First Circuit Issues Noteworthy Decision

Types : Alerts

Edward L. Schnitzer spoke at Montgomery McCracken’s 2019 Higher Education Forum about parental bankruptcy making tuition payments subject to return as fraudulent transfers.  On November 12th, the United States Court of Appeals for the First Circuit issued a noteworthy decision on the topic, and is the first circuit to do so.

In DeGiacomo v. Sacred Heart University, Inc., the First Circuit ruled against Sacred Heart and held the trustee was entitled to avoid $64,656.22 of tuition payments.  It rejected the bankruptcy court’s view which had found reasonably equivalent value based on the parent’s belief that “a financially self-sufficient daughter offered them an economic benefit.”  Instead, DeGiacomo holds that a fraudulent transfer is to be viewed from a creditor’s perspective.  Here, tuition payments “depleted the estate and furnished nothing of direct value to the creditors … [because parents have no] legal obligation to pay for college tuition for their adult children.”