PBCBA BAR BULLETINS PBCBA Bulletin - January 2020 | Page 9
BANKRUPTCY CORNER
Avoiding and Recovering Tuition Payments
for Adult Children
JASON S. RIGOLI
The United States Court of Appeals for the
First Circuit Court is the first circuit court
to rule on the issue of whether tuition
payments made by parents for their adult
children are avoidable as constructively
fraudulent transfers. DeGiacomo v. Sacred
Heart University, Inc. , Case No. 17-1334 (1st
Cir. Nov. 12, 2019).
Fraudulent transfers, as that term is used,
come in two forms: (i) actual fraudulent
transfers, i.e., the debtor purposefully
transferred property to prevent legitimate
creditors from satisfying the debt from the
transferred property; and (ii) constructively
fraudulent transfers, where the insolvent
debtor transfers property away for less than
reasonably equivalent value. See generally
11 U.S.C. § 548(a)(1)(b)(i).
In DeGiacomo the Debtors had been
convicted of operating a Ponzi scheme and
during the two years preceding the filing of
their bankruptcy petition the debtors had
paid over $64,000 in tuition to Sacred Heart
University, Inc. (“Sacred Heart”) for their 18-
year old daughter.
The sole issue on appeal related to
constructive fraudulent transfers and
specifically whether “reasonably equivalent
value” was received in exchange for the
payment of the tuition. “[T]he bankruptcy
court found that the Palladinos paid their
daughter's tuition because ‘they believed
that a financially self-sufficient daughter
offered them an economic benefit[,]’ "
DeGiacomo , p.4 (quoting In re DeGiacomo,
556 B.R. 10, 16 (Bankr. D.Mass. 2016), and that
belief satisfied the “reasonably equivalent
value” element.
The First Circuit did find that “value” is
defined and “includes five categories of
transactions that confer value: (1) the
exchange of property; (2) the satisfaction
of a present debt; (3) the satisfaction of
an antecedent debt; (4) the securing or
collateralizing of a present debt; and (5)
the granting of security for the purpose of
securing an antecedent debt.” DeGiacomo,
pp. 7-8 ( citing 11 U.S.C. § 548(d)(2)(A)).
Nov. 12th Coffee & Bagels with the Judges
Join us for the next one on the second Tuesday of every
month in the north end of the cafeteria at the main
courthouse. A bonus for attending is that those who
have a UMC hearing that morning can sign-up to be
called first once the hearings begin.
The First Circuit found that none of the five
categories of transactions existed in this
case and the debtors were under no legal
obligation to support their daughter, who
reached the age of majority, and, therefore,
no value could have been provided by
Sacred Heart to the Debtors in exchange for
the payment of tuition. Id. at p. 8. The issue
of whether a parent has a legal obligation
to support a child is a question of state law.
DeGiacomo, at p.2 FN 1.
1 The term insolvent is being used for ease of
discussion
2 11 U.S.C. § 544 permits trustees to use applicable
non-bankruptcy law to avoid transfers, such
as Mass. Gen. Laws ch. 109A, §§ 5(a) and 6(a).
DeGiacomo, p. 3 FN. 2. See also Chapter 726, Florida
Statutes.
3 In Florida, a “minor” is defined as “includ[ing] any
person who has not attained the age of 18 years.”
(L-R) Allison Brown, Kelly Schulz,
Judge Carolyn Bell, Laurin Zborski & Amber Moseley
This article is submitted by Jason S. Rigoli,
Esq., Furr Cohen, 2255 Glades Road, Suite 301E,
Boca Raton, FL 33431, [email protected].
Nancy La Vista &
Judge Lisa Small
The First Circuit disagreed and found
the issue to be “straight forward.” Despite
“reasonably equivalent value” not being
defined by the Bankruptcy Code, it did
not include “intangible, emotion, or non-
economic benefits.” DeGiacomo , p. 7 ( citing
Tavenner v. Smoot, 257 F.3d 401, 408-09
(4th Cir. 2001)). The analysis of value is
done from the perspective of the creditors,
meaning as a result of the “transaction” at
issue will the debtors’ creditors see any
direct value. See DeGiacomo, at p. 7.
Laura Scala-Olympio
& Charles Vercillo
Judge Joseph Curley,
Amy Fischer & Jeffrey Siskind
PBCBA BAR BULLETIN
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