With increasing frequency, Chapter 7 trustees are looking to insolvent parents as well as colleges and universities to avoid and recover for estate creditors payments made by insolvent debtors for the benefit of the debtors' dependents. These cases are premised on the theory that the tuition payments being made by insolvent parents for the benefit of their children are avoidable as constructively fraudulent transfers because the parents do not receive reasonably equivalent value in exchange for the payment of such tuition. Courts are divided as to whether the payment of a child's tuition provides reasonably equivalent value to the insolvent parents.
“An investment in knowledge always pays the best interest.” Benjamin Franklin, The Way to Wealth: Ben Franklin on Money and Success (1758).
For parents paying their adult child's college education costs, however, this investment may not be worth (to them) the cost of tuition — at least according to some bankruptcy courts.
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