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Former ITT students seek creditor status in school's bankruptcy case

January 4, 2017

A group of former ITT Educational Services Inc. students are seeking legal recognition as creditors in ITT’s ongoing bankruptcy case.

Carmel-based ITT, a former for-profit educational institution, ceased operations at its more than 130 campuses on Sept. 6. The company filed for Chapter 7 bankruptcy the following week, and its case is still making its way through U.S. District Court for the Southern District of Indiana in Indianapolis. Deborah Caruso of Rubin & Levin P.C. was appointed trustee of the ITT estate.

On Tuesday, five former ITT students filed a motion asking that they—and thousands of other students who attended the school between 2006 and 2016—be recognized as creditors as the school’s bankruptcy case moves forward.

One of those five plaintiffs is James Eric Brewer, 32, of Monrovia in Morgan County. The other four plaintiffs live in California, Nebraska, Massachusetts and Arizona.

The plaintiffs are being represented by the Legal Services Center of Harvard Law School.

The legal filing argues that the former students’ debt qualifies them as creditors in the case.

“Student debt, underwritten by taxpayers in the form of federal loans, and by ITT’s investors, associates, and alter egos in the form of private loans, accounted for nearly all of ITT’s pre-filing revenue and continues to account for a significant portion of ITT’s assets,” the filing says.

“The students whose debt kept ITT afloat for decades are ITT’s true creditors.”

According to the suit, over its last decade of operation ITT created about $7.3 billion in student loan debt, including both federal and private loans.

The filing also says ITT’s business model was built around “deceiving and indebting students to generate revenue for shareholders.”

ITT is being represented in its bankruptcy case by the Indianapolis firm of Faegre Baker Daniels. IBJ was unable to immediately reach those attorneys for comment Wednesday.

Jan. 30 is the deadline for potential creditors to file proofs of claim against ITT.

In a separate legal filing also made Tuesday, the plaintiffs are also asking that the court issue an order prohibiting ITT from collecting on private loans it administrated; that the court award damages in an amount to be determined; and that the court certify the case as a class-action lawsuit.

Class-action certification would allow students who attended ITT between 2006-2016 to become part of the class.

The for-profit education industry has struggled in recent years amid tighter scrutiny from the Obama administration, which accused schools of exaggerating what prospective graduates could earn while saddling them with mountains of debt.

In August, after ITT fell out of compliance with the standards set by the Accrediting Council for Independent Colleges and Schools, the U.S. Education Department banned ITT from admitting any new students who received federal financial aid.

Meanwhile, ITT’s remaining assets are going on the auction block.

Under authority of the court’s bankruptcy trustee, liquidation firm Tiger Group is conducting an online auction of furniture, fixtures and equipment from ITT’s headquarters office at 13000 N. Meridian St.. Online bidding began on Tuesday and closes Jan. 10.

More information on the auction can be found here.

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