Note

Clawing Back Tuition Payments in Bankruptcy: Looking to Ancient and Recent History to Define the Future

I.     Introduction

“Study the past if you would define the future."1

This quote, attributed to the famous Chinese philosopher Confucius, encapsulates a central theme of this Note as it explains, analyzes, and proposes solutions for a relatively new problem in bankruptcy law: tuition clawback lawsuits.2 While the circumstances of each tuition clawback lawsuit vary significantly, each shares a basic formula. First, they involve a parent or parents who, while insolvent,3 paid for an adult child’s college tuition and relatively soon thereafter filed for bankruptcy. Then, during the bankruptcy proceedings, the trustee of the parents’ bankruptcy estate attempts to use the avoidance powers bestowed by the Bankruptcy Code4 to “claw back” the tuition that was paid by the debtor-parents from either the university to which it was paid and/or the adult child for whom it was paid. Why? Trustees—who have a duty to maximize the value of the estate for creditors5—claim that the tuition payments are fraudulent transfers, and therefore, under the Bankruptcy Code, should go to the parents’ creditors.6

Broadly defined, a fraudulent transfer is any transfer that has “the object, tendency, or effect of . . . defraud[ing] [a creditor], or the intent of which is to avoid some duty or debt.”7 The Bankruptcy Code contains the two main types of fraudulent transfers that have repeatedly emerged throughout history8: A transfer can be actually fraudulent—a transfer within two years of filing for bankruptcy that was made with the actual intent to delay or prevent a creditor from obtaining the property9—or constructively fraudulent—a transfer within two years of filing for bankruptcy that was made while the debtor was insolvent and for which the debtor did not receive “reasonably equivalent value.”10

When considering whether tuition payments by insolvent parents fall into either of these two types of fraudulent transfers, one can certainly imagine that a parent could actually intend to deprive creditors of money in an upcoming bankruptcy by using it to pay for a child’s tuition in the present. But does or would that ever really happen? Furthermore, even if certain tuition payments were not actual fraudulent transfers, they could still be constructively fraudulent transfers if the parents made the payments while insolvent and a court determined that the tuition paid for the adult child did not provide reasonably equivalent value to the parents. If the tuition payments do not provide reasonably equivalent value to the parents who make them, then every parent who is insolvent and pays for an adult child’s tuition within two years11 of filing for bankruptcy is making a constructively fraudulent transfer. Is that really the conclusion the law demands? If so, should it be?

To analyze these issues and answer these questions, this Note looks to history, both ancient and recent. To help with this process, this Note presents an Appendix cataloging 152 tuition clawback lawsuits that have arisen, many of which are discussed and cited throughout this Note. In Part II, this Note explores why tuition clawback lawsuits are concerning, what they look like, and the society in which they have emerged. Part III examines the historical development of fraudulent transfer law, starting at its ancient origins and finishing at the modern day. Part IV, looks at tuition clawback lawsuits that have been ruled on, revealing some common patterns and the split among bankruptcy courts regarding whether tuition payments for an adult child provide reasonably equivalent value to their insolvent debtor-parents. Part V analyzes the reasoning of bankruptcy courts on both sides of the split. It analyzes the question of whether or “[w]hen is it OK for financially struggling parents to pay for a child’s college education?”12 It focuses on whether the law views these parental tuition payments as fraudulent transfers,13 as well as whether society views them as fraudulent or impermissible debtor conduct.14 It concurs with the majority of courts, which hold that parents do not receive reasonably equivalent value by paying tuition for their adult children and thus such payments are, at the very least, constructively fraudulent transfers. However, Part V also explains that there are many reasons why parents, even when insolvent, should be permitted to help their children obtain a college education. Lastly, Part VI proposes amendments to the Bankruptcy Code that attempt to do what fraudulent transfer laws have historically adapted to do: distinguish between honest and dishonest debtors. By doing so, the amendments seek to balance the needs and rights of parents, creditors, and universities. Part VII concludes.

II.     Why are Tuition Clawback Lawsuits a Problem?

“Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passions, they cannot alter the state of facts and evidence . . . .”15

Before diving deeper into an analysis of tuition clawback lawsuits and the society in which they have emerged, consider the following stories.

In July 2010, Mr. and Mrs. Weiss sold $31,715 worth of stocks.16 Over the next two weeks, the couple used $24,430 out of those funds to pay for their daughter’s college tuition at Drexel University.17 A mere three weeks after the stock sale, and days after the last tuition payment was made, the Weisses filed for Chapter 7 bankruptcy.18 The court eventually discharged their debts, which included over $200,000 in credit-card debt and a mortgage that exceeded the value of their $1.1 million home by $90,000.19 Before the discharge, however, the trustee for the Weisses’ bankruptcy estate sued Drexel University, and eventually the Weisses’ daughter, to recover the $24,430 the Weisses paid for their daughter’s tuition.20 The parties settled the case when the Weisses’ daughter agreed to pay $3,000 to her own parents’ bankruptcy estate.21

In April 2017, a man named Larry Gideon passed away while his estate was in the middle of bankruptcy.22 Shortly after Mr. Gideon’s death, his daughter discovered a secret that her father had kept from her for nearly nine months: The trustee of her father’s bankruptcy estate was suing her and her former university for nearly $90,000 that her father had paid to cover her college tuition three to six years earlier.23  

Although these are just two lawsuits out of the 152 which the Author has analyzed and cataloged, they are quite instructive of tuition clawback lawsuits in general. Most importantly, they show that even though each case shares a number of common features, there are circumstances in each that drastically affect our feelings regarding whether the conduct of the parents in these lawsuits was appropriate and just. Furthermore, if some of these parental tuition payments are fraudulent transfers under current law, the different underlying circumstances affect our beliefs of whether the law is correct and just.

For example, there are many cases in which a parent paid or began paying tuition for a child several years before bankruptcy, like the Gideon story discussed above.24 The remoteness of these tuition payments from the commencement of bankruptcy suggests that the parents in these cases did not make the tuition payments as a way to prevent their money from going to creditors in bankruptcy. In fact, it is very possible that the prospect of bankruptcy was not in the parents’ minds or plans at all at the time the tuition payments were made. On the other hand, there are also many cases in which parents behave in a way that appears to be less than honest towards their creditors, like the Weiss story.25 In these cases, the facts suggest that parents were aware that bankruptcy was near and sought to use whatever funds they could to benefit their children instead leaving a larger estate for creditors in bankruptcy. Even if helping their children were the initial and most likely motivation behind the tuition payments, it seems extremely unlikely that the parents would be able to make the payments without realizing that some creditor would soon be disadvantaged in bankruptcy.

Accordingly, these cases exist along a spectrum with myriad facts and circumstances: Some cases carry greater indicia of fraudulent motives, while others show little to no evidence of suspect motives. One of the goals of this Note, explored in this Part, Part IV, and by the Appendix, is to understand and show where most tuition clawback lawsuits fall along this spectrum. Such data helps explain who is being harmed in these cases, whether tuition payments by insolvent parents belong in the realm of fraudulent transfer law at all, and what, if any, solutions are needed to better balance all parties’ competing interests.

A.     Using Data to Explore the Problem

Of the 152 lawsuits cataloged with this Note, all but one case has been instigated since 2006.26 Trustees have attempted to recover at least $6.1 million of tuition payments.27 Universities are a defendant in almost every case, as trustees claim that universities are liable under § 550 as the “initial transferee” of the tuition payments.28 Although universities have fought to escape these lawsuits, nearly 58% of cases that have been commenced and resolved since 2006 have resulted in universities settling the lawsuits, returning a combined total of nearly $1.2 million ($14,989 on average) to bankrupt parents’ estates.29 Because of the burden these lawsuits impose on universities, they are beginning to approach and fight these lawsuits more seriously.30   

However, universities are not the only parties facing liability. Students for whom the tuition payments are made are just as liable under the law as they are the main beneficiaries of the tuition.31 Most trustees have refrained from going after the debtors’ children32—the student has been named as a defendant in only 21 (14%) of lawsuits33—but the children have had to pay in some cases when they are named.34 However, even if the child-student is not named as a defendant, it does not mean that there are not other potential consequences for the students. Some universities who have been sued by bankruptcy trustees have threatened harsh consequences for the debtor-parents’ children, such as seeking indemnification, freezing their transcripts, or withholding their degrees.35 Students may be the most sympathetic party in these cases because they played no direct part in their parents’ insolvency or decision to file for bankruptcy, and they are the party least able to bear the financial burden of an adverse judgment or settlement. Many worry that the damage and stress caused to students and families by these lawsuits is greater than the benefit creditors can receive from them.36 

Looking to the legal elements of the cases, while there are several instances where the facts of the case point to a high likelihood of actual fraudulent intent,37 nearly all of these lawsuits center on the trustees’ assertions that tuition payments by insolvent parents are constructively fraudulent transfers.38 Trustees make their claims under § 548, § 544, or, as is most common, both in order to take advantage of state-specific variations in fraudulent transfer law.39 Thus, the main question in tuition clawback lawsuits has really boiled down to whether parents receive reasonably equivalent value when they pay for an adult child’s tuition.40 So far, these lawsuits have arisen in at least 20 different bankruptcy jurisdictions,41 and a split regarding the question of reasonably equivalent value has emerged among the few district bankruptcy courts that have ruled on the matter. This has caused uncertainty for trustees, who desire to satisfy the creditors they represent, and for the defendants, almost always universities, who wish to keep the tuition from being clawed back. The only thing that seems certain at this point is that the current trajectory of financing a college education will only lead to more of these tuition clawback lawsuits in the future.42

B.     Why are Tuition Clawback Lawsuits Happening?

Tuition clawback lawsuits are actually a significant symptom of a much larger and well-known problem for today’s families and society in general: the exponentially increasing expense (and potential risk) of obtaining higher education. College tuition rates increased by 1,120% between 1978 and 2012 alone.43 Significantly higher tuition rates have led to significantly more unstable financial conditions for students post graduation: Eight million student-borrowers collectively defaulted on more than $137 billion in student loans in 2016.44 Furthermore, recent government budget proposals have threatened to restrict college financing, loan-forgiveness, and loan-repayment options for students, further threatening students (and their parents) who go into debt to finance college.45 Obtaining higher education is more important than ever,46 but for most college students affording higher education is harder than ever.47

This reality has caused parents and family to step in to help pay for college. The average yearly amount spent by families on college education climbed from $17,200 in 2008 to $26,458 in 2018,48 a growth of nearly 54%. Parents cover a significant portion of these costs, paying an average of $8,891 in 2018 for children’s college expenses out of their own income or savings.49 These numbers can vary drastically among different regions in the country; for example, in 2017 families in the Northeast paid approximately 70% more on college expenses than the average family.50 Parents in the Northeast have born the brunt of this higher percentage, “contribut[ing] significantly more from their income and savings to pay their students’ college costs.”51 Many parents even reported having to work extra hours to do so.52 Due to the highger costs and financial burden that parents and families undertake in the Northeast, it is no surprise to learn that the vast majority of tuition clawback lawsuits have arisen there.53

However, due to the rising costs of tuition, the financially precarious situations students who borrow endure, and the inverse relationship between the amount parents spend out their own income and savings and the amount students borrow, parents face pressure to continue contributing more each year.54 It is in this environment, when parents who typically play a large role in funding their children’s college education run into financial trouble and bankruptcy, that tuition clawbacks are most likely to occur.

III.     The Historical Development of Fraudulent Transfer Law and Bankruptcy

“Bankruptcy is a gloomy and depressing subject. . . . But the history of bankruptcy legislation . . . is colorful; for not only does it reflect the changes in viewpoints and in economic conditions in our National history, but it also reminds us of how frequently the views and conditions of today are mere repetitions of the past.”55

The history of bankruptcy laws and the debtor-creditor relationship is one of patterns.56  One of the most ubiquitous patterns has also been the most problematic: fraudulent and dishonest conduct by debtors.57 The connection between fraud, debt and bankruptcy—whether actual, perceived, or assumed—repeatedly influenced the evolution of the debt and bankruptcy systems of various societies throughout history.58

In many ancient societies, insolvency itself was viewed as fraudulent, regardless of “whether the debtor was actually honest or dishonest.”59 Societies and creditors used various, severe sanctions to punish those who borrowed and failed to pay.60 Creditors’ remedies in early times were against the “body” of the debtor; for example, debtors who could not pay their debts in ancient societies could be subjected to forced labor, physically abused, sold into slavery, or even killed as payment for their debts.61 Even when societies moved away from some of the harsher forms of execution against the body of a debtor to execution against the debtor’s property,62 many early laws expressly connected bankruptcy to the debtors’ actual or assumed fraudulent conduct.63

Even though the initial instinct of most societies was to view debt and insolvency as immoral and fraudulent, each society eventually had to reckon with the “honest but unfortunate debtor.”64 Borrowing money is part of a more complex and growing economic system,65 and with that complexity and growth comes debtors who fall into insolvency when their honest ventures fail or misfortune strikes.66 Furthermore, lawmakers also began to acknowledge that many of the punishments for insolvent debtors did little to remedy harms to their creditors; a person who can’t pay a creditor while free certainly won’t be able to do so when confined in prison.67 Providing some form of relief for debtors would lead to more cooperation and facilitate quicker and more favorable outcomes than merely establishing punishment for wrongdoing.68

Thus, laws began to distinguish between those who were unable to pay due to misfortune and those who were unable to repay due to recklessness or fraud.69 A pattern was established: Public sentiment and laws alternated between giving creditors a stronger sword—more efficient legal remedies to recover their debts and prevent or punish fraudulent conduct—and giving honest debtors a larger shield—relief from, or greater bargaining power with, incessant creditors.70 Roman law was one of the first systems to do this, particularly in the context of fraudulent transfers, and is regarded by many as the source of English (and subsequently American) bankruptcy law.71

A.     Fraudulent Transfers under Roman Law

Roman law evolved through three different types of bankruptcy proceedings on its journey of distinguishing between honest and fraudulent debtors. The first two were predecessors of what is now referred to as involuntary bankruptcy: proceedings instigated by creditors as a remedy against defaulting or fraudulent debtors.72 The third type of bankruptcy proceeding was an original form of voluntary bankruptcy: a proceeding instigated by a debtor who seeks relief from debts or debt restructuring with creditors.73 The voluntary bankruptcy system sought to distinguish between good and bad debtors by allowing honest debtors, those who were forced into bankruptcy through misfortune or innocent mismanagement, to turn their property over to creditors in reconciliation, claim some exemptions, and avoid the harsher punishments and stigma of the involuntary enforcement proceedings.74

Fraudulent transfers were an action for which a creditor could force a debtor into involuntary bankruptcy.75 Roman law declared that a creditor could void and recover any property transferred by a debtor “in fraud of his creditors,” and thus return the debtor’s estate to the condition it was in before the transfer was made.76 The word “fraud” in these Roman laws meant “prejudice” or “disadvantage,” rather than deceit or misrepresentation as we commonly use the word “fraud” today.77 This meant that the fraud element was established by showing “any act or forbearance by which a debtor diminished the amount of his property divisible among his creditors.”78

Roman law originally required that a creditor prove that the debtor made a transfer with the actual intent “of diminishing the assets available for the creditors.”79 However, lawmakers eventually found the burden of proving actual intent to be too high, and Roman law began recognizing that the intent to defraud or harm creditors would be presumed whenever the transfer was made without valuable consideration or while the debtor was insolvent.80 If a creditor proved that a debtor made a fraudulent transfer, the debtor was forced into involuntary bankruptcy and forfeited all the protections and benefits available in voluntary bankruptcy; furthermore the law adopted yet another presumption that all transfers made by the debtor during the “suspicious period,” usually 30 days before bankruptcy, were per se fraudulent and could be recovered by creditors.81

B.     Early English Bankruptcy and Fraudulent Transfer Law

Just as the Romans had to establish a way to fight against fraudulent transfers as they developed bankruptcy systems, one the main purposes of the earliest bankruptcy statutes in England was preventing fraudulent transfers.82 During the 14th century, many debtors attempted to escape their debts by giving all their property to friends and fleeing to places of sanctuary where creditors and law enforcement officials could not touch them, only to later return and retrieve their property once creditors dropped their claims.83 Parliament enacted the statute of 50 Edward III, c. 6 in 1376 to address such situations.84 If  a creditor could prove that the debtor and his friends colluded in such conduct to avoid a creditor, the creditor could recover the property in question “as if no such gift had been made.”85

Although having a statutory remedy against fraudulent transfers was a step in the right direction, this law and its immediate progeny were ineffective and dishonesty persisted.86 Parliament responded with new statutes.87 Many of the later statutes, such as the Statute of 34 & 35 Henry VIII, specifically targeted fraudulent debtors88 and carried a heavier criminal and penal focus to signal to debtors the severity of fraudulent acts against creditors.89 The penalties in the statute for fraudulent debtors and those who aided them were severe.90 However, in spite of the collective action, remedies, and harsher penalties 34 & 35 Henry VIII provided, fraudulent actions by debtors, particularly fraudulent transfers, continued to increase.91

This led Parliament to enact a more comprehensive bankruptcy act in 1570, the Statute of 13 Elizabeth.92 The Statute of 13 Elizabeth was the first English statute that defined fraudulent transfers broadly by its elements rather than by specific acts.93 It defined a fraudulent transfer as a transfer that was made with the “end[,] [p]urpose and [i]ntent to delaye[,] hynder[,] or defraude [c]reditors” and allowed such transfers to be voided and reclaimed.94 Although 13 Elizabeth was originally enacted as a penal law to protect, raise revenue for, and be enforced by the crown,95 common law rulings,96 and then statutory amendments,97 extended its provisions to allow both creditors and bankruptcy trustees to avoid and recover fraudulent transfers. It was in this form, possessing both a penal and civil nature, that 13 Elizabeth would later provide the foundation of fraudulent transfer law in the United States.98

By the early 18th century, the balancing act of distinguishing between honest and fraudulent debtors and the fight against fraudulent transfers reached its climax. Until that time, bankruptcy was a completely involuntary affair and was solely a tool to aid creditors: The relief it provided “was not for debtors, but from debtors.”99 Dissatisfied with the continuing prevalence of debtor fraud, Parliament had repeatedly enacted harsher penalties for bankrupts, at times proclaiming they were worse than criminals.100 During this same time, however, Parliament began to more frequently observe that insolvency was sometimes truly the result of inescapable misfortunes.101 With these competing interests and beliefs in mind, Parliament enacted the Statute of Anne, bringing both more lenient and more severe consequences for bankrupt debtors.102 The statute was the first to allow a discharge of debts, if the debtor was honest and willing to cooperate in the bankruptcy proceedings.103 On the other hand,the statute also raised the stakes for debtors who committed fraudulent acts in connection with their debts or bankruptcy, subjecting them to the death penalty.104 Although extreme from today’s perspective, the crown and Parliament believed such drastic measures were necessary to prevent the increasingly prevalent harm caused by fraudulent debtors.105

C.     Actual Fraud, Twyne’s Case, and the Emergence of Modern Constructively Fraudulent Transfer Laws

Like fraudulent transfer under Roman law before it, 13 Elizabeth required proof that the debtor possessed an “actual, subjective intent to hinder, delay, or defraud” a creditor at the time of the transfer.106 Because fraud is secretive by nature, proving actual intent was often very difficult for creditors.107 Roman law had responded to this issue by creating a per se presumption of fraud in certain circumstances, but English common law was traditionally reluctant to presume fraud.108 However, for 13 Elizabeth to ever obtain its goal of preventing fraudulent transfers, the English courts had to begin the process of objectifying the intent element of fraudulent transfer laws.109

The process of objectification began with the recognition of “badge[s] of fraud” in Twyne’s Case.110 The facts of Twyne’s Case are as follows. While a creditor’s (Mr. C) action to recover from a debtor (Pierce) was pending, Pierce secretly conveyed all of his property to his friend Twyne, who was also a creditor.111 Although Twyne took title to all of Pierce’s property, he allowed Pierce to physically retain some of the property and treat it as his own.112 Soon thereafter, a court entered judgment in the first case against Pierce in favor of Mr. C.113 When Mr. C went to collect from Pierce and discovered that the little property Pierce still possessed had been conveyed to Twyne, he brought an action against Twyne to void the prior transfer due to fraud.114

