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Aaron J. Staudinger, left, and Amy Zuccarello, right, with Sullivan & Worcester in Boston. Aaron J. Staudinger, left, and Amy Zuccarello, right, with Sullivan & Worcester in Boston.

1st-Circuit-Column-BugIn a striking blow to colleges and universities across the country, on Nov. 12, 2019, the First Circuit Court of Appeals reversed a decision by the United States Bankruptcy Court for the District of Massachusetts, DeGiacomo v. Sacred Heart Univ. (In re Palladino), 556 B.R. 10 (Bankr. D. Mass. 2016), and held that parents did not receive “reasonably equivalent value” in exchange for the college tuition payments they made to educate their child. DeGiacomo v. Sacred Heart Univ. (In re Palladino), 942 F.3d 55 (1st Cir. 2019). Reasoning that because parents have no obligation to provide for a child’s educational costs once the child reaches legal adulthood, parents receive no benefit from the payment of tuition and associated costs and thus, parents receive no “value” for the payments as the term is used in Section 548 of the Bankruptcy Code.  As a result, the Court of Appeals concluded that the payments in question were voidable by the trustee as constructive fraudulent transfers under 11 U.S.C. § 548(a)(1)(B). This long-awaited decision represents the first instance in which a Federal Court of Appeals addressed the issue of whether a debtor-parent receives “reasonably equivalent value” for the payment of a child’s tuition once the child has attained the age of 18.

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