Case Summary:
Chapter 7 trustee sought to recover $50,000 “flat fee” paid to law firm to represent debtors in potential bankruptcy adversary proceeding. The Trustee alleged that payment of the fee constituted a fraudulent transfer as the Debtors did not receive “reasonably equivalent value” at the time the transfer was made (i.e., prior to the bankruptcy filing). The Bankruptcy Court ruled that the flat fee was not property of the estate at the time of filing. However, all fees paid to attorneys in connection with a bankruptcy case (or a related adversary case) remain subject to review by the Bankruptcy Court. Payment of the fee constituted a pre-petition transfer of the Debtors’ property, even though the funds were paid directly to the law firm as part of a settlement with a third-party insurance company. The promise of future representation constituted a legally binding obligation which had value, even though there was no certainty that an adversary proceeding would be filed. Under the facts of the case, at the time of the transfer the Debtor obtained rights to representation which were roughly worth about the amount they paid. The transfer could not be avoided, and judgment was entered for the Defendant.

Statute/Rule References:
11 U.S.C. § 548 -- Fraudulent Conveyance

Key Terms:
Fraudulent Conveyance