Proving that Pierce actually intended to defraud Mr. C by making a transfer of all his property to Twyne was very difficult, however. Even though Pierce’s transfer obviously prevented Mr. C from collecting the debt, there was no clear evidence that Pierce made the transfer with the intent to hinder or defraud Mr. C rather than with the intent to satisfy the debt he owed to Twyne.115 Despite this dilemma, the court held that the transfer was fraudulent and therefore void.116

In its reasoning, the court pointed to six specific circumstances from which it could appropriately infer that Pierce had actual intent to defraud Mr. C.117 These specific circumstances became known as “badges of fraud.”118 As courts came across more suspicious circumstances, the number of badges of fraud grew,119 and by looking for these badges of fraud, future courts held with increasing frequency that “transaction[s] [were] . . . fraudulent conveyance[s] even though no specific evidence suggested that the debtor tried to profit at his creditors’ expense.”120 Courts acknowledged that there are certain transactions that, regardless of any expressed wrongful intent, have the natural and probable tendency to delay, hinder, or defraud creditors and are not actions that individuals acting in good faith perform when transacting business.121 As the law presumes that people intend the necessary consequences of their actions, those actions provided “conclusive evidence of fraud.”122

Twyne’s Case was a major step towards the objectification of the fraud element of fraudulent transfer law and a victory for the principle that statutes protecting against fraudulent transfers ought to be construed equitably and liberally.123 It was this trend that eventually led some courts not only to accept badges of fraud as a way to infer actual intent, but also to begin viewing some badges of fraud as sufficiently wrongful as to create a legal presumption of fraudulent intent, irrespective of expressed intent.124 Similar to the presumption adopted in Roman law, the two most prominent badges that led to a presumption of fraud on creditors were when a debtor was insolvent and made a transfer for no or inadequate consideration.125 Transfers with these characteristics became known as constructively fraudulent transfers.126

D.     Fraudulent Transfer Laws in the United States

Fraudulent transfer law spread to the United States early in its history through common law rulings and statutes at the state level that recognized or significantly copied 13 Elizabeth and the progeny of Twyne’s Case.127 Many Courts bought in on the idea that fraudulent transfer law should be construed and enforced to prevent debtors from performing actions that society deemed objectionable.128 Although the doctrine of constructive fraudulent transfers may be overbroad in some circumstances and cover transactions that truly had no fraudulent motive whatsoever, many courts believed that recognizing constructive fraudulent transfers was necessary to protect commerce, enforce creditors’ rights, and promote society’s standards of honest conduct.129 Courts in other jurisdictions disagreed, however,130 resulting in a diverse mix of rulings and standards all across the country.131

By the early 20th century, it became clear that fraudulent transfer laws needed more consistency and uniformity, especially because commercial transactions had grown increasingly sophisticated and interstate in nature.132 In 1918, the Uniform Law Commission attempted to provide clarity for the future of fraudulent transfer law by drafting the Uniform Fraudulent Conveyance Act (“UFCA”).133

1.     The Uniform Fraudulent Conveyance Act

The UFCA’s purpose was to resolve the conflicting opinions among the states regarding the distinction between actual fraud and constructive fraud, the appropriateness of presuming intent, and the definition of insolvency.134 The UFCA’s drafters believed too many jurisdictions “ha[d] pushed presumption of fraud as a fact to an unwarranted extent,” and they adamantly expressed that intent could not be presumed in any way under statutes regarding actual fraudulent transfers.135 Thus, under the UFCA, the definition of an actual fraudulent transfer remained essentially the same as it had been penned in 13 Elizabeth, requiring evidence of actual fraudulent intent.136

However, the UFCA did not kill the practice of voiding fraudulent transfers through finding constructive fraud by drawing this line; instead, the UFCA’s drafters decided to codify constructive fraudulent transfers as a separate provision.137 For a transfer to be constructively fraudulent under the UFCA, a trustee had to show that (1) the debtor did not receive “fair consideration” for the transfer and (2) such transfer occurred while the debtor was insolvent,138 had unreasonably small capital, or was about to incur debts beyond his ability to pay.139

Under the UFCA, fair consideration had two elements: (1) the property received, or antecedent debt satisfied was a fair equivalent of and “not disproportionately small [as] compared” to the property that was transferred, and (2) that the property was given and “received in good faith.”140 In determining whether a transfer was made with “fair consideration,” the UFCA’s drafters believed that it was most important to first determine whether the transferee acted in good faith and then consider whether the consideration given by that transferee was a reasonable equivalent of the property received.141

The addition of good faith to the fair consideration analysis did not escape scrutiny. Critics have argued that adding good faith to the analysis was unnecessary, because all that truly matters to creditors and bankruptcy trustees is that the asset transferred out of the estate is replaced with one of roughly the same value, not whether the parties to the transaction acted in good faith.142 Others argued that bringing a good faith analysis into the test for consideration was confusing and led courts to inconsistent and “futile[] attempts at line-drawing.”143

Regardless of the drafter’s approach and subsequent commentary, as states began to adopt the UFCA courts had to flesh out what “fair consideration” meant and how it fit in with prior case law. This led to “a catalog of tests” that defined equivalence and fairness, but most courts at least agreed on two main points: The question should be analyzed from the creditor’s point of view and fair consideration did not mean perfect equivalence.144

2.     The Bankruptcy Reform Act of 1978: Big Changes for Fraudulent Transfers in Bankruptcy Proceedings

Fraudulent transfer provisions were frequently included in the federal government’s many attempts to establish a permanent bankruptcy system. Both the Bankruptcy Acts of 1867 and 1898 declared that actual fraudulent transfers were an act of bankruptcy and allowed trustees to avoid and recover fraudulent transfers for the bankruptcy estate.145 The Bankruptcy Law of 1938, also known as the Chandler Act, was the first time the Bankruptcy Code internalized specific elements outlining both actual and constructive fraudulent transfers when it adopted language similar to the UFCA.146 Trustees were permitted to void and recover fraudulent transfers, both constructive and actual, but only if they were made within one year of filing.147

The most important version of fraudulent transfer laws in the Bankruptcy Code came in the Bankruptcy Reform Act of 1978, which established the Code that is still in place today. First, like many versions before it, § 544 of the current Code allows a bankruptcy trustee to inherit any claim that a creditor would have against the bankrupt debtor under the laws of the state where the debtor lives.148 In other words, “[t]he trustee may . . . ‘step into the shoes’ of a creditor and avoid the debtor’s transfers of property or property interests that could have been avoided by the creditor outside of bankruptcy.”149 

Second, the Act of 1978 altered some of the elements required to find constructive fraud instead of relying on the UFCA’s elements.150 Under § 548, a trustee may avoid any actual or constructive fraudulent transfer that a debtor made within two years of filing for bankruptcy.151 The requirements for proving actual fraud remain the same as they were under 13 Elizabeth and the UFCA: A creditor must prove an “actual intent to hinder, delay, or defraud.”152 Importantly, however, the Act changed the “fair consideration” test for constructive fraud to a test looking for “reasonably equivalent value.”153 Accordingly, to prove constructive fraud a trustee must prove both that a debtor was insolvent at the time of the transfer and “received less than a reasonably equivalent value” for the property transferred.154

Neither the Code nor its legislative history provide a reason why Congress changed “fair consideration” to “reasonably equivalent value” or a definition for “reasonably equivalent value.”155 There is evidence that some members of Congress believed that the change was merely “a semantic difference.”156 However, subsequent interpretations of the change suggest that most agree that Congress made the change to purposefully eliminate the good faith test that existed in the UFCA’s “fair consideration” analysis.157

There is disagreement, however, about what the elimination of the good faith analysis means. Some argue that Congress intended to expand the coverage of constructive fraud because trustees are now able to avoid transfers without reasonably equivalent value even if the parties acted in good faith.158 Others disagree, arguing that even if Congress did wish to deemphasize the good faith requirement, Congress’s silence on the matter suggests it did not mean to significantly expand the provision’s powers of avoidance.159 Regardless, it is clear that “Congress left to the courts the obligation of marking the scope and meaning of [reasonably equivalent value],” and courts have struggled and still struggle to define it today.160

3.     The Uniform Fraudulent Transfers Act

In response to the changes made to constructive fraudulent transfer provisions in the Bankruptcy Code, the Uniform Law Commission produced the Uniform Fraudulent Transfer Act (“UFTA”) in 1984 to bring state fraudulent transfer laws in harmony with federal bankruptcy law.161 The UFTA contains nearly identical language to the Bankruptcy Code’s fraudulent transfer sections, and the drafters expressly noted that the UFTA, like the Bankruptcy Code, also intended to eliminate the good faith test that was present in the UFCA.162 The UFTA has been adopted in 43 states and the District of Columbia,163 and thus is the most common version of state fraudulent transfer law.164

E.     Policies and Patterns

Exploring the development of fraudulent transfer laws across multiple societies throughout history leads one to see a common underlying policy: “persons must be just before they can be generous, and . . . debts must be paid before gifts can be made.”165 It also shows the common pattern that societies have followed in making their laws. First, any course of action pursued by a debtor with actual intent to defraud a creditor by transferring property has been repeatedly and instinctually condemned and prohibited by society and the law.166 After providing for remedies against actual fraudulent transfers, governments then realize that there are many actions “which, at first sanction of the law and in their own nature, are honest, but in the change of times and by new relations, become unjust and intolerable.”167 In other words, what is completely honest and acceptable for most people to do may be inappropriate and discouraged for people who are insolvent, even if those people do not act with fraudulent intent.168 This was and is the purpose of recognizing constructive fraud: to prevent those acts by debtors that, due to the debtors’ circumstances, cannot be performed “in justice to [their] creditors, i.e., without delaying them in the enforcement of their rights.”169

IV.     Lessons from Tuition Clawback Lawsuits

When analyzing tuition clawback lawsuits, almost all of which have claims based on constructive fraud, one must remember these patterns and policies and how they apply to these cases. Are an insolvent parent’s tuition payments for an adult child one of those things that by its nature is good and honest but due to a change of times and circumstances becomes intolerable? Would a policy of allowing an insolvent parent to pay for as much of an adult child’s education as they desire enable generosity to rob justice?

This Part will first look at cases in which courts analyzed whether insolvent parents made tuition payments with actual fraudulent intent. This will provide a better understanding of the suspect circumstances that sometimes accompany the naturally innocent action of paying a child’s tuition. After that, this Part examines the reasoning and principles relied on by courts on both sides of the tuition clawback split.

A.     Tuition Payments by Insolvent Parents as Actual Fraudulent Transfers

Trustees alleged actual fraud in about 27% of the tuition clawback lawsuits examined.170 However, even in some tuition clawback lawsuits where trustees did not allege actual fraudulent intent, the facts of the cases strongly suggest that parents purposefully decided to pay tuition instead of their creditors. Similar to the facts in Twyne’s Case, multiple cases involved parents who made tuition payments right before or after receiving an adverse judgment in a civil lawsuit.171 In one of those cases, the parents even admitted that they made the transfer because their accounts were about to be garnished due to the adverse judgment.172 Some cases involved insolvent parents who liquidated assets to pay for their children’s tuition only a few months or weeks before declaring bankruptcy.173 At least 32 cases involved parents who made all or most of the tuition payments within six months of filing for bankruptcy,174 and at least 22 cases involved parents who misappropriated funds from their business to pay for their children’s tuition.175 There have even been at least eight lawsuits in which the debtor-parents paid for tuition using money obtained from running a Ponzi scheme or some other illegal activity.176

Out of all these lawsuits in which trustees alleged actual fraudulent transfers, only five reached the point where a judge ruled on the claims of actual fraud.177 In none of them did the judge find that the transfers were actually fraudulent. However, the judges did provide some useful insight as to how they approach actual fraud in cases where the transactions in question are usually naturally innocent, like tuition payments for a child. Their decisions demonstrate that the pattern of transactions and the length of time they occurred for are important factors in determining whether actual fraudulent intent is present.

In Sikirica v. Cohen (In re Cohen)178 and Shearer v. Oberdick (In re Oberdick),179 the debtors were both found jointly and severally liable for their former law firm’s breach of a lease agreement in a civil action.180 Cohen filed for bankruptcy shortly before the court entered final judgment in the civil case,181 and Oberdick filed for bankruptcy shortly after the plaintiff of the civil action attempted to collect judgment against him.182 In each case, the trustees alleged that both individuals had their paychecks deposited into entireties accounts shared with their wives, even though they both faced large judgments against them, and some funds from these entireties accounts were subsequently used to pay for their children’s tuition.183 The trustees argued that depositing the paychecks into the entireties accounts, making it entireties property shared with their non-bankrupt wives, effectively shielded the money from creditors and that the debtors had performed this act in an attempt to hinder, delay, or defraud such creditors.184 Although the transfers included significant badges of fraud—such as transfer to an insider (their wives), transfer while insolvent, and transfer pending or in response to legal judgments—the judges in the Bankruptcy Court for the Western District of Pennsylvania rejected the trustees’ arguments in both cases.185

In the first case decided, In re Cohen, the court emphasized the fact that both Cohen and his wife had deposited their paychecks into the entireties account for at least 20 years.186 Furthermore, there was no evidence that Cohen’s increasingly troubled financial situation led to any change in how he deposited his money nor that he continued to deposit into the entireties account specifically to put funds out of the reach of creditors.187 The judge in In re Oberdick also emphasized that the debtor had consistently deposited his paychecks into the entireties account for at least 16 years before the lawsuit and subsequent judgment against him.188 In both cases, the courts concluded that because the funds from the entireties accounts that were eventually used to pay for tuition were not placed in the accounts with actual fraudulent intent, then no fraudulent intent could be extended to the tuition payments.189

In another case, Banner v. Lindsay (In re Lindsay), a bankruptcy judge in New York also found a lack of sufficient evidence to find actual fraudulent intent, but only because the court held that the burden of proof was clear and convincing evidence rather than by a preponderance of the evidence.190 The situation also involved a bankrupt debtor who, after being adjudged liable in a civil lawsuit, sold or mortgaged some of his vehicles to pay his son’s tuition at a foreign university.191 Many if not all of the most common badges of fraud were present in this case, but the court did not feel it had clear and convincing evidence to find actual fraudulent intent when compared to the competing naturally innocent intent of wanting to provide an education for a child.192

These cases illustrate the difficulty courts face when evaluating whether a debtor committed a naturally innocent act, like paying for a child’s tuition, with fraudulent intent. The courts seemed too hesitant to infer actual fraudulent intent by evaluating the presence of badges of fraud and instead focused too much on finding a subjective intent to defraud.193 They forgot that, historically, fraudulent transfer laws have sought to prevent fraud as determined by “the common conscience”194 and that actual intent is more properly a question of whether “on the facts the average man would have intended wrong.”195

Now that the most recent amendments to the UFTA clarify that the burden of proof for actual fraudulent transfers is preponderance of the evidence,196 courts may begin finding actual fraudulent intent in close cases like In re Lindsay. However, it remains extremely difficult for a judge to conclude that an insolvent parent who makes a tuition payment for a child intends, wholly or primarily, to defraud or hinder creditors instead of doing it to help the child. This shows both why constructive fraudulent transfer provisions are needed and why almost every trustee has relied on them in attempting to claw back tuition.

B.     Parental Tuition Payments and the Debate Regarding “Reasonably Equivalent Value”

The fundamental question for a constructive fraudulent transfer in any lawsuit is whether the debtor received reasonably equivalent value for the transfer.197 Generally, courts have concluded that the answer “depends on the circumstances of each case and not on a fixed mathematical formula.”198 In part, it is this reliance on case-by-case analysis that has led to a difference of opinion and split among federal bankruptcy courts. The split is the result of a deep fault line caused by a clash between creditors’ rights and society’s ideals, between peoples’ duties owed to creditors and duties owed to their children. Understanding the split, and the courts’ fundamental disagreement about how a parent can use her money on the eve of bankruptcy, is essential to answering whether tuition payments by insolvent parents are fraudulent transfers and understanding the correct way to allocate rights. This Section first reviews the cases where courts have held that parents do receive reasonably equivalent value, followed by reviewing those cases where courts have held that they do not.

1.     Cases Where Courts Found that Parents Receive Reasonably Equivalent Value

Bankruptcy courts that have made favorable rulings towards the position that parents receive reasonably equivalent value from tuition payments for their children have focused on two main arguments: (1) parents are fulfilling a societal expectation or duty by paying for their children’s college education, and (2) by helping their children obtain a college education, parents avoid future financial burdens by helping their children become more financially independent. These courts justified their rulings by looking at the larger social circumstances and policy considerations involved in these cases rather than a strict economic analysis. They were not afraid to assert that value, in many circumstances, is much broader than an “overly rigid” analysis based on dollars and cents.199

First, some courts have based their decisions on policy considerations: They have stated that they “ha[ve] little hesitation in recognizing that there is something of a societal expectation that parents will assist with [undergraduate education] expense[s] if they are able to do so.”200 “[S]uch expenses are reasonable and necessary for the maintenance of the Debtor’s family,” at least for an undergraduate education.201 These courts believe that societal expectations and the necessity of higher education as an aspect of supporting one’s family in today’s world sufficiently establish an obligation on parents to help provide a higher education for one’s children,202 even if there is no actual legal duty that does so.203 Because the tuition payments were “made out of a reasonable sense of parental obligation,” fulfilling that obligation was “value” and sufficient to protect the tuition payments from being clawed back.204

On the other hand, accepting that parents have no binding legal duty to help provide higher education for adult children, the court in DeGiacomo v. Sacred Heart University (In re Palladino) took a different path.205 Here the court held that the debtor-parents received reasonably equivalent value that was economic and sufficiently concrete, not just because they fulfilled some obligation.206 The debtor-parents had testified that the tuition payments were not just made out of a familial obligation to help their child avoid crushing debt; paying the tuition would also place their daughter “in the best position to go to graduate school, secure a job and become financially self-sufficient by finding her own place to live, paying her own bills and paying for her own food.”207 The tuition payments were thus an investment to escape the financial burden of supporting their daughter in the future.208

The court agreed with this argument, holding that a college education directly contributed to a financially self-sufficient daughter, which in turn provided a sufficiently concrete and quantifiable economic benefit to the debtor-parents.209 In doing so, the court stated that although “reasonably equivalent value” is required for a transfer to not be a constructively fraudulent transfer, the emphasis of that analysis should be on the word “reasonably.”210 Tuition is an investment, and like any other investment in a person’s health, skills, or well-being, no one knows what the outcome will be at the time tuition is paid or if the investment will be “worth it.”211 Therefore, the court concluded, “future outcome cannot be the standard for determining whether one receives reasonably equivalent value at the time of a payment.”212 Even though a college education does not guarantee that a child will not need further financial assistance in the future, parents receive an economic quid pro quo because “[a] parent can reasonably assume that paying for a child to obtain an undergraduate degree will enhance the financial well-being of the child . . . . and reasonable equivalence is all that is required” by the statute.213

2.     Cases Where Courts Found that Parents Do Not Reasonably Equivalent Value

The majority of courts that have heard parental tuition clawback lawsuits have adamantly held that debtor-parents do not receive reasonably equivalent value from tuition payments for adult children. These courts have focused on a definition of value that rests in the very purpose of fraudulent transfer law: “value is limited to economic benefits that preserve the net worth of the debtor’s estate for the benefit of creditors.”214 According to these courts, parental tuition payments fail to provide value that preserves net worth because (1) any value received by parents is not sufficiently economic, concrete or quantifiable, and (2) parents do not have a legal duty to help provide higher education for an adult child.215

According to the majority of courts, before ever considering any degree of reasonableness, the first stop in a reasonably-equivalent-value analysis is “value,”  and value means economic benefit.216 Although paying for a child’s tuition may confer some benefit to a parent, it is at most an indirect, non-economic benefit that cannot adequately be quantified.217 A bankruptcy judge in Connecticut recently explained that “[i]t may be reasonable for parents to believe that investment in their child’s college education will enhance the financial well-being of the child. . . . [and] that their child will someday reimburse them for the cost of tuition or otherwise confer an economic benefit in return,” but such benefit is speculative and not a quid pro quo.218 Although some courts have held that a future expectation of an economic benefit with some chance of a positive return confers value as long as the expectation is legitimate and reasonable, looking at the totality of circumstances surrounding tuition payments by insolvent parents, the Connecticut bankruptcy judge concluded that parents do not have a legitimate and reasonable expectation of a positive-return economic benefit simply by paying tuition for their children.219

Second, these courts have emphasized that although some courts have held that “value” can stem from transfers that satisfy a legal or contractual obligation,220 parents do not have any legally binding obligation to help provide a college education for their adult children.221 At most, parents have a familial or moral obligation to help an adult child in such circumstances, and it is quite clear that a debtor cannot receive reasonably equivalent value through fulfilling a purely moral or familial obligation.222

The natural consequence of these conclusions is that allowing tuition payments by insolvent parents on the eve of bankruptcy unfairly diminishes the net worth of the estate that will be distributed to creditors. These courts have concluded that fraudulent transfer law allows only those transfers that result in an economic benefit that reasonably preserves the economic “net worth of the debtor’s estate for the benefit of creditors.”223 Because any benefit the parent receives contains no economic value for present-day creditors, it is not an economic benefit of reasonably equivalent value.224 Furthermore, although helping a child with tuition payments may fulfill some moral or familial obligation owed to that child, such obligations are properly irrelevant to a “value analysis ‘for the obvious reason that the depletion of resources available to creditors cannot be offset by the satisfaction of moral obligations.’”225

In summary, these courts argue that tuition payments for adult children by insolvent parents soon before filing for bankruptcy are always, at the very least, constructively fraudulent transfers, because parents do not receive a value that results in economic value that is available to the debtor’s creditors in bankruptcy.

