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Trustee Failed to Demonstrate that a Genuine Issue of Material Fact Exists as to the Debtor’s Solvency on the Two Transfers

Roach v. Skidmore Coll. (In re Dunston), Nos. 14-41799-EJC, 15-04048-EJC, 2017 Bankr. LEXIS 282 (U.S. Bankr. S.D. Ga. Jan. 31, 2017)

Debtor Dr. Leslie Kyrin Dunston is a medical doctor specializing in obstetrics and gynecology. The Debtor filed for Chapter 7 bankruptcy relief due to an acute cash-flow shortage that occurred when her medical practices experienced difficulty collecting reimbursements from medical insurance companies for services performed. The Trustee commenced adversary proceeding to avoid three payments made by the Debtor to Defendant Skidmore College for her daughter’s tuition and other costs of attendance. The Trustee alleged that the three transfers to Skidmore were avoidable and recoverable under §§ 548(a)(1)(B) and 550. Skidmore alleged that the Trustee’s complaint failed to state a claim because the Trustee cannot meet his burden of proof as to each of the elements of §548(a)(1).

The Court stated that §548(a)(1)(B) requires a Trustee to establish three things with respect to each transfer – the Debtor transferred an interest of the Debtor in property to Skidmore within the two-year reach back period; the Debtor received less than a reasonably equivalent value in exchange for the transfer; and the Debtor was insolvent on the date the transfer was made or became insolvent as a result of the transfer. The Court concluded that the college was not entitled to summary judgment based on its argument that the funds were excluded from property of the estate under 11 U.S.C.S. § 541(b)(6) because facts were in dispute regarding the tracing of the funds. The Court also added that the Defendant was also not entitled to summary judgment on the basis that the Debtor received reasonably equivalent value in exchange for the transfers because the benefit was for the daughter. However, the Court ruled that the Defendant was entitled to summary judgment on first two payments because the Trustee failed to demonstrate a genuine issue of material fact regarding the Debtor’s solvency on those dates.