It was different about 20 years ago, but then the law was changed to prevent parties who file bankruptcy from relying on non discrimination provisions of the federal bankruptcy code to be allowed back under federal funding, said Cariello, chairman of the Regulatory Compliance and Strategies section of DLA Piper’s Education and Education Services industry sector group.
Which is exactly what Ragan attempted to do. LMC attorneys struggled against the order, characterizing the department of education's revocation as "illegal" under the bankruptcy code.
LMC "sought emergency relief from the bankruptcy court to reverse the decision as an illegal revocation of a license solely because of bankruptcy," the proposed liquidation plan shows.
Ultimately, Judge Bill Parker of the U.S. Bankruptcy Court for the Eastern District of Texas upheld the U.S. Department of Education's ruling. Which was to be expected because the matter is pretty cut and dried, Cariello said.
"Bankruptcy simply not an option if you hope to continue operating as as school," he said.
Records indicate Ragan started floating the idea of bankruptcy almost as soon as she was hired by Lon Morris College. After starting at LMC she quickly came to the conclusion money was needed to address everything of concern — to keep the college operating, to conduct a sale, or even to fund bankruptcy proceedings, documents show.
"The reorganization analysis concluded that the college could not continue to operate and must be sold, ideally as a going concern, otherwise an asset sale," reads the liquidation proposal's account of Ragan's activities in May.
Ragan initially flirted with the idea of declaring Chapter 7 Bankruptcy, but decided to go with Chapter 11 after Amegy Bank, a senior secured LMC lender, agreed to provide the college with a $750,000 "debtor in possession" loan, court documents show.