3.     A Possible Middle Ground?

In another recent case, the court admitted that a parent “receive[s] at least some intangible value” by paying for an adult child’s college tuition because the debtor would be “less worried about her son’s future economic prospects.”226 But instead of categorically concluding that a parent could never receive reasonably equivalent value by paying tuition for a child, the court stated that the record was insufficient to determine the equivalence of value at that point in time.227 The court asked that future pleadings provide answers to questions such as whether the debtor’s son had graduated, whether he had been able to secure employment, and whether his degree was necessary for or contributed to his finding employment?228 This court’s approach seems to walk a middle ground between the courts that find sufficient economic value to parents and those that do not. It seems to accept that a parent does receive value by helping fund a child’s college education, but that the court will require the parent to show that the investment in the child’s education did lead, is leading, or with reasonable certainty will lead to a concrete economic benefit.

V.     Looking at Policy and Economics, Resolving the Split, but Seeing a Need

[A] careful study of bankruptcy involves several well worn propositions. First, there is always the fraudulent debtor: and never yet, so far as human experience goes, has it been proper to legislate in bankruptcy matters without providing for his case.229

There are currently 15 tuition clawback lawsuits pending, the most important being In re Palladino, which is pending in the First Circuit Court of Appeals.230 The First Circuit will be the highest authority to decide whether parents receive reasonably equivalent value when paying college tuition for an adult child, and its decision will be extremely influential on the decisions of other courts in the future. Regardless of what the First Circuit decides, however, this Note takes the position that tuition payments for adult children do not provide reasonably equivalent value to parents.

First and foremost, this conclusion is based on how courts have generally interpreted and analyzed “reasonably equivalent value” across myriad cases and fact patterns. Generally, the starting point for courts is to compare the value of the benefit or property received with the value of the property transferred.231 That value need not be a direct benefit to the debtor; the debtor may receive reasonably equivalent value indirectly even if the initial benefit of the transfer is to a third party.232 However, it is quite clear that the benefit must be economic; psychological or emotional benefits, such as securing the love and affection of family members, rarely, if ever, constitute reasonably equivalent value.233

Courts have placed such high importance on finding economic value because they want to understand the transfer’s net effect on the debtor’s estate, i.e., the impact on the funds available to the creditors.234 It is this factor, determining whether the transfer reasonably preserved or diminished the economic value of the debtor’s estate, that has most often become the “primary consideration” for courts conducting a reasonably-equivalent-value analysis.235 Generally, courts only desire to avoid fraudulent transfers that have somehow diminished the estate and left unsecured creditors worse off than they were before the transfer.236 Based on these points, the cases that find that parents do not receive reasonably equivalent value are much more in line with precedent than those that found they do receive reasonably equivalent value.

To better understand why this Note takes the position that reasonably equivalent value is lacking, it is important to remember the policies and patterns that have driven fraudulent transfer law for centuries: (1) the law should prevent and punish actual fraudulent conduct by debtors, and the doctrine of constructive fraudulent transfers is most useful in those situations in which actual fraud is difficult to prove; (2) debtors should be just before they are generous; and (3) naturally innocent actions can become objectionable and wrongful due to their surrounding circumstances or effects. An analysis of these factors also shows, however, that although the law may already view tuition payments by insolvent parents as fraudulent transfers, the law does not currently possess the proper balance of competing rights and social interests.

A.     The Law Always Protects Against Actual Fraudulent Tuition Payments

The first policy is met regardless of what happens in the debate over parental tuition payments and reasonably equivalent value, because any tuition payment made by a parent with the actual intent to hinder or defraud their creditors is clearly a fraudulent transfer and subject to avoidance. The trouble, of course, is finding sufficient evidence of actual intent. Although no court has held that a parental tuition payment was actually fraudulent, this Note has shown that there have been multiple instances in which the circumstances around parental tuition payments were sufficiently suspicious that courts could have found actual intent.237 The difficulty has always been, and will continue to be, that courts struggle to conclude that a parent’s tuition payment for a child is motivated more by an intent to deprive creditors of what they are entitled to than it is by love and care for the child. For that reason, the next two policy considerations become even more pertinent, and the need to hold that tuition payments by insolvent parents are constructively fraudulent becomes clearer.

B.     Parental Tuition Payments Do Not Result in Reasonably Equivalent Value and Violate the Justness Before Generosity Principle

The principle that a debtor should be just before she is generous has always arisen when an insolvent debtor transfers property for the sole benefit of a family member or a friend.238 Because it is so natural for family members and close friends to assist one another with large financial costs, courts have struggled to adopt consistent rules regarding when money given to or paid on behalf of a family member provides reasonably equivalent value for the insolvent debtor himself.239 This Section will first look at the strongest arguments as to why tuition payments do provide reasonably equivalent value and/or why society and the law should allow them even if they don’t. It will then counter these points and explain why it is improper, as both a legal and social principle, to allow insolvent parents to pay for an adult child’s college tuition so close to bankruptcy.

1.     Why Tuition Payments Near Bankruptcy by Insolvent Parents for Their Adult Children Are or Should Be Appropriate

Looking at the nature of the family and society’s expectations regarding it, the bankruptcy courts that have held that parents receive reasonably equivalent value from tuition payments have focused on two lines of thought: (1) parents are fulfilling a societal expectation or duty by paying for their children’s college education, and (2) by helping their children obtain a college education, parents avoid future financial burdens by helping their children become more financially independent.240 There are many important and valid points to these arguments.

There may be a general expectation in society that parents should help their adult children obtain a higher education. Courts have long recognized the ever-growing necessity of receiving a higher education.241 Many commentators who have spoken regarding children’s rights to obtain higher education assert that “[c]ompletion of higher education today is unquestionably tied to financial stability and independence.”242 However, despite the evidence showing the importance of higher education and the worsening financial burdens associated with it,243 no state statute has ever required married parentsto pay for a child’s college education.244

There is no denying that parents are providing greater financial support for adult children than ever before, even though it is not tied to any legal duty. In addition to paying for their children’s college education,245 parents are having adult children return to live with them more frequently. One source reported that in 2011, 53% of 18 to 24-year-olds and 39% of 18 to 34-year-olds reported living with their parents or had done so recently.246 By 2015, one in every three adults between the ages of 18 and 34 were living with their parents.247 Even when children are able to live away from home, many parents continue to provide financial support by paying for costs such as child care or cellphone bills, and at least one economist has suggested that a parent can expect to spend around $42,280 in 2005 dollars on a child just between the ages of 17 and 34.248 The path to adulthood is longer and different than it was in the past, and courts and legislatures are still adjusting to this new social norm.249

Furthermore, even though tuition payments for adult children diminish parents’ estates by not providing any immediate economic equivalent, there are categories of transfers that also diminish the estate but are not usually fraudulent transfers: payments for services and consumable goods. Some courts and commentators believe that payments for services or completely consumable goods provide reasonably equivalent value, even though it does nothing to further the policy of preserving the net worth of the estate for creditors.250 This certainly makes sense for common consumables like groceries, utilities, clothing, transportation costs and basic recreational activities;251 we would not want to live with a bankruptcy system in which insolvent debtors could not sustain life for themselves and their families. But courts have also held that forms of recreation and entertainment that are uncommon or wasteful, even gambling, can provide reasonably equivalent value to insolvent debtors.252 Most people would find it ridiculous that a court could find that an insolvent debtor received reasonably equivalent value through an investment in gambling but not through an investment in their own children’s education under the same statutory provision.253

2.     Counterpoints and Conclusion: Tuition Payments by Insolvent Parents are Constructively Fraudulent Transfers

The arguments above provide compelling support for finding that parents do or should receive reasonably equivalent value by paying for their children’s tuition; however, the current body of case law regarding reasonably equivalent value simply does not.254 The law regarding reasonably equivalent value and consumable goods is murky and unsettled. While food is a necessity for all people, it is unclear how courts would treat a “lavish feast” that, although purchased at a fair market rate, diminishes the insolvent debtor’s estate by far more than required to meet the debtor’s need to eat.255 While even insolvent debtors should be able to enjoy life, what should courts decide regarding “Broadway shows and exclusive sporting events, . . . hourly charges for music, sports or language lessons, . . . and all forms of recreational travel?”256 Furthermore, even if a consumable good bought for oneself provides reasonably equivalent value, whether necessary or not, it is highly unlikely that any valuable consumable bought for or given to another gives the necessary economic value to the debtor giving it.257

Analogously, in the tuition context, the argument essentially is that a debtor who pays for her own education receives reasonably equivalent value but does not when paying for another’s tuition. Under the current state of the law, although paying for a child’s tuition is generous and perhaps even necessary,258 permitting an insolvent debtor to do so would allow generosity to rob justness. Courts, state legislatures, and Congress have consistently recognized the need for constructively fraudulent transfers because “no man has so absolute a power over his own property, as that he can alienate the same, when such alienation directly tends to delay[,] hinder, or defraud his creditors.”259 The point of fraudulent transfer law is to preserve the debtor’s estate as much as possible to satisfy the debtor’s obligations to creditors. Even though parents may relieve themselves of future financial burdens by contributing to a child’s education today, the benefit is speculative and unclear, and does nothing to preserve the bankruptcy estate for the protection of today’s creditors.

Even if this result is logical, is it fair? Would most in society agree that tuition payments should be deemed fraudulent transfers just because the law states that transfers are constructively fraudulent whenever they are (1) made by an insolvent debtor and (2) do not provide reasonably equivalent value to the debtor?260 Do these two factors alone sufficiently signal imminent harm to creditors in the situation of parental tuition payments such that an insolvent parent’s tuition payments for his or her adult children are objectionable in the eyes of the law and society?

The answer seems, in many instances, to be yes. Although difficult for some to agree with, the judge in Boscarino v. Board of Trustees of Connecticut State University (In re Knight) explained that the answer “is easier to understand from the perspective of creditors.”261 Most creditors “would probably be unwilling to volunteer to provide a financial subsidy to enhance the insolvent debtor’s family relationships by allowing the debtor to put valuable property beyond their reach.”262 Other judges that have analyzed the appropriateness of tuition payments before bankruptcy, during bankruptcy, or while completing a creditor repayment plan post-bankruptcy have shared this view. Many have emphasized that no bankruptcy proceeding, whether Chapter 7 liquidation or Chapter 13 reorganization, may be used by debtors as a tool to better position themselves to pay for children’s college education.263

Judge Kaplan’s opinion in In re Godios does the best job of explaining this position and is easily applicable to the situation of pre-petition tuition payments for adult children:

Platitudes abound to the effect that bankruptcy affords the “honest but unfortunate” debtor a “fresh start,” but not a “head start.” These Debtors are honest, but not unfortunate. The[y] don’t need a “fresh start.” What they hope for from the Court is a “head start” on their children’s higher education. . . . [Mr. Godios] states [it] “is [his] responsibility.”

But what he asks of the Court is that his unsecured creditors get nothing so that he may undertake that responsibility. Were the Court to grant his and his wife’s request, what would this Court say to the countless parents who believe that paying their debts is also a responsibility, and who therefore exhaust the “college fund” to do so? What would it say to the countless parents who must painfully say to their sons or daughters, “We have bills to pay. We can’t afford to send you to an expensive college”?264

Many people and families are very upset that trustees bring these lawsuits, but the fact remains that parents do not have a legal or constitutional obligation to pay for higher education (with the exception of some divorce agreements) and there are many people who simply can’t afford to pay for their children’s college education.265 As the Supreme Court has recognized, “the interest of parents in the care, custody, and control of their children—is perhaps the oldest of the fundamental liberty interests recognized by this Court.”266 Although obtaining a higher education is extremely important, when some reports suggest that anywhere from 25% to 33% of recent college graduates are working in jobs that don’t even require their college degree,267 the decision to attend college must be one based on an honest and effective cost-benefit analysis of the child’s interests and mental aptitude by both parents and the child.

Paying for an adult child’s tuition while insolvent and soon thereafter filing for bankruptcy is making a fraudulent transfer. Frankly, allowing insolvent parents to deplete their estates to pay for an adult child’s education and to subsequently use bankruptcy to escape obligations to creditors that would have been at least partially fulfilled by the funds used to pay the tuition would allow parents to abuse the bankruptcy system.

Although such an assertion may sound extreme, it is important to remember that this is not the first time that a naturally innocent and respected activity has been found to be fraudulent under the bankruptcy code. In the 1980s and 90s, bankruptcy trustees began challenging charitable contributions and religious tithing payments that insolvent debtors made before filing for bankruptcy or wished to pay as part of a bankruptcy repayment plan.268 These lawsuits not only challenged society’s ideals and the theories underlying fraudulent transfer actions, but also, especially in regards to tithing, posed serious questions of whether debtors’ First Amendment rights were being violated.269 In the end, the controversy led to a split among various courts, and it was Congress, not the courts, that entered to accommodate social policy considerations into the bankruptcy code by enacting the Religious Liberty and Charitable Donation Protection Act of 1998 to protect tithing and other donations from clawbacks.270

3.     The Need for a Middle Ground

If the desire of this Note was to allow all tuition payments by insolvent parents shortly before bankruptcy to be clawed back by bankruptcy trustees, this Note could end here. However, this Note has also described the reality of a rapidly changing society in which children need help reaching economic independence more than ever.271 Obtaining a higher education is one of the best ways to have a longer and healthier life,272 and many in society would agree that opportunities to learn and obtain a higher education are essential to our “pursuit of Happiness.”273

Although this Note takes the position that tuition payments by insolvent parents for their adult children are fraudulent transfers, it has also analyzed enough evidence and policy considerations to demonstrate why clawing back tuition in every case in which an insolvent parent paid tuition for an adult child is not justified or beneficial to society overall. A solution that allows all clawbacks or no clawbacks would lead to a problem of either over- or under-inclusion. If a court does not allow any trustee to claw back tuition payments as constructively fraudulent transfers, creditors would be harmed because debtors would have free reign to pay tuition up to the moment of bankruptcy. On the other hand, if courts allowed all parental tuition payments that fulfilled the current definition of a constructively fraudulent transfer to be clawed back, there would be too many honest debtors affected who may have already begun to assist their children before the fear of bankruptcy was sufficiently realized.

At this point, it seems clear that a middle ground is needed. In proposing a solution, this Note echoes the sentiment expressed in In re Knight, that tuition payments by insolvent parents are correctly fraudulent transfers as Congress intended the statute to be interpreted, and, like in the case of tithing and charitable contributions, it should be left up to Congress to balance “a debtor’s social obligations and their obligations to creditors [in a way] that only Congress can achieve.”274 It is time for the law, yet again, to adopt a solution that does a better job of distinguishing the honest and unfortunate debtor from the debtor that seeks to take advantage of creditors and the bankruptcy system.

VI.     A Legislative Solution to Balance Competing Interests

To provide a solution that is specifically tailored to pre-bankruptcy tuition payments by insolvent parents and the circumstances and expectations of society, this Note has analyzed the historical development and purposes of fraudulent transfer law and the most common fact patterns of 152 tuition clawback lawsuits. Even though the vast majority of insolvent parents likely do not make tuition payments for their children intending to harm their creditors, the transfers are at least constructively fraudulent, and in some circumstances they should be found actually fraudulent.

This Note proposes amendments to the Bankruptcy Code that attempt to honor and balance the interests of creditors on one side, and families and universities on the other. A proper balance can be achieved by allowing trustees to claw back only those tuition payments which contain the greatest signs of fraudulent intent. In addition to the traditional constructive fraudulent transfer elements—insolvency and lack of reasonably equivalent value—the amendments look to (1) how close the payments were made to when the debtor filed for bankruptcy, and (2) when parents began paying, and how consistently they paid, their adult children’s tuition. After presenting the amendments, this Note explains why other proposed legislative solutions would be less consistent with the purposes of fraudulent transfer law and inadequately respect creditors’ rights.

A.     A Solution that Distinguishes Between Insolvent Parents Based on Their Conduct

First, 11 U.S.C. § 548 should be amended to add the following language after § 548(a)(2):

(3) A transfer or obligation is not voidable under subsection (a)(1)(B) of this section against an institution of higher education, as defined in 20 U.S.C. § 1001, if the transfer made or obligation incurred by the debtor was in furtherance of a relative’s undergraduate education, and the transfer was made—

(A) more than one year before the date of the debtor’s filing a petition for bankruptcy; or

(B) more than six months before the date of the debtor’s filing a petition for bankruptcy, if such transfer was consistent with the practices of the debtor in making transfers to further the undergraduate education of that relative for at least two years before the date of the filing of the petition.

 

 

 

Adopting this amendment would not mean that tuition payments by an insolvent parent for an adult child within two years of bankruptcy are not constructively fraudulent transfers under the law. The amendment merely creates three distinct results regarding whether tuition payments that are constructively fraudulent transfers may be clawed back by trustees in bankruptcy: There would be some tuition payments that are always protected from being clawed back, some that may be clawed back in certain circumstances, and some that can always be clawed back.275

First, the amendment protects all tuition payments made for a relative276 of the debtor more than one year before the debtor filed for bankruptcy from being clawed back as a constructively fraudulent transfer under 11 U.S.C. § 548(a)(1)(B). In other words, the amendment means that the law would allow insolvent parents to make any number of tuition payments for adult children up to a year before bankruptcy. It must be emphasized, however, that neither this nor any other amendment discussed below affects that applicability of the actual fraud provision, 11 U.S.C. § 548(a)(1)(A), to a parent’s tuition payments for any relative. The law regarding actual fraudulent transfers would remain unchanged; if a trustee can prove that any tuition payment within two years of bankruptcy was made with actual fraudulent intent, the tuition payment is avoidable.

By protecting tuition payments made more than a year before the bankruptcy petition from being clawed back in bankruptcy, this amendment seeks to recognize and accommodate changing societal trends and expectations. Young adults rely on their parents for financial support more than they have in the past.277 To say that every tuition payment made for an adult child within two years (or even longer) before bankruptcy is a constructively fraudulent transfer is too harsh and likely inconsistent with society’s desires.278 Instead of punishing universities and students for conditions outside their control, this amendment seeks to respect what society likely deems as acceptable behavior—paying for an adult child’s education even if insolvent—but still draws a line where that behavior is likely to become less acceptable—one year before bankruptcy.279 Respecting these considerations related to education and society’s expectations in this amendment is important and acceptable; the Bankruptcy Code is no stranger to recognizing that even individuals who are approaching or in bankruptcy may need allowances to help fund a relative’s education.280 

Second, subsection (3)(B) of the amendment would provide conditional protection for tuition payments made six to twelve months before the debtor files for bankruptcy. A tuition payment made six to twelve months before filing for bankruptcy will not be avoidable as long as the debtor made consistent tuition payments for the relative for at least two years before filing for bankruptcy.281 This provision provides a middle ground between creditors’ and debtors’ interests, where the facts of the case will determine whether the trustee can recover from the university. For the same reasons given for the first part of the amendment, this part of the amendment allows for even more tuition payments to be protected from being clawed back if the debtor’s actions carry greater indicia of proper motive. However, if these conditions are not met, all tuition payments up to a year before the bankruptcy petition may be clawed back.

