuition payments.
Further, the court held that the Religious Freedom Restoration Act [RFRA] did not protect children's private religious school tuition because education at a parochial school is not such a Catholic central belief or practice, in that the Roman Catholic Church does not mandate it. And, thus, this government action does not substantially burden a person's right to exercise his or her religion.
In re Webb, 262 B.R. 685, 690 (Bankr. E.D. Tex. 2001) held that a compelling circumstance existed because the child had a particular educational need that requires private schooling. Debtor's son had Attention Deficit Hyperactive Disorder (ADHD) and moderate to severe Generalized Anxiety Disorder that prevented him from assimilating into a public school environment.
In re Grawey, 2001 WL 34076376 (Bankr. C.D. Ill. Oct. 11, 2001), (an unpublished but frequently cited case) held that, even if no compelling circumstance exists, private school tuition payments can be reasonably necessary expenses if they are financed by eliminating other reasonably necessary expenses from the family budget. In that case, the private school tuition payments for debtor's two children were financed by sacrificing the family's health care insurance.
In re Nicola, 244 B.R. 795 (Bankr.N.D.Ill. 2000) (The fact that there was some evidence of inadequate local schools and long-time attendance of debtor's children at private school, the court found that Debtor has established special circumstances to allow for the private school expenses.
In re Burgos, 248 B.R. 446 (Bankr.M.D.Fla.2000) (Debtors were paying as much to unsecured creditors as expense of tuition, the children always attended parochial school (Warner Christian Academy), held strong religious beliefs, debtors retained no real estate other than their home. These factors support a finding that the private school tuition is a reasonably necessary expense in this case. The Court also found support in the fact that this tuition expense is an expense that creditors could have reasonably anticipated to be incurred by Debtors at the time credit was extended.
In re MacDonald, 222 B.R. 69, 72 (Bankr. E.D. Pa. 1998), the court found that religious parochial school tuition was not reasonably necessary because the debtors did not claim the local public schools were deficient.
Note: This article does not address or discuss private college tuition, but only private elementary and high school tuition for minor aged (age 17 and below) dependent children.
Court rulings on
this issue may vary from state to state and from district to district.
If your child is attending a religious or other private school, you are urged to retain or at least seek legal advice from an experienced bankruptcy attorney.
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