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

Roach v. Skidmore Coll. (In re Dunston), Nos. 14-41799-EJC, 15-04048-EJC, 2017 Bankr. LEXIS 362 (U.S. Bankr. S.D. Ga. Feb. 7, 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 a Defendant Skidmore College for her daughter’s tuition and other costs of attendance. The Trustee alleged that the transfers made 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 Trustee argued that had the alleged transfers not occurred, the funds transferred to Skidmore arguably would have remained in the Debtor’s checking account and become the property of the Debtor’s bankruptcy estate under §541(a) (1). Skidmore argued that the particular funds it received consisted of the funds withdrawn from the Debtor’s 529 Plans. Accordingly, had the transfers not occurred the funds would have remained in the 529 Plans and would have been excluded from the Debtor’s bankruptcy estate under §541(b) (6) of the Bankruptcy Code.

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 §541(b) (6) because facts were in dispute regarding the tracing of the funds. The Court further found that the Trustee failed to show that no genuine issue of material fact existed regarding whether the funds transferred could be traced to the Debtor’s 529 plans and thus were not transfers of an interest of the Debtor in the property. Further, the Trustee was not entitled to summary judgment as to any of the transfers on the basis that Debtor received reasonably equivalent value in exchange for the transfers because there was no evidence of an economic benefit conferred on the Debtor who only felt a moral obligation to pay for her daughter’s college education. Next, the Court found that there was a genuine issue of material fact regarding the Debtor’s insolvency at the time of the most recent transfer which was made 56 days before the petition date. Accordingly, the Court granted the Trustee’s motion in part and denied in part.