The conditions for protection—length of time the tuition was paid and the consistency of those payments—are appropriate proxies for determining the likelihood of fraudulent intent.282 Parents who consistently make tuition payments long before they file for bankruptcy are those who likely began paying the tuition while still sufficiently paying creditors, and the least likely to have begun paying tuition simply because bankruptcy was near. Conversely, the closer to filing for bankruptcy that the parents began making tuition payments, or increased the frequency or amount contributed towards tuition, the greater the probability is that they were consciously aware that they were using funds that would soon go to creditors in bankruptcy.

Lastly, for transfers made within six months of filing for bankruptcy, the amendment would accept the law as it stands. Most bankruptcy courts will likely (and should) continue to hold that all tuition payments by an insolvent parent for an adult child near bankruptcy are constructively fraudulent. The tuition payments can thus be clawed back from universities or the student for whom it was paid. Tuition payments made so close to bankruptcy are those that are the most likely to have been made with actual fraudulent intent, i.e., the parents knew that the money used for the tuition payments is money that would otherwise very soon pass to creditors in bankruptcy. Thus, if bankruptcy is six months away or less, the amendment expresses the expectation that funds should always be saved for creditors.

Next, 11 U.S.C. § 544 should also be amended to include a subsection (b)(3):

(b)(3) Paragraph (1) shall not apply to any transfer that is a tuition payment or any other transfer made or obligation incurred by the debtor in furtherance of a relative’s undergraduate education that is not covered under section 548(a)(1)(B), by reason of section 548(a)(3). Any claim by any person to recover a transfer described in the preceding sentence under Federal or State law in a Federal or State court shall be preempted by the commencement of the case.

 

This provision would extend the impact of the amendment to § 548 discussed above to actions based on state law under § 544. This means that even if state law would allow a creditor to claw back a tuition payment, a bankruptcy trustee would no longer have power to claw back any tuition payment that is not subject to being clawed back under § 548.283

The goal of these amendments is that the tuition payments that would be clawed back would only be those that are most likely to have been made with actual fraudulent intent or are most objectionable to society. There is a still a problem, however. The parties that are returning the tuition payments to the bankruptcy estate, most often universities (sometimes the students) are almost certainly acting in good faith when receiving (or benefiting from) these tuition payments. A mechanism is needed to provide a remedy, at least for universities,284 to hold the parents who actually pay the tuition while insolvent and so close to bankruptcy more accountable. The following, using contract principles and the bankruptcy code, is one way that this could be done.

First, whenever parents make payments directly to a university for tuition or other educational expense, universities should require the parents to sign a contract.285 The contract could contain provisions to protect universities against the parents’ potential bankruptcy—and thus the possibility of a tuition clawback lawsuit—by using language similar to that found in settlement agreements that include protections against a potential future bankruptcy.286 Provisions would vary depending on how often universities require tuition and other payments, whether parents pay the whole tuition or contribute only part, and how frequently parents choose to help fund the education for their children. However, the general purpose should be to contractually show that the parents are voluntarily undertaking a contractual duty to pay the tuition (whether in part or full) and in return are receiving education for their child. The contract could even specify that the parents are still liable for the value of payment if the tuition money is later clawed back in bankruptcy.

With this kind of contract, a trustee’s recovery of the tuition payments under § 550 would create a claim for the university that would be treated as if it existed before the commencement of the bankruptcy.287 In other words, the university would have the right to assert an unsecured, and most likely dischargeable,288 claim against the debtor’s bankruptcy estate. However, even with this change, the university may only be able to get cents on the dollar for its claim and perhaps nothing at all.

Thus, in order to provide meaningful relief for universities and hold parents accountable, the Bankruptcy Code would need to be amended to make claims that arise from the avoidance of tuition payments in bankruptcy a non-dischargeable claim. An amendment could be inserted after § 523(a)(19) and would provide that a discharge in bankruptcy would not discharge any debt:

(a)(20) arising out of a recovery action under section 550, if the transfer avoided under section 544 or 548 was made to a certified institution of primary, secondary, or higher education in furtherance of a relative’s undergraduate education.

 

Making claims arising from tuition clawbacks nondischargeable would mean that universities who must return the value of the tuition payments to the bankruptcy estate will have a mechanism through which to be reimbursed by the parents who paid the tuition in the first place.

Looking at all parties, this scenario would partially appease trustees—allowing them to clawback any tuition payments made up to one year before the bankruptcy filing—partially appease parents—as any tuition payment more than a year before bankruptcy is protected—and almost completely appease universities—allowing them to keep all tuition payments made more than a year before bankruptcy and recover any clawed-back tuition from the parents. It would certainly be reasonable for changes to stop here with this new allocation of rights. However, this Note suggests that the lines need to be drawn in a slightly more even way. The purpose of bankruptcy is to allow debtors to obtain a fresh start. Allowing universities to recover, in some circumstances, up to a year’s worth of tuition payments may be too large of a burden to put on parents just emerging from bankruptcy. Furthermore, because trustees represent creditors parents have an interest in helping pay for their children’s education even when insolvent, universities should also be asked to bear some of the costs to society when parents who pay for children’s tuition subsequently fall into bankruptcy.

Thus, one more provision could be added to the Bankruptcy Code in 11 U.S.C. § 550 after subsection (b):

(c) A transfer made by the debtor to a certified institution of primary, secondary, or higher education in furtherance of a relative’s undergraduate education that is avoided under section 544 or 548 is a claim arising under this section for purposes of section 502(h) only if it was made within six months of the date of the filing of the petition.

 

This provision would still give universities a nondischargeable claim to recover from parents, but only the value of tuition that was paid within six months of the bankruptcy filing that was clawed back. Tuition payments made within six months of bankruptcy are those that are most justifiably considered fraudulent transfers. Such a provision would still give universities a way to recover some tuition that has been clawed back without overburdening parents emerging from bankruptcy. It thus better balances the rights between trustees, parents, and the universities.

B.     Why Other Proposed Legislative Solutions Are Inadequate

This Note is not the first source to suggest a legislative solution to this issue. After learning about tuition clawback lawsuits from a news article, one Congressman sponsored a bill in 2015 that would prevent trustees from bringing tuition clawback lawsuits.289 The bill proposed amending the definition of transfers so that tuition payments by parents are expressly not transfers subject to the constructive fraudulent transfer portions of § 548.290 The bill was introduced and sent to committee but died at the end of the 114th Congress with no further action taken. Legislators in some states have amended their state fraudulent transfer laws to state that payments to universities are not avoidable if the payment “was made . . . by a parent or guardian on behalf of a minor or adult child in furtherance of the child’s undergraduate education,” attempting to prevent trustees from recovering tuition payments by parents under § 544.291 One student writer has proposed that § 548 be amended to include a definition of “reasonably equivalent value” that expressly states that tuition payments made by parents for their children result in reasonably equivalent value.292

While these proposed solutions are well intentioned, they inadequately balance each party’s competing interests and are not in line with the purposes of fraudulent transfer law. First, to expressly state that parental tuition payments for adult children result in reasonably equivalent value is not in line with the current body of law analyzing reasonably equivalent value and would improperly allow debtors to diminish their estates before bankruptcy. Second, each proposal only focuses on remedying the harm to the universities and children of the bankrupt parents. They do not adequately account for the interests of creditors and the harm they endure when parents pay for a child’s education in lieu of paying antecedent debts. Lastly, these solutions ignore the reality that although there are many honest insolvent parents who simply want to help their children, the cases cataloged in the Appendix show that many parents have made tuition payments under highly suspicious circumstances. These circumstances strongly suggest that at least some parents consciously used money for tuition payments that they knew would otherwise go to creditors in bankruptcy. Any legislative solution must recognize this evidence and not allow dishonest debtor-parents to free ride on our compassion for honest and misfortunate ones.

Another student writer has proposed legislative amendments to the Bankruptcy Code that escape some of these inadequacies.293 The proposed amendment would mirror Congress’s solution to clawback lawsuits involving tithing and charitable donations by allowing parents to spend up to 15% of their income on educational expenses each year.294 Although such an amendment acknowledges that tuition payments by insolvent parents are fraudulent transfers and attempts to respect creditors’ interests in preserving the bankruptcy estate, it does so half-heartedly and inadequately. It completely ignores one of the key factors of fraudulent transfer law: timing. Under the 15% solution, a debtor could transfer significant sums of money as tuition payments for a child on the eve of bankruptcy without any repercussions. Creditors would only be able to recover these funds if they could prove the parents acted with actual fraudulent intent, which, as discussed above, is very hard to do in cases like these. In fact, the amendment seems to stop caring about intent entirely, permitting parents to actually or constructively hinder, delay and defraud their creditors, as long as they don’t do it too much. Thus, although the 15% solution is perhaps the best proposal so far, it at best provides only partial protection for creditors and does not adequately respect the principles and purposes of fraudulent transfer law.

Therefore, this Note’s proposed solution provides a better balance between creditors’, families’, and universities’ rights, and more fully honors the purposes and traditions of fraudulent transfer law. It better aligns with the tradition of promoting justness to creditors over generosity to family members by confirming that tuition payments by insolvent parents for their adult children soon before bankruptcy are fraudulent transfers. It respects that the timing of payments is extremely important in determining if a transfer is constructively fraudulent, because the timing of a transfer is much more suggestive of the probable intent behind the transfer than is the value of the transfer. Lastly, by proposing a mechanism that seeks to prevent only those parental tuition payments that carry the greatest probability of fraudulent intent, it provides a consciously tailored middle ground that allows insolvent parents to help their children when their conduct suggests honesty, without weakening or eliminating their duty to repay or preserve their estate for creditors as bankruptcy approaches.

VII.     Conclusion

Tuition clawback lawsuits present a very tricky issue for society and bankruptcy courts to address. In fact, the very name of fraudulent transfer seems wholly incompatible with something as beneficial and laudable as a parent helping a child to obtain an education. History and case law leads to the conclusion that tuition payments by insolvent parents are at least constructively fraudulent, and likely actually fraudulent at times. Fraudulent transfer law has always promoted the principle that debtors ought to be just before they are generous.

However, tuition payments for an adult child raise significant policy considerations of an ever-changing world that need to be balanced against creditors’ rights. The amendments proposed in this Note attempt to do that, realizing and permitting transfers to be clawed back when they are most suspect, but creating protections fo parents who, through their conduct, are least likely to be acting fraudulently. The proposed amendments to the Bankruptcy Code can do this, and by doing so it can become a system that promotes a better balance between justice and generosity in tuition clawback lawsuits.

 

Appendix

 Image 1 Huish

 

Image 2 HuishImage 3 Huish

 

 

Image 4 Huish

Image 5 Huish

 Image 6 HuishImage 7 HuishImage 8 HuishImage 9 Huish

 

 

 

 

 Image 10 Huish

 Image 11 Huish

 

Image 12 HuishImage 13 Huish

 

Image 14 Huish

 

Image 15 Huish

           


 

  1. [1]. James Alexander, The Best Confucius Quotes 23 (2015) (ebook).

  2. [2]. See generally L. Alexandra Hogan, This Vehicle Is Used to Avoid, Recover College-Tuition Payments: The ‘Tuition Claw Back, BusinessWest (Aug. 9, 2016), http://businesswest.com/
    blog/this-vehicle-is-used-to-avoid-recover-college-tuition-payments; Katy Stech, Colleges Continue to Return Tuition Money in Bankruptcy Fights, Wall St. J.: Bankr. Beat (Apr. 19, 2016, 11:25 AM), https://blogs.wsj.com/bankruptcy/2016/04/19/colleges-continue-to-return-tuition-money-in-bankruptcy-fights; infra Appendix.

  3. [3]. Insolvency is defined in § 101 of the Bankruptcy Code, but a common definition typically associated with fraudulent transfers, and for purposes of this Note, is that insolvency means that “the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation,” or that the debtor is not able to pay his or her debts as they become due. See Unif. Fraudulent Transfer Act § 2 (Unif. Law Comm’n 1984).

  4. [4]. Sections 544, 548, and 550 of the Bankruptcy Code work together to permit a trustee to avoid (nullify) and recover property, or the value of property, that is inappropriately transferred by a debtor before or during bankruptcy. 5 Collier on Bankruptcy ¶ 550.01 (Richard Levin & Henry J. Sommer eds., 16th ed. 2012); see also infra Section III.D.2.

  5. [5]. See, e.g., United States v. Aldrich (In re Rigdon), 795 F.2d 727, 730 (9th Cir. 1986); Bryan D. Hull, A Void in Avoidance Powers? The Bankruptcy Trustee’s Inability to Assert Damages Claims on Behalf of Creditors Against Third Parties, 46 U. Miami L. Rev. 263, 264 (1991).

  6. [6]. The main fraudulent transfer provision in the Bankruptcy Code is 11 U.S.C. § 548. Trustees may also raise a fraudulent transfer claim under § 544, but only if it is allowed under state law. See 11 U.S.C. § 544(b)(1) (2012).

  7. [7]. Dewitt C. Moore, 1 A Treatise on Fraudulent Conveyances and Creditors’ Remedies at Law and in Equity 3 (1908). Although these transactions are most commonly referred to as “fraudulent transfers” or “voidable transactions” today, older laws and cases also refer to them as a fraudulent “conveyances,” “dispositions” or “transactions.”

  8. [8]. See infra Part III.

  9. [9]. 11 U.S.C. § 548(a)(1)(A) (“The trustee may avoid any transfer ... if the debtor voluntarily or involuntarily ... made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became ... indebted ... .” (emphasis added)).

  10. [10]. See id. § 548(a)(1)(B). While insolvency may be the most common circumstance (and most relevant to this Note) that accompanies lack of reasonably equivalent value in a constructively fraudulent transfer, there are other circumstances besides insolvency which would also be considered of a constructively fraudulent transfer. See id. § 548(a)(1)(B)(ii)(II)–(IV).

  11. [11]. Tuition clawback lawsuits brought under § 544 are based in state fraudulent transfer laws, which usually have look-back periods longer than two years. See Spencer C. Barasch & Sara J. Chesnut, Controversial Uses of the “Clawback” Remedy in the Current Financial Crisis, 72 Tex. B.J. 922, 926 (2009). Thus, tuition payments made far earlier than two years before the bankruptcy filing could be found to be constructively fraudulent transfers and subject to a claw back.

  12. [12]. Katy Stech, Stech’s Take: Chicago Court Decision Sides with Parent in College Tuition Dispute, WSJ Pro Bankr. (Jan. 5, 2017, 5:45 PM), https://www.wsj.com/articles/stechs-take-chicago-court-decision-sides-with-parent-in-college-tuition-dispute-1483656312.

  13. [13]. “Nullum crimen sine lege” is a legal principle that essentially means that there is no crime where there is no law against it. See Nullum crimen sine lege, Black’s Law Dictionary (10th ed. 2014). See generally Jerome Hall, Nulla Poena Sine Lege, 47 Yale L.J. 165 (1937) (discussing the use and meaning of the phrase).

  14. [14]. See Oliver Wendell Holmes, The Common Law 39 (Harvard Univ. Press 2009) (1881) (“The first requirement of a sound body of law is, that it should correspond with the actual feelings and demands of the community, whether right or wrong.”); id. at 124 (“[S]tarting from the moral ground, [the common law] works out an external standard of what would be fraudulent in the average prudent member of the community, and requires every member at his peril to avoid that.”).

  15. [15]. Adams’ Argument for the Defense: 3–4 December 1770, Nat’l Archives: Founders Online, https://founders.archives.gov/documents/Adams/05-03-02-0001-0004-0016#LJA03d031n1-ptr (last visited March 28, 2019).

  16. [16]. Complaint for Avoidance and Recovery of Fraudulent Transfer at 1, Holber v. Drexel Univ. (In re Weiss), No. 10-00476 (Bankr. E.D. Pa. Dec. 20, 2010).

  17. [17]. Id. at 2.

  18. [18]. Id. at 1–2.

  19. [19]. See Voluntary Petition of Thomas H. Weiss and Holly M.F. Weiss at 20, 24–29, In re Weiss, No. 10-16864 (Bankr. E.D. Pa. Aug. 16, 2010); Discharge of Joint Debtors at 1, In re Weiss,
    No. 10-16864 (Bankr. E.D. Pa. Dec. 20, 2010).

  20. [20]. See Complaint for Avoidance and Recovery of Fraudulent Transfer, supra note 16, at 2 (case against university); Complaint to Recover Avoided Transfer Pursuant to 11 U.S.C. § 550 at 2, Holber v. Weiss (In re Weiss), No. 12-00086 (Bankr. E.D. Pa. Feb. 8, 2012) (case against daughter).

  21. [21]. Stipulation in Settlement of Amended Complaint at para. 18, Holber v. Weiss (In re Weiss), No. 12-00086 (Bankr. E.D. Pa. Sept. 04, 2012).

  22. [22]. See Katy Stech, Treatment of Tuition Payments in Bankruptcy Poses Problem for Struggling Parents, Wall St. J. (June 2, 2017, 2:11 PM), https://www.wsj.com/articles/treatment-of-tuition-payments-in-bankruptcy-poses-problem-for-struggling-parents-1496427104; see also Voluntary Petition of Larry Gideon at 1, In re Gideon, No. 15-50464 (Bankr. E.D. Mich. Jul. 10, 2015). Larry Gideon filed for bankruptcy nearly two years before he passed away. See id.

  23. [23]. See Complaint to Avoid and Recover Transfer at 2–3, Shapiro v. Gideon (In re Gideon), No. 16-04939 (Bankr. E.D. Mich. Oct. 4, 2016); Stech, supra note 22. Fortunately for the daughter, the case was eventually dismissed because her father had received federal Parent Plus loans to pay the tuition, and the court held that the loan had never become part of Mr. Gideon’s estate and thus was not avoidable. Stech, supra note 22.

  24. [24]. See infra Appendix, at rows 25, 40, 47, 64, 76, 88, 90, 99, 100, 118, 125, and 138 for examples.

  25. [25]. See infra notes 170–76 and accompanying text.

  26. [26]. See infra Appendix. The Appendix is the Author’s best attempt to find and catalog as many tuition clawback lawsuits as possible. Some tuition clawback lawsuits were intentionally left out because they delt with considerations outside the scope of this Note. See infra note 40. Others were likely missed and left out due to imperfections in the Author’s database search criteria. Even though not perfectly comprehensive, the Appendix contains a great sample size of cases to look at. The list was updated through March 29, 2019.

  27. [27]. See infra Appendix.

  28. [28]. See 11 U.S.C. § 550 (2012).

  29. [29]. See infra Appendix. The average amount of tuition that trustees have attempted to claw back from universities is $40,589, with a median of $24,870 and a range from $715 to $257,962. Comparing the average amount sought to the average amount universities have settled for, the typical settlement has constituted 36.9% of the amount sought. The largest single settlement paid by a university was $91,000. See infra Appendix, at row 54. When including parties other than universities who have paid to settle these claims—usually the debtor or other family members but sometimes the child-student—trustees have recovered an average of $16,455, or 40.5% of the amount sought. It is important to note that there have been many cases, at least 48, that have been dismissed or dropped for variouos reasons. When factoring in all the cases in the Appendix, trustees have recovered an average of $10,612 across all cases that have concluded.

  30. [30]. See, e.g., Katy Stech, Law Firm Takes on Bankruptcy Trustees in Tuition Battles, WSJ Pro Bankr. (June 30, 2016, 8:17 AM), https://www.wsj.com/articles/law-firm-takes-on-bankruptcy-trustees-in-tuition-battles-1467289035 (explaining that universities originally decided to settle these cases quickly or relied on inhouse counsel or small law firms in contesting them, but some have now begun to hire larger firms that specialize in higher education work).

  31. [31]. See 11 U.S.C. § 550 (“Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544 ... [or] 548 of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from ... the initial transferee of such transfer or the entity for whose benefit such transfer was made ... .” (emphasis added)).

  32. [32]. See Katy Stech, What’s Behind Bankruptcy Lawsuits Over College Tuition?, Wall St. J.: Bankr. Beat (May 6, 2015, 2:05 PM), https://blogs.wsj.com/bankruptcy/2015/05/06/whats-behind-bankruptcy-lawsuits-over-college-tuition (“Many bankruptcy lawyers [have] said students are fair game to be sued, though trustees don’t do that because it is unlikely they could afford to repay the debt.”).

