Wadsworth v. The Word of Life Christian Center (In re McGough)
- Summarized by Andrew Johnson , Onsager | Fletcher | Johnson | Palmer LLC
- 12 years 9 months ago
- Citation:
- Tenth Circuit Bankruptcy Appellate Panel (the "10th Cir. BAP"), Case No. 11-038
- Tag(s):
-
- Ruling:
- The "safe harbor" for charitable contributions in 11 U.S.C. 548(a)(2)(A) protects transfers up to an aggregate amount equal to 15% of a debtor's annual gross income. As a result, for a constructive fraudulent conveyance claim against a charitable organization, a trustee may recover only the amount donated that exceeds the 15% cap. Accordingly, the 10th Cir. BAP affirmed the bankruptcy court's order granting summary judgment in part to the trustee.
As a matter of statutory construction, the 10th Cir. BAP determined that the "safe harbor" provision in 11 U.S.C. 548(a)(2)(A) was ambiguous. The 10th Cir. BAP reasoned that permitting recovery on only the amount above the 15% cap is consistent with the exclusion of charitable contributions from disposable income in 11 U.S.C. 1325(b)(2)(A)(ii). On factual grounds, the 10th Cir. BAP distinguished Murray v. La. State Univ. Found. (In re Zohdi), 234 B.R. 371 (Bankr. M.D. La. 1999), which held a single transfer that exceeds the 15% cap may be avoided in its entirety.
- Procedural context:
- The chapter 7 panel trustee commenced an adversary proceeding to recover allegedly fraudulent transfers. Trustee asserted claims for actual and constructive fraudulent transfers under the Bankruptcy Code and Colorado's version of the Uniform Fraudulent Transfer Act against The Word of Life Christian Center ("Defendant"). Trustee and Defendant filed cross motions for summary judgment on the constructive fraudulent conveyance claims with respect to the application of the "safe harbor" provision of 11 U.S.C. 548(a)(2)(A).
The bankruptcy court granted in part the trustee's motion for summary judgment, holding that 1) social security benefits are not included in the determination of the Debtors’ “gross annual income;” 2) charitable donations are aggregated annually in determining whether they exceed 15% of annual income; and 3) only that portion of the aggregated transfers that exceeds the 15% threshold may be avoided and recovered.
The 10th Cir. BAP reached only third issue in its opinion.
- Facts:
- Debtors filed for bankruptcy on December 31, 2009. Debtors' total income for 2008 was $6,800, excluding social security benefits, and Debtors donated a total of $3,478 to Defendant in 2008. Debtors' total income for 2009 was $7,487, excluding social security benefits, and Debtors donated a total of $1,280 to Defendant in 2009. Thus, without social security income, 15% of the Debtors’ gross annual income is $1,020 for 2008, and $1,123.05 for 2009, and the Debtors’ total contributions to Defendant exceeded these threshold amounts by $2,458 in 2008, and by $156.95 in 2009.
- Judge(s):
- Michael, Thurman and Karlin
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