By Ryan C. Wood
Like many answers to questions this answer depends upon the circumstances. What we are talking about here are transfers that might be able to be avoided or undone by the trustee assigned to your case pursuant to Section 548 of the Bankruptcy Code (Fraudulent Transfers and Obligations). This section of the Bankruptcy Code allows trustee’s to avoid or undo transfers of property up to two years before the bankruptcy case is filed. Below are the requirements to avoid or undo a transfer and this article focuses on the third requirement below, not receiving reasonable equivalent value for the property transferred.
A bankruptcy trustee must prove that:
1. The transfer involved property of the debtor;
2. The transfer was made within two years of the bankruptcy filing;
3. The bankruptcy filer did not receive reasonable equivalent value for the property transferred; and
4. The bankruptcy filer was insolvent, made insolvent by the transaction, operating or about to operate without
sufficient capital or unable to pay debts as they become due. (See Spear v. Global Forest Prods. (In re
Heddings Lumber & Bldg. Supply, Inc.) 228 B.R. 727, 729 (9th Circuit BAP 1998)
In Hass v. Pringle, the bankruptcy filer Mr. Raymond Keith Pringle transferred his house to his longtime girlfriend for not value. He did not sell the house to her for anything, but merely transferred the unencumbered title to his girlfriend. Mr. Pringle and her girlfriend gave some conflicting testimony, but ultimately they claim the house was transferred to the girlfriend in exchange for her taking care of Mr. Pringle and Mr. Pringle be able to live in the house for the rest of his live, he pay for the property taxes and upkeep of the property. Mr. Pringle is trying to argue that he did receive reasonable equivalent value for transferring his house to his girlfriend. Mr. Pringle also testified that at the time of the transfer he was being sued by a person for $100,000 and Mr. Pringle thought it would be better if the house were not in his name any longer. They probably received advice from their bankruptcy lawyer regarding value.
In Pringle the issues is whether Mr. Pringle received equivalent value. While the Bankruptcy Code does not define what reasonable equivalent value is the 9th Circuit and other courts have said you receive reasonable equivalent value if you got what you gave. The question is whether or not the transfer depleted assets or reduced assets of the bankruptcy estate.
There are three issues to address when a bankruptcy attorneys evaluates reasonable equivalent value: (1) whether value was given; (2) if value was given, whether it was given in exchange for the transfer; and (3) whether what was transferred was reasonably equivalent to what was received. See Meeks v. Don Howard Charitable Remainder Trust (In re Southern Healthcare of Arkansas, Inc.) 309 B.R. 314, 319 (8th Cir. BAP 2004). The economic benefit must be real and quantifiable. The 9th Circuit BAP held that reasonable equivalent value does not include an unperformed promise to provide support to someone in the future. Mr. Pringle’s house was worth $35,000 so Mr. Pringle should have received $35,000 in reasonable equivalent value from his girlfriend he transferred the house to. The bankruptcy court held that Mr. Pringle did not receive reasonable equivalent value based upon the facts represented and the 9th Circuit is reviewing the holding for clear error. The 9th Circuit BAP analyzed the value of the girlfriend’s care of Mr. Pringle and whether she would ever perform these duties in the future.