  33. [33]. See infra Appendix.

  34. [34]. See infra Appendix, at rows 2, 9, and 16.

  35. [35]. See Katy Stech, USC in Tuition Battle: Former Students Will Face Consequences, Wall St. J.: Bankr. Beat (Nov 17, 2015, 1:32 PM), https://blogs.wsj.com/bankruptcy/2015/11/17/usc-in-tuition-battle-former-students-will-face-consequences (“University of Southern California lawyers said if the school is forced to return the money, it will ‘be left with no choice other than to seek to recover all payments’ from two former students whose parents, Charles and Claudia Ankrim, paid for their education before filing for bankruptcy in June 2013. ‘Additionally, the children’s transcripts from USC will be frozen,’ ... .”); Stech, supra note 32 (“[S]ome parents ... [are] worried whether their child w[ill] be expelled, denied a transcript or asked to repay the school for the money it turned over.”).

  36. [36]. See, e.g., Stech, supra note 32 (“The[se] lawsuits present an unexpected consequence that bankruptcy can create for families. ‘It’d be horrible for a kid and their parent to have to go through this,’ said Deborah Thorne, a professor of sociology at Ohio University who has studied the effects of financial distress on families.”); see also Memorandum of Law in Support of Motion to Dismiss of University of Maryland, College Park at 6, Coan v. Univ. of Md., Coll. Park (In re Jabick), No. 14-05069 (Bankr. D. Conn. Apr. 14, 2015), ECF No. 7 (“[T]hese avoidance actions which attack parental-motivated transfers to third parties with clean hands ... will, if allowed to grow, drive a wedge between parent and child.”).

  37. [37]. See infra notes 170–77 and accompanying text.

  38. [38]. Approximately 27% of tuition clawback lawsuits included a claim for actual fraudulent transfers whereas 98.7% included a claim for constructive fraudulent transfers. See infra Appendix.

  39. [39]. One of the most important differences between fraudulent transfer provisions in the Bankruptcy Code and state laws is that state fraudulent transfer laws usually have a much longer “look-back period.” See Barasch & Chesnut, supra note 11, at 926 (noting that the majority of states that have adopted UFTA have at least “a four-year look-back period”). The longer look-back period enables the trustee to claw back a greater number of transfers and amount in tuition than could be done under § 548 alone. See, e.g., Complaint at 3–6, Chorches v. Catholic Univ. of Am. (In re Franzese), No. 16-05035 (Bankr. D. Conn. June 23, 2016) (attempting to claw back $30,659.50 under § 548 and $64,845.50 under state law through § 544); Complaint at 3–6, Chorches v. Pa. State Univ. (In re Barfuss), No. 15-05045 (Bankr. D. Conn. Aug. 21, 2015) (attempting to claw back $53,265.00 under § 548 and $104,989.00 under state law through § 544).

  40. [40]. Although this is the issue in the typical fact pattern and the focus of this Note, there are variations with legally significant consequences. See infra Appendix. For example, there have been tuition clawback lawsuits brought to recover tuition paid for minor children. See, e.g., Geltzer v. Xaverian High Sch. (In re Akanmu), 502 B.R. 124, 127–28 (Bankr. E.D.N.Y. 2013). The Appendix of this Note contains some of these cases but does not otherwise focus on them because they are factually and legally distinct. Courts have generally held that insolvent parents’ tuition payments for minor children are not fraudulent transfers. Id. at 135–36. Courts recognize that parents have a legal duty to ensure their minor children receive education, and even though a parent could have fulfilled this duty by sending children to public school without having to pay tuition, parents receive reasonably equivalent value by fulfilling this duty. See, e.g., McClarty v. Univ. Liggett Sch. (In re Karolak), No. 12–61378, 2013 WL 4786861, at *3 (Bankr. E.D. Mich. Sept. 6, 2013). Courts have not come to a clear consensus whether parents have such a duty for adult children. See infra Section IV.B. A second variant is when parents pay for their children’s tuition using federal loans. See, e.g., Eisenberg v. Pa. State Univ. (In re Lewis), 574 B.R. 536, 537
    (Bankr. E.D. Pa. 2017). The Appendix includes many of these cases, but this Note does not otherwise discuss them. Most courts have held that federal loans are not part of the debtor’s estate, because the loan money goes straight to the university and could not be used for fulfilling any other debts; thus, courts never need to reach the question of reasonably equivalent value. See id. at 540. Lastly, in some cases parents pay for a child’s tuition through their company, often using the company’s or investors’ funds. See, e.g., Complaint to Avoid and Recover Fraudulent Transfers at 1–3, Nesse v. Pa. State Univ. (In re Litman Dev., Inc.), No. 10-31644 (Bankr. D. Md. June 8, 2011). Although several of these corporate debtor cases are referenced in the Appendix, this Note does not address them specifically because, in addition to a normal reasonably-equivalent-value analysis, they also implicate issues regarding corporate structure and fiduciary duties that are not present in the typical case involving parents using their own money.

  41. [41]. See infra Appendix.

  42. [42]. See Stech, supra note 2 (“Historically, tuition payments were so small that a court-appointed trustee wouldn’t waste time pursuing them. But as college costs rise and more parents chip in to help their kids, bankruptcy experts predict more of these lawsuits to come.”).

  43. [43]. Michelle Jamrisko & Ilan Kolet, Cost of College Degree in U.S. Soars 12 Fold: Chart of the Day, Bloomberg (Aug 15, 2012, 5:00 AM), https://www.bloomberg.com/news/articles/2012-08-15/cost-of-college-degree-in-u-s-soars-12-fold-chart-of-the-day. In contrast to the price of tuition, “[m]edical expenses have climbed 601 percent, while the price of food has increased 244 percent over the same period.” Id.

  44. [44]. Kim Clark, A Record Number of People Aren’t Paying Back Their Student Loans, Money
    (Mar. 14, 2017), http://time.com/money/4701506/student-loan-defaults-record-2016.

  45. [45]. See Emma Brown et al., Trump’s First Full Education Budget: Deep Cuts to Public School Programs in Pursuit of School Choice, Wash. Post (May 17, 2017), https://www.washingtonpost.com/
    local/education/trumps-first-full-education-budget-deep-cuts-to-public-school-programs-in-pursuit-of-school-choice/2017/05/17/2a25a2cc-3a41-11e7-8854-21f359183e8c_story.html (“Funding for college work-study programs would be cut in half, public-service loan forgiveness would end and hundreds of millions of dollars that public schools could use for mental health, advanced coursework and other services would vanish under a Trump administration plan to cut $10.6 billion from federal education initiatives ... .”).

  46. [46]. See infra notes 240–49.

  47. [47]. See infra Section IV.B.1.

  48. [48]. Compare Sallie Mae & Ipsos Public Affairs, How America Pays for College 2017, 12 fig. 2 (2017), https://news.salliemae.com/sites/salliemae.newshq.businesswire.com/files/doc_
    library/file/How_America_Pays_for_College_2017_Report.pdf [hereinafter How America Pays for College 2017] (showing the average amount spent on college by families in 2008 was $17,200), with Sallie Mae & Ipsos Public Affairs, How America Pays for College 2018, 5–11 (2018), https://www.salliemae.com/assets/research/HAP/HowAmericaPaysforCollege2018.pdf [hereinafter How America Pays for College 2018] (reporting that the average amount spent by families on college was $26,458).

  49. [49]. How America Pays for College 2018, supra note 48, at 2, 7 fig.

  50. [50]. How America Pays for College 2017, supra note 48, at 37.

  51. [51]. Id. at 7, 37–38.

  52. [52]. Id. at 7.

  53. [53]. See infra Appendix.

  54. [54]. See How America Pays for College 2017, supra note 48, at 11–14 & figs. 1A, 1B. The percentage of college funding that students have borrowed has always peaked in those years in which assistance from parents’ income and savings is at its lowest. Id.

  55. [55]. Charles Warren, Bankruptcy in United States History 3 (1935).

  56. [56]. For instance, in more modern history, economic downturns throughout U.S. history consistently led to greater demand for bankruptcy legislation to help those who were suffering financially. See Charles Jordan Tabb, The History of the Bankruptcy Laws in the United States, 3 Am. Bankr. Inst. L. Rev. 5, 14 (1995) (“Each instance of federal legislation followed a major financial disaster ... .”); John Fabian Witt, Narrating Bankruptcy / Narrating Risk, 98 Nw. U. L. Rev. 303, 314 (2003) (“Each renewed economic downturn brought a reprise of arguments for bankruptcy legislation.”). Congress responded to these demands with bankruptcy legislation that attempted to provide debtors with a fresh start but would later repeal them when the economy recovered or when Congress’s views regarding debt and debtors changed. Robert J. Landry, III & David W. Read, Erosion of Access to Consumer Bankruptcy’s “Fresh Start” Policy in the United States: Statutory Reforms Needed to Enhance Access to Justice and Promote Social Justice, 7 Wm. & Mary Pol’y Rev. 51, 56, 64 (2015). The United States did not have a permanent bankruptcy code with discharge of debts until 1898. Tabb, supra, at 13–14.

  57. [57]. See Garrard Glenn, Essentials of Bankruptcy: Prevention of Fraud, and Control of Debtor, 23 Va. L. Rev. 373, 379–83 (1937) (noting that bankruptcy legislation in 17th and 18th century Europe was plagued by fraudulent debtors and giving examples of how “the fraudulent bankrupt is perennial”); id. at 387–88 (“[F]rauds abound always ... [because] each generation is wiser in its wickedness than those which preceded it ... .”); see also Ralph C. McCullough, II, Bankruptcy Fraud: Crime Without Punishment II, 102 Com. L.J. 1, 1 (1997) (“The oldest bankruptcy laws emerged as weapons for creditors to prevent the flight of such debtors and to recover what assets might remain.”).

  58. [58]. See, e.g., Michael D. Sousa, Bankruptcy Stigma: A Socio-Legal Study, 87 Am. Bankr. L.J. 435, 449 (2013) (“Various bankruptcy laws adopted by Western European countries from the Middle Ages through the 1600s intentionally linked the concept of bankruptcy with acts of fraudulent conduct.”); see also supra note 57.

  59. [59]. Louis Edward Levinthal, The Early History of Bankruptcy Law, 66 U. Pa. L. Rev. 223, 237 (1918).

  60. [60]. E.g., id. at 229–31 (describing the social and religious sanctions for debtors across multiple ancient societies).

  61. [61]. 8 W.S. Holdsworth, A History of English Law 229 (1925); Levinthal, supra note 59, at 228–33. Until relatively recently, inability to pay debts could lead to imprisonment as a criminal. Sousa, supra note 58, at 450 (noting that debtors’ prisons were in use in the United States into the mid-19th century). At times, debtors were treated even worse than criminals. See, e.g., Bruce H. Mann, Republic of Debtors: Bankruptcy in the Age of American Independence 97–98 (2002) (telling the story of the yellow fever epidemic that raged through Philadelphia in 1798, during which the city moved many of its criminal prisoners to a jail in the countryside to avoid the disease but left imprisoned debtors without care in the path of the disease); Sousa, supra note 58, at 445–50 (“During the seventeenth century, bankruptcy was particularly viewed in Europe as a ‘dangerously immoral’ practice, characterized as a criminal act, and sanctioned accordingly... . [However,] the general conditions of debtors’ prisons were deplorable, and unlike the incarcerated criminal inmates, imprisoned debtors’ sentences were indeterminate as to duration.” (footnotes omitted)). Although the United States abolished imprisonment for failure to pay debts nearly 200 years ago, some argue that debtors’ prisons still exist today. See Ending Modern-day Debtors’ Prisons, ACLU, https://www.aclu.org/issues/criminal-law-reform/ending-modern-day-debtors-prisons?redirect=feature/ending-modern-day-debtors-prisons (last visited Mar. 28, 2019).

  62. [62]. See Levinthal, supra note 59, at 232–33 (“The change from the one form of execution to the other, slow and gradual as it was, is an instance of the general evolution of legal process from the stage were retaliation is the end in view to the stage where compensation is the chief desideratum.”). Although execution against the property of a debtor instead of the body of debtor has been the norm for quite some time, execution against the “body” was, until the last couple centuries, viewed as a remedy of last resort. See 8 Holdsworth, supra note 61, at 230–31.

  63. [63]. Rafael Efrat, The Evolution of Bankruptcy Stigma, 7 Theoretical Inquiries L. 365, 369 (2006) (“In an attempt to voice their disapproval of the deviancy associated with personal bankruptcy and to reinforce the stigma associated with bankruptcy, societies historically adopted bankruptcy laws that emphasized the bankrupt’s deceitful, quasi-criminal conduct in entering into bankruptcy, focusing on degrading the bankrupt, and imposing significant penalties on the bankrupt... . [B]y linking fraudulent conduct with the commencement of bankruptcy, the bankrupt automatically earned the disrespect of society.”).

  64. [64]. See Levinthal, supra note 59, at 237 (describing how two ancient societies adapted to accommodate honest debtors); see also 8 Holdsworth, supra note 61, at 229 (“Whenever it is possible ... some distinction is drawn between a debtor who is unable to pay by misfortune, and a debtor who is unable to pay by reason of his own recklessness or fraud.”).

  65. [65]. See 1 William L. Norton, Jr., Norton Bankruptcy Law and Practice 2d §§ 1:1–1:2 (explaining that the earliest transactions of merely exchanging goods did not present a need for insolvency laws, but economic interactions advanced to the point where such laws were needed); Jan H. Dalhuisen, Roman Law of Creditors’ Remedies, in European Bankruptcy Laws 1, 1 (I. Arnold Ross ed., 1974) (“[Insolvency laws] are only products of a more advanced economic system and a set-up in which there is a rather refined system of contract law.”).

  66. [66]. Rhett Frimet, The Birth of Bankruptcy in the United States, 96 Com. L.J. 160, 162 (1991) (“Eventually, ... society changed its views such that it became believable that one could simply fall onto hard times without premeditation.”).

  67. [67]. See Philip Shuchman, The Fraud Exception in Consumer Bankruptcy, 23 Stan. L. Rev. 735, 737 (1971) (explaining that discharge for debtors “did not come about by reason of sympathy for the insolvent’s hardship,” but “because penal sanctions—usually imprisonment—had not worked as anticipated”); Sousa, supra note 58, at 449–50 (explaining the history and decline in the use of debtors’ prisons because they did not work effectively and when “imprisoned debtors could not work, they remained indigent, their debts remained unpaid, and the prisoners’ dependents were often left to fend for themselves, in turn burdening the community for necessary assistance”).

  68. [68]. See, e.g., Shuchman, supra note 67, at 737–38; Tabb, supra note 56, at 12.

  69. [69]. See, e.g., Shuchman, supra note 67, at 737–38; Tabb, supra note 56, at 12.

  70. [70]. See Tabb, supra note 56, at 15, 18–20 (explaining the difficulties of enacting permanent bankruptcy legislation because many U.S. bankruptcy statutes were repealed shortly after enactment because the laws were either too harsh or did not effectively provide creditors with remedies and because of abuse by “high-rolling speculators who went through bankruptcy and then started their operations anew”).

  71. [71]. See Vern Countryman, Bankruptcy and the Individual Debtor—And A Modest Proposal to Return to the Seventeenth Century, 32 Cath. U. L. Rev. 809, 809 (1983); see also 1 Garrard Glenn, Fraudulent Conveyances and Preferences 82 (rev. ed. 1940) (“One cannot describe with any exactness the impact of Roman law upon the English thought of earlier centuries, although it was inevitable that mercantile features of [Roman law] would trickle [down] through all channels of the law merchant [throughout Europe].”); Frimet, supra note 66, at 162 (“While it is the Roman law that perhaps appears the least progressive in modern terms, it is most likely that it is the basis of the English bankruptcy system.”); Levinthal, supra note 59, at 236 (claiming that “the Roman system of bankruptcy ... is in fact the origin and fountain-head of all bankruptcy systems”).

  72. [72]. See Theodor C. Albert, The Insolvency Law of Ancient Rome, 28 Cal. Bankr. J. 365, 372 (2006) (noting that the venditio bonorum “bears a resemblance to our involuntary bankruptcy”); Max Radin, The Nature of Bankruptcy, 89 U. Pa. L. Rev. 1, 7 (1940) (defining involuntary bankruptcy). Venditio bonorum—a form of liquidation instigated by a single creditor when a debtor defaulted or performed an improper act to a creditor’s detriment—was the earliest of the three and “was of a criminal and . . . defamatory nature.” Dalhuisen, supra note 65, at 5. In order to better meet the needs of multiple creditors, Roman law next recognized the bonorum distractio, an insolvency procedure more similar to modern bankruptcy, in which the trustee would sell off the estate piecemeal, pay creditors pro rata out of the proceeds, and return any excess back to the debtor. Id. at 6; Levinthal, supra note 59, at 236.

  73. [73]. This third type of proceeding was called cessio bonorum. Dalhuisen, supra note 65, at 7; Levinthal, supra note 59, at 238; see also Radin, supra note 72, at 7 (defining voluntary bankruptcy).

  74. [74]. For explanations of these forms of Roman bankruptcy law, see Dalhuisen, supra note 65, at 2–9; and Levinthal, supra note 59, at 235–38.

  75. [75]. See Tabb, supra note 56, at 8.

  76. [76]. Max Radin, Fraudulent Conveyances at Roman Law, 18 Va. L. Rev. 109, 109 (1931) (citing J. Inst. 4.6.6).

  77. [77]. The Latin word in the statute was “fraus.” Id. at 111. The Latin word for fraud as it is more commonly understood today, deceit or misrepresentation to take advantage of another, was “dolus.” Id.

  78. [78]. S. Whitney Dunscomb, Jr., Proposed Amendments to the Federal Bankruptcy Law, 2 Colum. L. Rev. 313, 318 (1902).

  79. [79]. See id.

  80. [80]. 4 The Digest of Justinian 78 (Alan Watson ed., 2009); Dunscomb, supra note 78, at 318; see also Albert, supra note 72, at 395 (“Lucius Titius, having creditors, transferred all his property to his freedmen ... . [A]lthough it was not suggested that Titius proposed to commit fraud, still as he knew that he had creditors, and alienated all his property, he should be understood to have had the intention of defrauding them ... .” (quoting J. Inst. 42.9.17)).

  81. [81]. 1 Glenn, supra note 71, at 82–83.

  82. [82]. See Radin, supra note 72, at 2–3 n.8. Although English common law recognized a cause of action for fraudulent transfers, economic and commercial growth and increasingly prevalent fraud quickly showed Parliament that statutory remedies were a necessity. See Orlando F. Bump, A Treatise Upon Conveyances Made by Debtors to Defraud Creditors 5–6 (4th ed. 1896) (“[T]he law of fraudulent conveyances is founded upon the principles of common honesty, demanded by and adapted to the exigencies of commerce, and, if every memorial of the present law were blotted out, it would spring up again in nearly its present shape.”); 8 Holdsworth, supra note 61, at 230–33 (describing the development of insolvency and fraudulent transfer laws within the common law and the eventual need for legislation); Tabb, supra note 56, at 7 (“[T]he common law execution writs ... did not address the distinct problems presented by a debtor’s multiple defaults. Creditors needed protection from defaulting debtors and from each other.” (footnotes omitted)).

  83. [83]. See 1 Glenn, supra note 71, at 84–85 (noting that this action was known as “taking sanctuary” and the laws prohibiting such actions were known as “sanctuary laws”).

  84. [84]. Louis Edward Levinthal, The Early History of English Bankruptcy, 67 U. Pa. L. Rev. 1,
    11–12 (1919).

  85. [85]. Id. (quoting 50 Edward III, c. 6 (1376)).

  86. [86]. Id. at 13.

  87. [87]. Id. at 12–14.

  88. [88]. Levinthal, supra note 84, at 14–15 & n.51 (noting that the statute was named “An Act against such persons as do make Bankrupt” and discussing its meaning). The statute of 34 & 35 Henry VIII contained two main features that are present in our modern bankruptcy system: “a summary collection or realization of the assets, and ... an administration or distribution for the benefit of all creditors.” Id. at 14. Because of these features, it is often regarded by some as the first bankruptcy law passed in England. Tabb, supra note 56, at 7.

