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Creditors Are Unable To Directly Assert Claims For Breach Of Fiduciary Duty Or Fraudulent Transfer Against Another Creditor When The Debtor Is In Bankruptcy, Anthony Norris

Bankruptcy Research Library

(Excerpt)

In order to effectuate the efficient resolution of bankruptcy proceedings, courts have followed the public policy of reducing the number of suits that are ancillary to a bankruptcy case. Courts have achieved this goal by limiting those that have standing once a bankruptcy case is initiated. Thus, courts will appoint a trustee who alone has standing to handle the estate of the debtor.

Typically, the issue of standing will be straightforward when a creditor sues a debtor. However, the question becomes more complicated when a creditor sues another creditor, where their only connection is the debtor.

This memorandum focuses …

Tuition As A Fraudulent Transfer, David G. Carlson

Articles

Bankruptcy trustees are suing universities because the insolvent parent of an adult student has written a tuition check while insolvent. The theory is that the university is the initial transferee of a fraudulent transfer that has provided benefit to the student but not to the parent debtor. This article claims that the university is never the initial transferee of tuition dollars. Rather, the student is. Where the university has no knowledge of parent insolvency, the university can count educating the student as a good faith transfer for value, thus immunizing the university from liability. The unpleasant side effect is that …

Giving Back A Fraudulent Transfer: A Defense To Liability?, David G. Carlson

Articles

In Whitlock v. Lowe (In re Deberry) (5th Cir. 2019), the Fifth Circuit court of appeals found it obvious that if a transferee gives back fraudulently transferred funds (which the debtor then dissipates), the transferee has a complete defense to liability to the transferor’s bankruptcy trustee. This puts the Fifth Circuit at odds with the Sixth and Seventh Circuits, where the prepetition give-back counted as no defense. This article concludes that a more nuanced position should mediate between these extremes, based on an “innocent donee” defense retrieved from Nineteenth Century precedent. The article emphasizes that if bad faith transferees for …