A fraudulent transfer is the transfer of property to another party for the purpose of hiding assets, putting assets out of reach, or otherwise defrauding creditors. In bankruptcy cases, the bankruptcy trustee has the power to “set aside” or “avoid” fraudulent transfers. This means the trustee can reverse a transfer that is found to be fraudulent.
Our local bankruptcy court recently issued an interesting ruling on fraudulent transfer claims. The Court granted summary judgment to the creditor on 2 of the 3 transfers, which means that the transfers were not fraudulent and the creditor will get to keep the funds. Summary judgment is appropriate when there is “no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Overview of the Bankruptcy Court’s Ruling
The debtor, Leslie Dunston is a doctor who sought bankruptcy relief because her medical practice suffered financially when insurance companies did not pay for the services she performed. In her Chapter 7 bankruptcy case In regards to Leslie Kyrin Dunston, the Trustee brought an adversarial proceeding to avoid (reverse) three payments made by the debtor to Skidmore College to pay for her daughter’s tuition.
The payments in question are:
- $29,233 payment of July 25, 2013
- $28,603 payment of December 20, 2013
- $29,971 payment of September 2, 2014
The Court states that under the Bankruptcy Code the Trustee was required to establish 3 things with respect to each transfer: 1) the Debtor transferred “an interest of the debtor in property” to Skidmore within the two-years reach back period; 2) the Debtor “received less than a reasonably equivalent value” in exchange for the Transfer; and 3) the Debtor was insolvent on the date the Transfer was made or became insolvent as a result of the Transfer. U.S. Bank. S.D. Ga. Jan. 31, 2017, 9.
Skidmore argued that the Trustee did not meet his burden of proof as to each of the above elements. The Court ruled in favor of Skidmore’s motion for summary judgment on two of the transfers. The Court held: “Because the Trustee has the burden of proving the Debtor’s insolvency at trial, he must demonstrate that a genuine issue of material fact exists regarding the Debtor’s solvency at the time of each Transfer to survive summary judgment. The Court finds that the Trustee has failed to establish that a genuine issue of material fact exists as to the Debtor’s solvency at the time of the July 25, 2013, and December 20, 2013 Transfers.” Id. at 21.
However, the Court found that there was a genuine issue of material fact regarding the third transfer of September 2, 2014. The Court reasoned that since the Debtor filed bankruptcy on October 28, 2014, less than two months after the September payment to Skidmore, there is a question as to whether or not the debtor was insolvent at the time of the payment.
Essentially this ruling means that the Trustee’s adversarial proceeding regarding the September transfer of $29,971 will proceed. If the Trustee wins at trial, Skidmore will be required to pay back the money to the bankruptcy estate. Those funds will then be divvied up among Debtor’s creditors.
Bankruptcy is a complicated area of law. If you are exploring how bankruptcy can help you get out of debt, we encourage you to seek the counsel of an experienced bankruptcy attorney.
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