  89. [89]. See Charles Jordan Tabb, Law of Bankruptcy § 1.6, at 36 (3d ed. 2014) (explaining that 34 & 35 Hen. 8, c. 4 (Eng. 1542) is commonly regarded as the first bankruptcy law in England and it “viewed debtors as criminals”); Levinthal, supra note 84, at 17 (“The Statutes of Henry VIII and Elizabeth treated the bankrupt as a criminal who cheated honest men of their debts.”).

  90. [90]. See Levinthal, supra note 84, at 15–16 (noting that the punishment for debtors and friends who engaged in fraudulent transfers or fraudulent bankruptcy claims was to require forfeiture of double the value of the property at stake in the fraud).

  91. [91]. Id. at 16; see also 13 Eliz. c. 5 (1570) (declaring that the act, which came after 34 & 35 Hen. 8, c. 4, was for preventing fraudulent transfers which had been “more commonly used and practysed in these dayes then hathe ben seene or hard of heretofore”); 13 Eliz. c. 7 (“[N]otwthstandinge the Statute made agaynst Bankruptes [34 & 35 Henry] ... those kynde of psons have and doo still encrease into greate and excessive numbers, and are lyke more to do, yf some better pvysion be not made for the Repression of them ... .”).

  92. [92]. 13 Eliz. c. 7; see also Tabb, supra note 56, at 7–8 (noting that the Statute of 13 Elizabeth was more comprehensive than those which preceded it).

  93. [93]. See 13 Eliz. c. 5 (declaring that the act was “[f]or the avoyding and abolysshing of faigned, covenous and fraudulent Feoffmentes Gyftes Graunts Alienations Conveyaunces Bondes Suites Judgementes and Executions”).

  94. [94]. Id.; see also Peter A. Alces, The Law of Fraudulent Transactions 5-107 (1989) (crediting the Statute of 13 Elizabeth with coining the phrase “intent to hinder, delay, or defraud”).

  95. [95]. See Alces, supra note 94, at 5-11 to 5-12 (“The Statute [of 13 Elizabeth] was originally intended to protect the sovereign; indeed, it was penal in nature, with one half of the fraudulently transferred property escheating to the state.”); see also 1 Glenn, supra note 71, § 61c, at 92–94 (noting that a bankruptcy act was passed in the same session as the Statute of 13 Elizabeth that focused more strongly on creditors’ rights, but the bankruptcy act was essentially ignored because the government preferred to recover money for itself by prosecuting under 13 Elizabeth).

  96. [96]. See Mannocke’s Case (1571) 73 Eng. Rep. 661, 661–62 (extending 13 Elizabeth’s remedies to creditors).

  97. [97]. See 1 Glenn, supra note 71, at 96–98.

  98. [98]. See infra Section III.D.

  99. [99]. Tabb, supra note 56, at 8.

  100. [100]. See Emily Kadens, The Last Bankrupt Hanged: Balancing Incentives in the Development of Bankruptcy Law, 59 Duke L.J. 1229, 1238–39 (2010) (quoting a member of Parliament around 1590 who said, “These bankrupts are worse than thieves [who] rob by the highway for necessity; but these are double thieves because they were put in trust with many men’s goods, which by breaking they undo many.” (alteration in original)); Levinthal, supra note 84, at 17 (“Parliament enacted in the Act of 21 Jac. I, c. 19 (1623), that pillory and the loss of an ear should be the penalty imposed upon debtor[s] who failed to show that bankruptcy was due solely to misfortune.”).

  101. [101]. Kadens, supra note 100, at 1245–46; Levinthal, supra note 84, at 18.

  102. [102]. 4 & 5 Ann. cc. 3, 4.

  103. [103]. Tabb, supra note 89, at 37. The Statute of Anne also allowed a bankrupt to receive “a small stipend from their estate with which to begin again,” another action designed to promote the fresh start principle of bankruptcy. Kadens, supra note 100, at 1261.

  104. [104]. Tabb, supra note 89, at 37; see also Charles J. Tabb, The Top Twenty Issues in the History of Consumer Bankruptcy, 2007 U. Ill. L. Rev. 9, 18 (“The ‘stick’ in the statute was the introduction of the death penalty for debtors who did not cooperate. Parliament, fed up with over a century of egregious cases of fraudulent debtor behavior, capped by the notorious frauds of one Thomas Pitkin in 1704, took desperate measures to stem the tide of fraud.”). For a detailed account of the Thomas Pitkin scandal, see Kadens, supra note 100, at 1255–60.

  105. [105]. 4 Ann. c. 17, § 1 (“Persons have and do daily become [b]ankrupt[,] not so much by reason of [l]osses and unavoidable [m]isfortunes[,] as to the [i]ntent to defraud and hinder their [c]reditors of their just [d]ebts and [d]uties to them due and owing.”).

  106. [106]. Peter A. Alces & Luther M. Dorr, Jr., A Critical Analysis of the New Uniform Fraudulent Transfer Act, 1985 U. Ill. L. Rev. 527, 529 (emphasis added); see Tabb, supra note 89, at 569.

  107. [107]. See Tabb, supra note 89, at 569 (“As one might expect, debtors rarely announce their fraudulent intentions for the world to hear.”); see also Alces, supra note 94, at 5-33 (“The Statute of 13 Elizabeth was premised on slippery notions of intent to defraud and without elaboration presented often insurmountable evidentiary problems for courts faced with the allegation that a creditor had been prejudiced by a fraudulent disposition.”).

  108. [108]. William Roberts, A Treatise on the Construction of Statutes 13 Eliz. c. 5 and 27 Eliz. c. 4 Relating to Voluntary and Fraudulent Conveyances 520 (2d ed. 1825) (“The common law of England abhors every species of covin and collusion; but [it was] tender of presuming fraud from circumstances ... .”).

  109. [109]. See Douglas G. Baird & Thomas H. Jackson, Fraudulent Conveyance Law and Its Proper Domain, 38 Vand. L. Rev. 829, 830 (1985) (“The difficulty that courts and legislatures have faced for hundreds of years has been one of trying to define what kinds of transactions hinder, delay, or defraud creditors.”).

  110. [110]. Twyne’s Case (1601) 76 Eng. Rep. 809, 810; 3 Co. Rep. 80 b; see also Alces, supra note 94, at 5-33 (noting that by the willingness of the court to look at the totality of the circumstances, as opposed only to the debtor’s manifest intent, Twyne’s Case began “the objectification of fraudulent disposition law”). Although many scholars now acknowledge that Twyne’s Case represents more of a preference payment, as opposed to a fraudulent transfer, it is still regarded as “[t]he foundational fraudulent conveyance case.” Tabb, supra note 89, at 579.

  111. [111]. Twyne’s Case, 76 Eng. Rep. at 810–11.

  112. [112]. Id.

  113. [113]. Id. at 811.

  114. [114]. Id. at 811–12.

  115. [115]. Id.

  116. [116]. Id.

  117. [117]. Id. at 812–14; see also Alces, supra note 94, at 5-21, 5-33 to 5-34 (explaining the significance of Twyne’s Case and introducing the “badges of fraud”).

  118. [118]. These original “badges of fraud” were (1) that the gift was general (meaning that the debtor reserved little to nothing for herself); (2) the debtor retained possession of and used as his own the property allegedly transferred to another party; (3) the transfer was secretive; (4) the transfer was made pending a judgment in favor of a creditor; (5) the transferee held the goods only in trust for the debtor; and (6) the deed claimed that the transfer was bona fide. Tabb, supra note 89, at 570.

  119. [119]. See id.

  120. [120]. Baird & Jackson, supra note 109, at 830.

  121. [121]. See Bump, supra note 82, § 42.

  122. [122]. Id. § 242.

  123. [123]. 1 Moore, supra note 7, at 16–17 (“[B]ecause fraud and deceit abound in these days more than in former times ... all statutes made against fraud should be liberally and beneficially expounded to suppress the fraud.” (alteration in original) (quoting Twyne’s Case, 76 Eng. Rep. at 815–16)).

  124. [124]. See John C. McCoid II, Constructively Fraudulent Conveyances: Transfers for Inadequate Consideration, 62 Tex. L. Rev. 639, 641 n.8 (1983); Douglas G. Baird, One-and-a-Half Badges of Fraud 3 (The Univ. of Chi. Law Sch. Coase-Sandor Inst. for Law & Econ., Working Paper No. 693, 2014), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2475180 (“As the doctrine developed, the badges of fraud ceased to be merely proxies for fraud that was hard to prove and instead covered transactions that, although perhaps not fraudulent, were ones to which creditors would object nevertheless.”). This evolution, from requiring actual intent to presuming intent in some circumstances, occurred primarily in the courts of equity because the courts of law typically required proof of fraud or sufficient badges of fraud to infer intent. See Chesterfield v. Janssen (1750) 26 Eng. Rep. 191, 224.

  125. [125]. See Partridge v. Gopp (1758) 28 Eng. Rep. 647, 648; Herne v. Meeres (1687) 23 Eng. Rep. 591, 591; see also Baird, supra note 124, at 4 (“As fraudulent conveyance law evolved, two badges of fraud gained particular prominence: transfers made while insolvent and transfers for less than reasonably equivalent value. Courts ... . saw no need to look for other signs of mischief. Many suspect transactions share these two badges, and innocent ones rarely do. A constructive fraudulent conveyance is merely an actual intent fraudulent conveyance that has two badges so important that there is no need to make further inquiry.”). But see McCoid, supra note 124, at 656–57 (discussing the development of constructive fraud and suggesting that inadequate consideration alone may not justify an inference of fraud).

  126. [126]. See, e.g., Frank R. Kennedy, Involuntary Fraudulent Transfers, 9 Cardozo L. Rev. 531,
    537–38 (1987).

  127. [127]. Alces, supra note 94, at 1-15; see also Gardner v. Cole, 21 Iowa 205, 209–10 (1866) (“The statute of 13 Elizabeth ... [was] mainly, if not wholly, declaratory of the common law
    ... [and is] in this State, part of the unwritten law.”).

  128. [128]. See, e.g., Boyd & Suydam v. Dunlap, 1 Johns. Ch. 478, 484–85 (N.Y. Ch. 1815); Brice v. Myers, 5 Ohio 121, 121–22 (1831); see also Reade v. Livingston, 3 Johns. Ch. 481, 505–06 (N.Y. Ch. 1818) (“[T]he Court[] [must teach] that the claims of justice are prior to those of affection. The inclination of my mind is strongly in favor of the policy and wisdom of the rule, which absolutely disables a man from preferring, by any arrangement whatever, and with whatever intention, by gifts of his property, his children to his creditors.”); Baird & Jackson, supra note 109, at 831–32 (noting that transfers were deemed constructively fraudulent not because the costs of proving intent were too high, but because the transfers are “inherently objectionable”).

  129. [129]. See, e.g., Reade, 3 Johns Ch. at 505–06 (“Though hard cases may arise in which we should wish the rule to be otherwise ... more good will ensue to families, and to the public at large, by a strict adherence to the rule, than by rendering it subservient to circumstances, or by making it to depend upon a fraudulent intent, which is so difficult to ascertain, and frequently so painful to infer.”); see also Baird & Jackson, supra note 109, at 830–31 (“[A] per se [fraudulent transfer] rule may treat some transactions in which a debtor was not trying to hinder, delay, or defraud his creditors as fraudulent conveyances. The number of cases in which an insolvent debtor gives away something for nothing but is not trying to hinder, delay, or defraud his creditors, however, may be sufficiently small that it is preferable to treat all these cases as fraudulent conveyances.” (emphasis added)).

  130. [130]. See Kennedy, supra note 126, at 539. Some jurisdictions sought to eliminate constructive fraud as a basis for fraudulent transfers through legislation. Id. In others, courts simply refused to recognize constructively fraudulent transfers, explaining that insolvency or inadequate consideration are no more important than any other badges of fraud and only a showing of actual intent will lead to finding a fraudulent transfer. E.g., Jaeger v. Kelley, 52 N.Y. 274, 275 (1873).

  131. [131]. See James Angell McLaughlin, Application of the Uniform Fraudulent Conveyance Act,
    46 Harv. L. Rev. 404, 405–06 (1933).

  132. [132]. Alces, supra note 94, at 1-16.

  133. [133]. Id. at 5-12 to 5-13; see Unif. Fraudulent Conveyance Act, Prefatory Note (Unif. Law Comm’n 1918).

  134. [134]. Unif. Fraudulent Conveyance Act, Prefatory Note. Originally, 26 jurisdictions enacted the UFCA, but updates in the bankruptcy code and the promulgation of a new uniform law led to its replacement in all but a few states. Tabb, supra note 89, at 561 (noting that as of 2013, the UFCA only remains the law in New York and Maryland).

  135. [135]. Unif. Fraudulent Conveyance Act, Prefatory Note.

  136. [136]. See id. § 7 (“Every conveyance made and every obligation incurred with actual intent, as distinguished from intent presumed in law, to hinder, delay, or defraud either present or future creditors, is fraudulent as to both present and future creditors.”).

  137. [137]. Id. § 9.

  138. [138]. Id. § 2(1) (“A person is insolvent when the present fair salable value of his assets is less than the amount that will be required to pay his probable liability on his existing debts as they become absolute and matured.”).

  139. [139]. See id. § 6.

  140. [140]. Id. § 3.

  141. [141]. Id.

  142. [142]. See, e.g., Alces, supra note 94, at 5-65.

  143. [143]. See, e.g., Note, Good Faith and Fraudulent Conveyances, 97 Harv. L. Rev. 495, 505 n.56 (1983).

  144. [144]. Alces, supra note 94, at 5-59 & n.259. Some courts held that a difference between value and price received had to be substantial, stating that “inadequacy of price does not mean an honest difference of opinion as to price, but a consideration so far short of the real value of the property as to startle a correct mind or shock the moral sense.” Zellerbach Paper Co. v. Valley Nat’l Bank, 477 P.2d 550, 555 (Ariz. Ct. App. 1970).

  145. [145]. See An Act to Establish a Uniform System of Bankruptcy Throughout the United States §§ 35, 39, ch. 176, 14 Stat. 517, 534–36 (1867); An Act to Establish a Uniform System of Bankruptcy Throughout the United States §§ 3, 67(e), 70(e), ch. 541, 30 Stat. 544, 546–47, 564–66 (1898) (codified at 11 U.S.C. §§ 21(a)(1), 107(e) (1916)). The provisions regarding fraudulent transfers in the 1898 act were stronger than those in the 1867 act because the 1898 act only looked at the intent and knowledge of the debtor to find fraudulent intent, whereas the older law required the transferee to also know of the debtor’s fraud or insolvency. See Edwin C. Brandenburg, The Law of Bankruptcy 662 (2d ed. 1901).

  146. [146]. See Alces, supra note 94, at 5-13.

  147. [147]. Chandler Act § 67(d), ch. 575, 52 Stat. 840, 844, 877–88 (1938) (codified at 11 U.S.C. § 107 (1940)).

  148. [148]. See 11 U.S.C. §§ 502, 544(b) (2012); see also Barasch & Chesnut, supra note 11, at 926 (“In cases in bankruptcy court, the trustee can bring avoidance proceedings under either the Bankruptcy Code or state fraudulent transfer laws.”).

  149. [149]. Hull, supra note 5, at 264.

  150. [150]. See Steph McEvily, Note, The New Bankruptcy Act: A Revision of Section 67d—The Death of a Dilemma, 7 Hofstra L. Rev. 537, 539 (1979).

  151. [151]. 11 U.S.C. § 548.

  152. [152]. Id. § 548(a)(1)(A).

  153. [153]. Alces, supra note 94, at 5-13.

  154. [154]. 11 U.S.C. § 548(a)(1)(B)(i), (ii)(I). There are three other financially suspect circumstances that, combined with a lack of receiving reasonably equivalent value, can lead to a finding of constructive fraud. See id. § 548(a)(1)(B)(ii)(II)–(IV).

  155. [155]. See Lisa Pendley, Comment, In re BFP: Mortgage Foreclosures and the Bankruptcy Code’s “Reasonably Equivalent Value, 8 DePaul Bus. L.J. 227, 233–34 (1996). Congress did, however, define “value” as “property, or satisfaction or securing of a present or antecedent debt of the debtor.” 11 U.S.C. § 548(d)(2)(A).

  156. [156]. 2 Bankruptcy Reform Act of 1978: A Legislative History 191 (Alan N. Resnick
    & Eugene M. Wypyski eds., 1979).

  157. [157]. See Unif. Fraudulent Transfer Act, Prefatory Note (Unif. Law Comm’n 1984) (“[T]he Bankruptcy Code ... eliminat[ed] good faith on the part of the transferee or obligee as an issue in the determination of whether adequate consideration is given by a transferee or obligee.”).

  158. [158]. See, e.g., 5 Collier on Bankruptcy ¶ 548.05[1][b] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. rev. 1997) (“In a significant change from the ‘fair consideration’ standard, ‘reasonably equivalent value’ does not contain a good faith component.”).

  159. [159]. See, e.g., Marie T. Reilly, A Search for Reason in “Reasonably Equivalent Value” After BFP v. Resolution Trust Corp., 13 Am. Bankr. Inst. L. Rev. 261, 266 (2005) (“Congress may have meant the new term to eliminate the significance of the transferee’s good or bad faith in an action to avoid a transfer under section 548. But, the legislative history contradicts the assertion that Congress meant to expand radically the trustee’s avoiding powers to include transfers to a noncolluding, arms length transferee.” (footnote omitted)).

  160. [160]. See Cooper v. Ashley Commc’ns, Inc. (In re Morris Commc’ns NC, Inc.), 914 F.2d 458, 466 (4th Cir. 1990); see also Reilly, supra note 159, at 267 (“Since 1978, Congress has failed to clarify its intention.”).

  161. [161]. Unif. Fraudulent Transfer Act, Prefatory Note (Unif. Law Comm’n 1984).

  162. [162]. Id.

  163. [163]. Tabb, supra note 89, at 561.

  164. [164]. There have since been amendments proposed and adopted by the Uniform Law Commission in 2014 to rename the UFTA as the Uniform Voidable Transactions Act, among other changes. See Unif. Voidable Transactions Act, Prefatory Note (2014 Amendments) (Unif. Law Comm’n 2014). Besides changing the name, the amendments did not substantially change the UFTA. See id. As many as 20 jurisdictions have adopted the amendments, but because there is not substantive change to the fraudulent transfer sections of the Act and most states still have the UFTA, this Note will only make references to the UFTA. See Voidable Transactions Act Amendments (2014) - Formerly Fraudulent Transfer Act, Unif. Law Comm’n, https://www.uniform
    laws.org/committees/community-home?CommunityKey=64ee1ccc-a3ae-4a5e-a18f-a5ba8206bf49 (last visited March 29, 2019).

  165. [165]. Bump, supra note 82, at 283; see also Melville Madison Bigelow, The Law of Fraudulent Conveyances 78 (1911) (“[A]uthorities are agreed ... . ‘A man should be just before he is generous.’ The courts have proceeded upon this precept more than upon the strict words of the statute; or rather the ‘intent to hinder, delay, or defraud’ of the statute has been construed in the light of the precept.” (emphasis added)).

  166. [166]. See Roberts, supra note 108, at 521.

  167. [167]. “Quae natura videntur honesta esse, temporibus sunt inhonesta.” See id. at 521, translated in 14 Jeremy Taylor, The Whole Works of the Right Rev. Jeremy Taylor 238 (3d ed. 1828).

  168. [168]. See Bigelow, supra note 165, at 1–2 (“When the common conscience would repudiate conduct, apart perhaps from mere breach of contract, there is guilt; it matters not that the offender, whether believing all acts of the kind rightful, or not in fact knowing just what he is doing, may have intended no wrong, and so may have a clear conscience.”); see also Baird
    & Jackson, supra note 109, at 832 (“A birthday gift of cash by an insolvent debtor injures creditors just as much when his intentions are innocent as when they are not, and one can presume creditors would ban them if they could.”).

  169. [169]. Bigelow, supra note 165, at 78; see also Taylor, supra note 167, at 238–39 (noting that power is given to governments to correct the laws in order to address situations that become intolerable due to circumstance or the passage of time).

  170. [170]. The Author’s research revealed that actual fraud was claimed in 41 of 152 cases.
    See infra Appendix.

