Recent Developments in Arizona Regarding Schools

A bankruptcy court in Arizona ruled that a Catholic high school could not withhold a former student’s academic transcript as a result of her failure to pay her school bill.

Church Law and Tax1998-03-01


Key point. Many courts have ruled that a church school’s policy of not releasing academic transcripts to former students who have not paid their school bill cannot be applied to a student who has declared bankruptcy since doing so would violate the right of a bankrupt debtor to be free from attempts to recover debts.

A bankruptcy court in Arizona ruled that a Catholic high school could not withhold a former student’s academic transcript as a result of her failure to pay her school bill. A student attended a Catholic high school for her sophomore year and part of her junior year. She transferred to a public high school but her parents failed to pay a $1,000 balance owed to the Catholic high school. During her senior year, her parents asked the Catholic high school for her academic transcript which was required for her graduation. The school refused, and informed the parents that the transcript would not be released until the school bill was paid. The student’s parents, who recently had declared bankruptcy, sought a court order compelling the Catholic school to release the transcript. They argued that one of the protections of bankruptcy is protection from any attempts by creditors to recover their debts, and this protection was violated by the school’s refusal to release the transcript until the school debt was paid. The Catholic school argued that an educational institution has a right to withhold a student’s transcripts if the student has not met his or her financial obligations. The school also argued that any court order compelling the school to turn over the transcript would create a “substantial burden on the exercise of religious rights” in violation of the first amendment.

The court noted that “a large number of cases stand for the proposition that a college or educational institution violates the [ban on attempts to recover debts from a bankrupt debtor] if the institution withholds a debtor’s transcripts because the debtor is in default on a pre—petition debt. An educational institution’s stated policy of withholding transcripts from a defaulting student is a debt collection mechanism.” The court relied on an Ohio case with almost identical facts. In the Ohio case, a bankruptcy judge ruled that a school could not withhold the high school transcripts of a debtor’s minor son until the debtor paid the debt owed to the school district. The Ohio court concluded that the collection of the debt through the coercive action of withholding transcripts violates the ban on attempts to recover debts.

The court concluded:

In the case at bar [the Catholic school] is withholding the high school transcripts of the debtors’ minor daughter in an attempt to collect the pre—petition debt incurred by the debtors. The court finds and concludes that [such] actions violate the [ban on debt collection] because the educational institution is attempting to collect on a pre—petition debt after the commencement of the bankruptcy case.

The court rejected the school’s claim that its efforts to collect the debt were protected by the first amendment guaranty of religious freedom since collection of school debts was necessary in order for the school to continue providing religious education. The court noted that this was not a sufficient burden on religious exercise to merit protection under the constitution or federal law.

Application. While the court’s decision reflects the conclusion of most courts that have addressed this issue, some courts have reached the opposite conclusion. To illustrate, a bankruptcy court in Pennsylvania ruled that a university could withhold a student’s academic transcript without violating the bankruptcy court’s ban on any attempts by creditors to recover their debts, until the school bill was paid in full. Najafi v. Cabrini College, 154 B.R. 185 (E.D. Pa. 1993). Church schools should recognize that a refusal to provide a transcript to a former student until all school bills are paid may be impermissible if (1) the student has filed for bankruptcy, and (2) the courts in your state have ruled that the application of such a policy to a bankrupt debtor violates a bankruptcy court’s ban on efforts to recover debts. Scroggins v. Roman Catholic Church of Diocese of Phoenix, 209 B.R. 727 (D. Ariz. 1997). [Government Regulation of Private Schools]

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