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Trustee Appeals Bankruptcy Court’s Decision: Pre-bankruptcy Payment of a Child’s Tuition Fee Is Not a Constructively Fraudulent Transfer

Massachusetts, September 14, 2016 – The Massachusetts bankruptcy court, in DeGiacomo v. Sacred Heart University, Inc. (In re Palladino), recently held that debtors’ pre-bankruptcy payment of their child’s college tuition was not avoidable as a constructively fraudulent transfer because they received reasonably equivalent value in exchange. The Court stated that a parent can very well reasonably assume that paying for a child to obtain an undergraduate degree will enhance the child’s financial well-being and that will confer an economic benefit on the parent later on.

Although, the bankruptcy court’s decision in Palladino represented a notable step toward barring these types of avoidance claims, the issue is still undecided. Earlier this month, the Palladinos trustee appealed the bankruptcy court’s decision and sought direct certification to the United States Court of Appeals for the First Circuit. It is still unclear whether the issue gets resolved with this appeal or not. However, until then, educational institutions need to prepare themselves to take measures to mitigate the risks so that the payments made to them by parents on behalf of students are protected from avoidance later on.


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