  171. [171]. See infra Appendix, at rows 1, 8, 12, 23, 28, and 83 for examples.

  172. [172]. See infra Appendix, at row 83.

  173. [173]. See, e.g., infra Appendix, at rows 2 and 9.

  174. [174]. See infra Appendix. This number includes each case in which the number of transfers made less than six months before filing for bankruptcy was at least half the total number of transfers. As the Appendix shows, there are many other cases in which parents paid for tuition payments within six months of filing, but more than half were made outside of the six month time frame. Furthermore, because many complaints did not specify the exact dates when tuition payments were made, this number could be much higher.

  175. [175]. See infra Appendix, at rows 3, 4, 14–16, 18, 25, 30, 31, 34. 40, 48, 49, 59, 71, 101, 102, 112, 141, 143, 148, and 149 for examples. Although the Author has only listed 22 instances in which parents used corporate funds to pay for a child’s tuition, there are many more that are not included in the list, particularly cases when corporate funds were used to pay for minor children’s tuition.

  176. [176]. See infra Appendix, at rows 15, 25, 40, 48, 71, 97, 130, and 152 for examples. Again, there were more that were not included in this Appendix because the tuition payments were for a minor child.

  177. [177]. See Shearer v. Oberdick (In re Oberdick), 490 B.R. 687, 699–70 (Bankr. W.D. Pa. 2013); Sikirica v. Cohen (In re Cohen), No. 07-02517, 2012 WL 5360956, at *3–4 (Bankr. W.D. Pa.
    Oct. 31, 2012), vacated in part and remanded by Cohen v. Sikirica, 487 B.R. 615 (W.D. Pa. 2013); Banner v. Lindsay (In re Lindsay), No. 08-9091, 2010 WL 1780065, at *13 (Bankr. S.D.N.Y.
    May 4, 2010); Davis v. Davenport (In re Davenport), 147 B.R. 172, 183 (Bankr. E.D. Mo. 1992). The fifth case, DeGiacomo v. Sacred Heart Univ., Inc. (In re Palladino), contained an actual fraud claim that was different than traditional actual fraud claims (and will not be discussed at length here) because the trustee alleged that actual fraud should be presumed since the tuition payments were made with funds received through the parents’ Ponzi scheme. DeGiacomo v. Sacred Heart Univ., Inc. (In re Palladino), 556 B.R. 10, 13–15 (Bankr. D. Mass. 2016). The court held that the Ponzi scheme presumption could not apply in the tuition payment context because the transfers were not made in furtherance of the scheme. Id. at 14. The Ponzi scheme presumption is a valid theory that has been applied in other contexts, however. See, e.g., Schneider v. Barnard, 508 B.R. 533, 541, 547 (E.D.N.Y. 2014) (relying on the ponzi scheme presumption to hold that debtor’s transfers were actually fraudulent).

  178. [178]. In re Cohen, 2012 WL 5360956, at *1.

  179. [179]. In re Oberdick, 490 B.R. at 693–94.

  180. [180]. See generally Trizechahn Gateway L.L.C. v. Titus, 930 A.2d 524 (Pa. Super. Ct. 2007) (naming David I. Cohen and David G. Oberdick as codefendants along with their law firm), rev’d in part and remanded, Trizechahn Gateway L.L.C. v. Titus, 976 A.2d 474 (Pa. 2009).

  181. [181]. In re Cohen, 2012 WL 5360956, at *2.

  182. [182]. In re Oberdick, 490 B.R. at 694.

  183. [183]. See In re Cohen, 2012 WL 5360956, at *2, *9; In re Oberdick, 490 B.R. at 694–95, 711.

  184. [184]. See 11 U.S.C. § 522(b)(3)(B) (2012) (“[A]ny interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law ... .”). Because an interest in the debtors’ income was transferred to their wives, the fraudulent transfer cases brought by the trustees actually named the debtors and their wives as defendants.

  185. [185]. See In re Cohen, 2012 WL 5360956, at *4; In re Oberdick, 490 B.R. at 699–700.

  186. [186]. See In re Cohen, 2012 WL 5360956, at *4.

  187. [187]. Id.

  188. [188]. In re Oberdick, 490 B.R. at 700.

  189. [189]. In re Cohen, 2012 WL 5360956, at *14; In re Oberdick, 490 B.R. at 722. In In re Oberdick, however, although the judge did not find that tuition payments for the debtor’s children were actual or constructive fraudulent transfers, the judge held that tuition payments for a son of the debtor’s friend and payments for the debtor’s children to take school trips to Italy were constructively fraudulent. In re Oberdick, 490 B.R. at 712.

  190. [190]. Banner v. Lindsay (In re Lindsay), No. 06-36352, 2010 WL 1780065, at *13 (Bankr. S.D.N.Y. May 4, 2010) (“The Plaintiff would have prevailed [on an actual fraudulent transfer claim] pursuant to these statutes if the burden had been a preponderance of the evidence.”). There has been a split amongst various jurisdictions over whether the burden of proof for actual fraudulent transfers is preponderance of the evidence or clear and convincing evidence. The UVTA has fixed this dilemma by establishing the preponderance of the evidence standard as the appropriate burden of proof for actual fraudulent transfers. Unif. Voidable Transactions Act § 4(c) (Unif. Law Comm’n 2014).

  191. [191]. In re Lindsay, 2010 WL 1780065, at *2. There were additional suspicious transactions such as transferring the title of his family’s house and other assets to be held solely by his wife. Id.

  192. [192]. Id. at *13. The claim of actual fraud was brought under New York’s fraudulent transfer provision which requires clear and convincing evidence. Id. at *1. It is unknown what would happen in this case if a § 548 action would have been brought as well since preponderance of the evidence is generally the actual fraud standard for fraudulent transfers.

  193. [193]. See Bigelow, supra note 165, at 445–46 (noting that in cases that involved naturally innocent conduct, courts historically put strong emphasis on finding a “personal intention to defraud” in order to find actual fraud).

  194. [194]. See id. at 1–2.

  195. [195]. Id.; see also Bump, supra note 82, at 21 (“Every man is presumed to intend the necessary consequence of his act, and if an act necessarily delays, hinders or defrauds creditors, then the law presumes that it is done with a fraudulent intent.”).

  196. [196]. See supra note 190.

  197. [197]. Technically, a trustee must prove that the debtor was insolvent when the transfer was made and that the transfer did not result in reasonably equivalent value. While whether the debtor truly was insolvent at the time of the transfer is in issue in some cases, see, e.g., Roach v. Skidmore Coll. (In re Dunston), 566 B.R. 624, 637–40 (Bankr. S.D. Ga. 2017), it is not an issue in most, and this Note accepts the assumption that trustees only bring claims when it is quite clear that the debtor was insolvent.

  198. [198]. Lisle v. John Wiley & Sons, Inc. (In re Wilkinson), 196 F. App’x 337, 341 (6th Cir. 2006) (citations omitted).

  199. [199]. See DeGiacomo v. Sacred Heart Univ., Inc. (In re Palladino), 556 B.R. 10, 15 (Bankr. D. Mass. 2016).

  200. [200]. E.g., Shearer v. Oberdick (In re Oberdick), 490 B.R. 687, 712 (Bankr. W.D. Pa. 2013). It is important to note that the exact question in In re Oberdick and In re Cohen was not whether parents receive reasonably equivalent value when paying for an adult child’s tuition. See In re Oberdick, 490 B.R. at 711–12; Sikirica v. Cohen (In re Cohen), No. 07-02517-JAD., 2012 WL 5360956, at *9–10 (Bankr. W.D. Pa. Oct. 31, 2012). The question was different because the tuition payments came out of entireties bank accounts owned by the debtors and the debtors’ wives, and Pennsylvannia law says that transfers made to an entireties account are only constructively fraudulent if they are not used on “necessities.” See In re Oberdick, 490 B.R. at 711–12; In re Cohen, 2012 WL 5360956, at *9–10. Thus, the question was whether tuition payments for adult children were sufficiently a necessity to hold that the transfers to the entireties accounts were not constructively fraudulent. See In re Oberdick, 490 B.R. at 711–12; In re Cohen, 2012 WL 5360956, at *9–10. Despite this difference, the analysis and reasoning of the courts in these cases were significantly analagous to the main question at issue here, and the In re Oberick and In re Cohen courts’ reasoning has been cited favorably in some cases that do analyze the reasonably-equivalent-value question at issue in this piece. See, e.g., Eisenberg v. Pa. State Univ. (In re Lewis), 574 B.R. 536, 541 (Bankr. E.D. Pa. 2017) (agreeing with In re Cohen and In re Oberdick, in dicta, that “[a] parent’s payment of a child’s undergraduate college expenses is reasonable and necessary expense for maintenance of the family and for preparing family members for the future”).

  201. [201]. In re Cohen, 2012 WL 5360956, at *10. In an interesting act of line drawing, the court explained that graduate tuition payments were not reasonable and necessary for the maintenance of a family because “children in graduate school are well into adulthood.” Id.

  202. [202]. E.g., In re Oberdick, 490 B.R. at 712.

  203. [203]. See id. at 712; In re Cohen, 2012 WL 5360956, at *10.

  204. [204]. In re Oberdick, 490 B.R. at 712; In re Cohen, 2012 WL 5360956, at *9; see In re Lewis,
    574 B.R. at 541.

  205. [205]. DeGiacomo v. Sacred Heart Univ. (In re Palladino), 556 B.R. 10, 15–16 (Bankr. D. Mass. 2016).

  206. [206]. Id.

  207. [207]. Id.

  208. [208]. Id. (saying that “a financially self-sufficient daughter ... [would be] an economic break to [them]”).

  209. [209]. Id. at 16.

  210. [210]. Id.

  211. [211]. Id.

  212. [212]. Id.

  213. [213]. Id. (emphasis added).

  214. [214]. Boscarino v. Bd. of Trs. of Conn. State Univ. Sys. (In re Knight), No. 15-21646, 2017 WL 4410455, at *3 (Bankr. D. Conn. Sept. 29, 2017) (“The decisions in fact turn on the statutory purpose of conserving the debtor’s estate for the benefit of creditors.” (quoting Rubin v. Mfrs. Hanover Tr. Co., 661 F.2d 979, 992 (2d Cir. 1981))).

  215. [215]. See, e.g., id. at *4; Roach v. Skidmore Coll. (In re Dunston), 566 B.R. 624, 636–37 (Bankr. S.D. Ga. 2017); Gold v. Marquette Univ. (In re Leonard), 454 B.R. 444, 454–59 (Bankr. E.D. Mich. 2011). See generally Chorches v. Catholic Univ. of Am., 16-1964, 2018 WL 3421318
    (D. Conn. July 13, 2018) (holding that parents do not receive reasonably equivalent value for mutliple reasons and discussing prior cases reaching the same outcome).

  216. [216]. See, e.g., Geltzer v. Oberlin Coll. (In re Sterman), 594 B.R. 229, 236 (Bankr. S.D.N.Y. 2018) (“The Court does not question whether the Debtors' decision to send money to or for the benefit of their adult daughters for their college education was economically prudent. But, unfortunately, the economic “benefit” identified by the Defendants does not constitute “value” under the NYDCL or the Bankruptcy Code.”); In re Knight, 2017 WL 4410455, at *5; In re Leonard, 454 B.R. at 454–55.

  217. [217]. E.g., In re Leonard, 454 B.R. at 456–59.

  218. [218]. In re Knight, 2017 WL 4410455, at *6 (“[S]peculation about another’s ability to repay in the future and their willingness to do so, however reasonable, does not amount to a quid pro quo and certainly does not provide economic value to current creditors.”); see In re Leonard,
    454 B.R. at 457–58.

  219. [219]. In re Knight, 2017 WL 4410455, at *6.

  220. [220]. See, e.g., Cox v. Nostaw, Inc. (In re Cent. Ill. Energy Coop.), 521 B.R. 868, 873 (Bankr. C.D. Ill. 2014); Geltzer v. Xaverian High Sch. (In re Akanmu), 502 B.R. 124, 131 (Bankr. E.D.N.Y. 2013).

  221. [221]. E.g., In re Sterman, 594 B.R. at 237; Roach v. Skidmore Coll. (In re Dunston), 566 B.R. 624, 637 (Bankr. S.D. Ga. 2017); Banner v. Lindsay (In re Lindsay), No. 06-36352, 2010 WL 1780065, at *9 (Bankr. S.D.N.Y. May 4, 2010). It is important to note, however, that the real issue for most courts is not whether tuition is for primary/secondary school or college, but rather whether the child for whom tuition is being paid has reached the age of majority. See, e.g., In re Sterman, 594 B.R. at 238–39 (holding that even though college tuition paid for a child after the age of majority does not provide reasonably equivalent value to parents, all college tuition paid for that same child while she was still a minor did provide reasonably equivalent value).

  222. [222]. E.g., Zeddun v. Griswold (In re Wierzbicki), 830 F.3d 683, 689–90 (7th Cir. 2016);
    Coan v. Fleet Credit Card Servs., Inc. (In re Guerrera), 225 B.R. 32, 37 (Bankr. D. Conn. 1998); Christians v. Crystal Evangelical Free Church (In re Young), 152 B.R. 939, 948 (D. Minn. 1993), rev’d on other grounds, 141 F.3d 854 (8th Cir. 1998).

  223. [223]. In re Knight, 2017 WL 4410455, at *3, *5–6; see also In re Dunston, 566 B.R. at 637 (concluding that the debtor did not receive reasonably equivalent value because she “did not discharge or satisfy any legal duty or obligation to [pay her child’s college tuition], nor did she increase her assets in any way that could be used to pay her creditors”).

  224. [224]. In re Knight, 2017 WL 4410455, at *6–7 (“‘[N]on-economic benefits in the form of a release of a possible burden on the marital relationship and the preservation of the family relationship’ cannot confer reasonably equivalent value . . . .” (first alteration in original) (quoting In re Bargfrede, 117 F.3d 1078, 1080 (8th Cir. 1997))).

  225. [225]. Id. (quoting In re Guerrera, 225 B.R. at 37).

  226. [226]. Slobodian v. Pa. State Univ. (In re Fisher), 575 B.R. 640, 647 (Bankr. M.D. Pa. 2017) (emphasis added).

  227. [227]. Id. The court presented this analysis in response to the defendant-university’s motion to dismiss. See id. at 642.

  228. [228]. Id. at 647–48.

  229. [229]. Glenn, supra note 57, at 373.

  230. [230]. DeGiacomo v. Sacred Heart Univ. (In re Palladino), 556 B.R. 10 (Bankr. D. Mass. 2016).

  231. [231]. Barber v. Golden Seed Co., 129 F.3d 382, 387 (7th Cir. 1997) (citation omitted).

  232. [232]. See McClarty v. Univ. Liggett Sch. (In re Karolak), No. 13-04394, 2013 WL 4786861, at *3 (Bankr. E.D. Mich. Sept. 6, 2013) (“It is well settled that reasonably equivalent value can come from one other than the recipient of the payments, a rule which has become known as the indirect benefit rule.” (quoting Lisle v. John Wiley & Sons, Inc. (In re Wilkinson), 196 Fed. App’x 337, 342 (6th Cir. 2006))).

  233. [233]. See, e.g., Hanrahan v. Walterman (In re Walterman Implement, Inc.), No. 07–09043, 2007 WL 2901151, at *3 (Bankr. N.D. Iowa Sept. 28, 2007) (“The requirement of reasonably equivalent value in the Bankruptcy Code is designed to protect unsecured creditors from depletion of the estate. It is distinct from the consideration necessary to form a legally binding contract. Consideration does not qualify as reasonably equivalent value if it does not provide a financial benefit to the debtor and thus to the creditors.” (citations omitted)).

  234. [234]. See, e.g., Warfield v. Byron, 436 F.3d 551, 560 (5th Cir. 2006); Cohen v. Sikirica,
    487 B.R. 615, 626 (W.D. Pa. 2013).

  235. [235]. Warfield, 436 F.3d at 560 (“The primary consideration in analyzing the exchange of value for any transfer is the degree to which the transferor’s net worth is preserved.”).

  236. [236]. See id.; Cohen, 487 B.R. at 626.

  237. [237]. See supra Section IV.A.

  238. [238]. See Bos. Trading Grp., Inc. v. Burnazos, 835 F.2d 1504, 1508 (1st Cir. 1987) (noting that the concern with these transfers is that a debtor prefers that the property go towards benefitting a family member rather than to a creditor who is a stranger or adversary). In this case, Justice Stephen Breyer, while on the First Circuit Court of Appeals, held that transfers for the benefit of family members often are fraudulent transfers. Id.

  239. [239]. Compare Henkel v. Green (In re Green), 268 B.R. 628, 651–52 (Bankr. M.D. Fla. 2001) (holding that the parent’s gift of $50,000 to their daughter to be used for her wedding or however she desired was a constructively fraudulent transfer because it did not provide reasonably equivalent value), with Montoya v. Campos (In re Tarin), 454 B.R. 179, 183–84 (Bankr. D.N.M. 2011) (holding that debtor-parents received reasonably equivalent value from transfers made to pay for their daughter’s wedding because they were able to “listen and dance to the music, eat the food” and otherwise benefit from the wedding that was paid for). The In re Tarin court distinguished its case from In re Green by saying that In re Green was a direct transfer of money for which the debtors received nothing tangible. In re Tarin, 454 B.R. at 182. The court acknowledged that it may have ruled differently if the money for the wedding had first been passed through the daughter as opposed to the wedding service providers directly, although it did not explain how this is different in fact or effect. See id. at 182 n.2.

  240. [240]. See supra Section IV.B.1.

  241. [241]. See Esteb v. Esteb, 244 P. 264, 267 (Wash. 1926) (“Where the college graduate of that day was the exception, to-day such a person may almost be said to be the rule.”). “[A person] who is unable to secure a college education is generally handicapped in pursuing most of the trades or professions of life, for most of those with whom he is required to compete will be possessed of that greater skill and ability which comes from such an education.” Id.

  242. [242]. E.g., Monica Hof Wallace, A Federal Referendum: Extending Child Support for Higher Education, 58 U. Kan. L. Rev. 665, 671 (2010) (quoting Michele M. Benedetto, The Key to Successful Independence: State-Funded Post-Secondary Educational Assistance for Emancipated Foster Youth, 23 St. John’s J. Legal Comment. 383, 392 (2008)).

  243. [243]. See supra Section II.B; see also Wallace, supra note 242, at 670–73 (discussing trends in higher education and the financial difficulty associated with providing higher education for children).

  244. [244]. See Sally F. Goldfarb, Who Pays for the “Boomerang Generation”?: A Legal Perspective on Financial Support for Young Adults, 37 Harv. J.L. & Gender 45, 94 & n.325 (2014) (“Although some commentators have broached the idea of requiring married parents to pay college support, family law statutes and cases have not taken that path.” (footnote omitted)). The federal financial aid system, FAFSA, has a section that asks about “expected family contribution,” but no family is legally obligated to contribute. See How Aid is Calculated, Fed. Student Aid, https://
    studentaid.ed.gov/sa/fafsa/next-steps/how-calculated (last visited Mar. 29, 2019) (“Your [Expected Family Contribution] is not the amount of money your family will have to pay for college, nor is it the amount of federal student aid you will receive.”). Most courts to consider the question have held that the FAFSA section does not sufficiently show that a parent is required to help fund an adult child’s education for purposes of determining reasonably equivalent value, though a split exists on the question. See, e.g., Boscarino v. Bd. of Trs. of Conn. State Univ. Sys. (In re Knight), No. 15-21646, 2017 WL 4410455, at *5 (Bankr. D. Conn. Sept. 29, 2017) (finding that debtor was not obligated to pay for her son’s college tuition). This does not mean, however, that no child is entitled to financial support to obtain a college education; children of divorced parents are often entitled to parental assistance with funding higher education either through child support or separate divorce agreements. See Wallace, supra note 242, at 669–70, 673–83 (discussing the historical and current laws regarding child support payments for higher education for children of divorced parents). This issue has emerged in at least three tuition clawback lawsuits, and thus far judges have upheld parental obligations to pay for college that stem from divorce. See, e.g., infra Appendix, at rows 57, 72, and 111. Some commentators have argued that these types of laws should extend to all children, even those with married parents. See generally Lawrence Chinsky, Note, “Opening the Floodgates”: Adult Children Suing Their Parents for College Support: Has the Law in New Jersey Gone Too Far or Not Far Enough?, 68 Rutgers U. L. Rev. 827 (2016) (making the argument that child support for education should be extended to adult children of married parents in certain circumstances); Scott A. Hall, Note, In the Best Interests of the Child and the State: A Call for Expansion of Iowa’s Postsecondary Education Subsidy Law, 57 Drake L. Rev. 235 (2008) (arguing that Iowa’s child education subsidy for children of divorce should be extended to children of married and un-married parents).

  245. [245]. See supra Section II.B.

  246. [246]. Goldfarb, supra note 244, at 53.

  247. [247]. Johnathan Vespa, The Changing Economics and Demographics of Young Adulthood: 1975–2016, at 1–2, U.S. Census Bureau (2017), https://www.census.gov/content/
    dam/Census/library/publications/2017/demo/p20-579.pdf.

  248. [248]. See Anna Bahney, The Bank of Mom and Dad, N.Y. Times (April 20, 2006), http://
    www.nytimes.com/2006/04/20/fashion/thursdaystyles/the-bank-of-mom-and-dad.html
    (referencing findings of economics professor Bob Schoeni).

  249. [249]. See Goldfarb, supra note 244, at 50–54; see also Aimee Picchi, The New American Adult: Mom and Dad Help Pay the Bills, CBS News (July 27, 2018, 11:12 AM), https://www.cbsnews.com/
    news/the-new-american-adult-mom-and-dad-help-pay-the-bills (describing how parents support their adult children more than ever in our current economy and many young adults are delaying major milestones like marriage, buying a home and financial independence).

  250. [250]. See, e.g., Janvey v. Golf Channel, Inc., 487 S.W.3d 560, 575–76 (Tex. 2016) (“[T]he ‘requirement of economic benefit to the debtor does not demand consideration that replaces the transferred property with money or something else tangible or leviable that can be sold to satisfy the debtor’s creditors’ claims.’” (quoting Pummil v. Hemker (In re Richards and Conover Steel, Co.), 267 B.R. 602, 612 (8th Cir. BAP 2001))); Marine Midland Bank-New York v. Batson, 332 N.Y.S.2d 714, 717 (Sup. Ct. 1972) (“[A] ‘fair consideration’ for a conveyance can be a consumable item which in ordinary use leaves over nothing.”); see also 5 Collier on Bankruptcy ¶ 548.05 [2][a] (applying a creditor’s perspective “does not mean ... that the value received by the debtor must be something on which creditors can levy; particular with respect to valuable services, such as legal or other similar professional services, courts will not factor in a lack of tangible increase in physical assets,” but courts will “discount intangible and transitory assets and rights that have value only to the debtor”).

  251. [251]. Janvey, 487 S.W.3d at 575 (“A construction of the term “value” that would automatically or effectively exclude consideration in the form of consumable goods or services—for example, food, utilities, internet or telephone services, office supplies, and employee compensation or benefits—is simply unsupportable under a plain reading of the statute.”).

  252. [252]. See, e.g., Allard v. Flamingo Hilton (In re Chomakos), 69 F.3d 769, 772 (6th Cir. 1995) (holding that the legal gambling provided reasonably equivalent value because it was a form of an investment and the debtor received entertainment and other intangible values by gambling comparable to dining at a fine restaurant); Bohm v. Dolata (In re Dolata), 306 B.R. 97, 143 (Bankr. W.D. Pa. 2004) (holding that a gambling loss of over $42,500 could not be recovered as a fraudulent transfer because gambling gave the debtors a right to money if the gambling was successful); see also Samson v. U.S. W. Commc’ns, Inc. (In re Grigonis), 208 B.R. 950, 952, 956 (Bankr. D. Mont. 1997) (holding that an insolvent debtor received reasonably equivalent value from paying for psychic services through a 900 telephone service).

  253. [253]. See supra note 252 and accompanying text.

  254. [254]. See supra Part V.

  255. [255]. Alces, supra note 94, at 5-61.

  256. [256]. Samson, 208 B.R. at 956.

  257. [257]. See, e.g., Henkel v. Green (In re Green), 268 B.R. 628, 651–52 (Bankr. M.D. Fla. 2001) (holding that wedding gift of $50,000 was a fraudulent transfer); Scarsdale National Bank & Trust Co. v. Lubin (In re Lubin), 61 B.R. 511, 514 (Bankr. S.D.N.Y. 1986) (finding a fraudulent transfer when “the debtor transferred funds to her daughter to cover the cost of a trip to Europe and to pay her daughter’s automobile loan”).

  258. [258]. See Meir Statman, Yes: Don’t Have Your Children Start Life with Crippling Debt, in Should Parents Pay for Their Children’s College Education?, Wall St. J. (March 16, 2014, 8:35 PM), https://www.wsj.com/articles/should-parents-pay-for-their-childrens-college-education-1394466608.

  259. [259]. Partridge v. Gopp (1758), 28 Eng. Rep. 647, 648 (emphasis added).

  260. [260]. See 11 U.S.C. § 548(a)(1)(B) (2012).

  261. [261]. Boscarino v. Bd. of Trs. of Conn. State Univ. Sys. (In re Knight), No. 15-21646, 2017 WL 4410455, at *3 (Bankr. D. Conn. Sept. 29, 2017) (quoting Zeddun v. Griswold (In re Wierzbicki), 830 F.3d 683, 689–90 (7th Cir. 2016)).

  262. [262]. Id.

  263. [263]. See, e.g., In re Walker, 383 B.R. 830, 838 (Bankr. N.D. Ga. 2008) (“[T]he Court finds that the totality of the Debtors’ financial circumstances indicates that granting relief under Chapter 7 would be an abuse. The Debtors have the income to pay a meaningful dividend to unsecured creditors. The impetus for the filing of their petition was not illness, calamity, or job loss. Instead, it appears to the Court that the Debtors simply reordered their priorities once their two oldest children reached college age... . The Court is not implying that supporting college-age children is not admirable when parents have the means to do so. However, the Court agrees with its learned colleagues that supporting adult children at the expense of unsecured creditors is not permissible.”); In re Hess, No. 07-31689, 2007 WL 3028422, at *3 (Bankr. N.D. Ohio
    Oct. 15, 2007) (“While a parent’s desire to assist a child who is pursuing a college degree is laudable, a debtor is not free to do so at the expense of her unsecured creditors.”); U.S. Tr. for the W. Dist. of Va. v. Harrelson, 323 B.R. 176, 179 (Bankr. W.D. Va. 2005) (finding that debtors’ budget, which included their adult children’s college expenses, was unreasonable because they were under no duty to pay for such expenses); In re Studdard, 159 B.R. 852, 856 (Bankr. E.D. Ark. 1993) (“A parent’s desire to provide a child with ... a college education at the institution of his or her choice is generally laudable, but under these circumstances, the amount of the debtors’ expenditures is excessive. The debtors owe no duty to their children to provide them with nonessential luxuries while the debtors’ unsecured creditors receive no payment on their just claims.”).

  264. [264]. In re Godios, 333 B.R. 644, 647–48 (Bankr. W.D.N.Y. 2005).

  265. [265]. See Stech, supra note 30 (“I’m not happy about these education cases, but there are plenty of folks who can’t afford to send their children to college, and there doesn’t seem to be a constitutional right to send your child to college, as much as some folks would like there to be.” (quoting bankruptcy Judge Ann Nevin)).

  266. [266]. Troxel v. Granville, 530 U.S. 57, 65 (2000). This right includes the right for parents “to direct the upbringing and education of children under their control.” Id. (quoting Pierce v. Soc’y of the Sisters of the Holy Names of Jesus and Mary, 268 U.S. 510, 534–35 (1925)).

  267. [267]. See Stephen J. Rose, Mismatch: How Many Workers with a Bachelor’s Degree Are Overqualified for Their Jobs?, Urban Institute 2 (2017), https://www.urban.org/sites/
    default/files/publication/87951/college_mismatch_final_2.pdf (finding that 25% of college graduates are over-qualified for their post-graduation jobs). See generally Jaison R. Abel et al.,
    Are Recent College Graduates Finding Good Jobs?, 20 Current Issues in Econs. & Fin. 1 (2014).

  268. [268]. See Peter Califano, A Surprising Defendant in Bankruptcy Avoidance Litigation, 12 Com. L. Bull. 20, 20 (1997) (noting that the first successful tithing clawback lawsuit occurred in 1992 and that it evolved into a trend as other bankruptcy courts followed). See generally Robert J. Bein, Comment, Robbing Peter to Pay Paul: Charitable Donations as Fraudulent Transfers, 100 Dick. L. Rev. 103 (1995) (discussing clawback lawsuits involving charitable contributions and tithing); Todd J. Zywicki, Rewrite the Bankruptcy Laws, Not the Scriptures: Protecting a Bankruptcy Debtor’s Right to Tithe, 1998 Wis. L. Rev. 1223 (discussing tithing clawback lawsuits and suggesting amendments to the bankruptcy code).

  269. [269]. See Zywicki, supra note 268, at 1230–33, 1247 (introducing the theory behind tithing clawback lawsuits and explaining the difficulties they pose for debtors and religious institutions).

  270. [270]. See id. at 1269–76.

  271. [271]. See supra Sections II.B, V.B.1.

  272. [272]. See The Happy State of College Graduates, CollegeStats.org, https://collegestats.org/
    2013/05/the-happy-state-of-college-graduates (last visited Mar. 29, 2019) (summarizing multiple reports that found that those with college degrees often live longer and are less likely to get divorced than those with only a high school diploma).

  273. [273]. The Declaration of Independence para. 2 (U.S. 1776); see, e.g., Bd. of Regents of State Colls. v. Roth, 408 U.S. 564, 572 (1972) (explaining that the concept of “liberty” protected by the 14th Amendment includes the right “to engage in any of the common occupations of life, [and] to acquire useful knowledge”); Letter from Thomas Jefferson to George Wythe (Aug. 13, 1786), https://founders.archives.gov/documents/Jefferson/01-10-02-0162 (“I think by far the most important bill in our whole code is that for the diffusion of knowlege among the people. No other sure foundation can be devised for the preservation of freedom, and happiness.”);
    see also Phillip Moeller, Why Learning Leads to Happiness, U.S. News & World Rep. (Apr. 10, 2012), https://money.usnews.com/money/personal-finance/articles/2012/04/10/why-learning-leads-to-happiness (“Education has been widely documented by researchers as the single variable tied most directly to improved health and longevity. And when people are intensely engaged in doing and learning new things, their well-being and happiness can blossom.”); Dan Rockmore
    & Michael Evans, The Right to Pursue Happiness is the Right to Pursue Education, HuffPost (Jan. 23, 2017, 12:09 PM), https://www.huffingtonpost.com/entry/the-right-to-pursue-happiness-is-the-right-to-pursue_us_5886337ee4b08f5134b62314 (“The pursuit of happiness and the pursuit of education are no longer separate issues in America... . [P]retty much any measure of happiness and economic success ... between college and high school graduates continues to grow.”).

  274. [274]. Boscarino v. Bd. of Trs. of Conn. State Univ. Sys. (In re Knight), No. 15-21646, 2017 WL 4410455, at *5 (Bankr. D. Conn. Sept. 29, 2017); see also Mangan v. Univ. of Conn. (In re Hamadi), 597 B.R. 67, 69 n.1 (Bankr. D. Conn. 2019) (“This is not the first time this Court has seen a trustee attempt to recover tuition payments a debtor parent made to a university on behalf of adult children. . . . Absent a legislative fix, the Courts will continue to wrestle with the conundrums presented by these types of cases.”).

  275. [275]. Although it may seem complicated to create three categories with different conditions for constructively fraudulent tuition payments instead of the simple dichotomy that currently exists, the multiple categories allow for greater accuracy in targeting only those tuition payments that were most likely to have been made with fraudulent intent. Furthermore, setting different conditions for pre-bankruptcy actions that occur in different time frames is not uncommon in the Bankruptcy Code. See, e.g., 11 U.S.C. § 541(b)(5)–(6) (2012) (allowing only $6,425 of certain education contributions to not be counted as part of the bankruptcy estate when made one to two years before bankruptcy but not designating any cap for contributions made more than two years before bankruptcy).

  276. [276]. Although most of the current lawsuits focus on tuition payments made by insolvent parents for their children, the Author felt it was appropriate to extend this provision to “relatives” of the debtor, not just the debtor’s children. Under the Bankruptcy Code, relative is defined as an “individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree.” 11 U.S.C. § 101(45). This extension would be to prevent future litigation if an insolvent debtor desires to pay tuition expenses for a grandchild, great-grandchild, or niece or nephew. Of the cases evaluated, there are at least two in which the trustee sued a grandparent for providing tuition for a minor child. See Bailey v. Brunswick Sch., Inc. (In re Crow), No. 18-02004 (Bankr. D. Wyo. Feb. 5, 2018); Moratzka v. Taylor (In re Taylor), No. 13-04341 (Bankr. D. Minn. Dec. 20, 2013).

  277. [277]. See supra Sections II.B, V.B.1.

  278. [278]. See supra Sections II.B, V.B.1.

  279. [279]. Although the one-year time frame may seem arbitrary, it is based on common fact patterns of the cases in the Appendix: Many parents stopped making tuition payments about one year before bankruptcy. Furthermore, the one-year time frame is consistent with time frames contained in other parts of the Bankruptcy Code that address education-related policy considerations. See 11 U.S.C. § 541(b)(5) (declaring that funds placed in a Coverdell education savings account more than 365 days before the bankruptcy petition are not included among the property of the bankruptcy estate available to creditors); id. § 541(b)(6) (declaring that contributions to a 529 education plan or funds used to buy a tuition credit at least 365 days before the debtor filed for bankruptcy are not included as property within the bankruptcy estate and are thus not available to creditors).

  280. [280]. See, e.g., 11 U.S.C. § 541(b)(5)–(6) (declaring that “funds placed in an education individual retirement account,” tuition credits, or contributions to a 529 savings plan for the benefit of a child or grandchild are not included among the property of the bankruptcy estate and thus are unavaiable to creditors in bankruptcy); id. § 707(b)(2)(A)(ii)(IV) (making education expenses for dependent minor children a possible allowed expense when calculating the Bankruptcy Code’s means test).

  281. [281]. The amendment’s phrase regarding consistency would be left to the courts to interpret. It should not mean that a debtor would have to pay for the same amount of tuition each semester or even every semester during that time frame. To determine consistency, this Note recommends a two-prong test based on consistency in (1) the timing and number of tuition payments made, and (2) the amount of tuition paid. For example, there must be enough evidence to show that the debtor has frequently helped his or her relative for at least two years before the debtor filed for bankruptcy. More payments being made as bankruptcy approaches may suggest an intent to deprive creditors. If a debtor has made consistent payments over that span, the court would next look to the amounts being paid. Evidence showing that the debtor began making larger contributions to their relative’s tuition as bankruptcy approached than they had commonly done before would weigh in favor of finding that the debtor was not consistent in their payments. The increased contribution amount may suggest that the debtor began contributing more towards tuition knowing that bankruptcy was approaching, and thus is suggestive of actual fraudulent intent. The importance of consistency in determining the presence of fraudulent intent can be seen in the cases discussed supra Section IV.A.

  282. [282]. See supra Section IV.A.

  283. [283]. Although this amendment would prevent bankruptcy trustees from using state law to claw back tuition payments in bankruptcy, a creditor could still use state law to potentially do so in circumstances unrelated to bankruptcy.

  284. [284]. As the cases in the Appendix show, trustees very rarely seek to claw back the tuition payments from the students for whom they are paid. Because the students are at in school or at most only a couple of years out of college, they usually have little to no funds to pay to the bankruptcy estate. See supre note 32. Furthermore, suing the debtor’s child does not sit well with most in society and causes much stress to the families involved. See supra notes 36, 265 and accompanying text. In some cases where the student has been held responsible for giving back the value of the tuition money, the parents themselves (or other family members) usually end up finding a way pay the estate. See infra Appendix, at rows 7, 12, 33, 48, 83, and 131. For these reasons, remedies for universities are the main concern.

  285. [285]. By directly, I mean that the parent by check or otherwise pays the tuition directly to the school. If an insolvent parent just gives money to the student to be used for college, the bankruptcy trustee has a claim against the child, but the university has a strong defense as a secondary transferee who took for value and in good faith. See 11 U.S.C. § 550(b)(1). This good faith defense is a potential solution to protect universities if parents who pay for tution are forced to deposit into a university-run but student-controlled account. See Structured Finance Protects Tuition Payments from Fraudulent Transfer Suits, Am. Bankr. Inst.: Rochelle’s Daily Wire (April 5, 2018), https://www.abi.org/newsroom/daily-wire/structured-finance-protects-tuition-payments-from-fraudulent-transfer-suits (discussing a case that held that structuring tuition payment systems to pass money through students rather than directly to universities allows universities to assert good faith defense). However, it is still unclear if that structure will always fall into the realm § 550(b)(1). Tuition Payments by Insolvent Parents (Likely) Constitute Fraudulent Transfers, Am. Bankr. Inst.: Rochelle’s Daily Wire (Dec. 3, 2018), https://www.abi.org/news
    room/daily-wire/tuition-payments-by-insolvent-parents-likely-constitute-fraudulent-transfers (discussing how there are many questions about passing tuition through students first and that tuition payments by insolvent parents are likely fraudulent transers). Furthermore, restructuring a payment system likely requires much more work and cost on the university’s part than requiring parents to sign a contract.

  286. [286]. Cf. How to Minimize Bankruptcy Risks In Settlement Agreements, Holland & Hart (Aug. 15, 2002, 12:00 AM), https://www.hollandhart.com/how-to-minimize-bankruptcy-risks-in-settlement-agreements (discussing potential consequences for plaintiffs when a defendant’s bankruptcy follows a settlement agreement and some contractual remedies plaintiffs can seek to protect their settlement). One key difference, however, is that contracts regarding tuition are needed to create a potential claim when they end up breached. Settlement agreements, on the other hand, are contractual agreements that resolve some pre-existing claim.

  287. [287]. See 11 U.S.C. § 502(h) (“A claim arising from the recovery of property under section 522, 550, or 553 of this title shall be determined, and shall be allowed under subsection (a), (b), or (c) of this section, or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition.”).

  288. [288]. Comm’ns Workers of Am., Local No. 11500 v. Akridge (In re Akridge), 71 B.R. 151, 154 (Bankr. S.D. Cal. 1987), aff’d and remanded, 89 B.R. 66 (B.A.P. 9th Cir. 1988) (“Generally, debts stemming from breaches of contract are not excepted from discharge.”).

  289. [289]. See Protecting All College Tuition Act of 2015, H.R. 2267, 114th Cong. (2015).

  290. [290]. See id.; Katy Stech, Bill Proposes Ban on Tuition Clawbacks in Bankruptcy, Wall St. J.: Bankr. Beat (May 12, 2015, 3:29 PM), https://blogs.wsj.com/bankruptcy/2015/05/12/bill-proposes-ban-on-tuition-clawbacks-in-bankruptcy.

  291. [291]. See, e.g., Conn. Gen. Stat. Ann. § 52-552i(f) (West Supp. 2018). It is important to remember that even though a state may find one of these as an appropriate solution, it will only prevent a bankruptcy trustee from recovering payments that typically could be avoided under
    § 544; such state-level amendments do nothing to affect a trustee’s ability to recover under § 548.

  292. [292]. Andrew Mackenzie, Note, The Tuition “Claw Back” Phenomenon: Reasonably Equivalent Value and Parental Tuition Payments, 2016 Colum. Bus. L. Rev. 924, 950.

  293. [293]. See Jenna C. MacDonald, Note, Out of Reach: Protecting Parental Contributions to Higher Education from Clawback in Bankruptcy, 34 Emory Bankr. Dev. J. 243, 273–76 (2017).

  294. [294]. Id. at 275–76.

*

J.D. Candidate, The University of Iowa College of Law, 2019; B.S., Brigham Young University, 2016.


I would like to thank Anne and Jense for their constant and irreplaceable love and patience. They support and motivate me every day. I would also like to thank Professor Patrick Bauer for his priceless insight and suggestions and his willingness to help me navigate the deep waters of bankruptcy. Lastly, I express my gratitude to the Iowa Law Review board for Volume 104. It has been a pleasure to work with you as a fellow board member and writer.