Legal Definitions - Durrett rule

The Durrett Rule is a principle in bankruptcy law that states that a transfer of property in exchange for less than 70% of its value should be considered a preferential transfer and invalidated. This rule was established in the case of Durrett v. Washington Nat'l Ins. Co. in 1980 and is now codified in 11 USCA § 548.

For example, if a debtor sells a piece of property worth $100,000 to a friend for only $50,000 shortly before filing for bankruptcy, this transfer may be considered a preferential transfer under the Durrett Rule and could be invalidated by the bankruptcy court.

However, the Durrett Rule has been largely overruled by the U.S. Supreme Court, at least in the context of mortgage foreclosure sales. The Court has held that the price received at a regularly conducted, noncollusive sale represents a reasonably equivalent value of the property, even if it is less than the property's fair market value. This means that foreclosure sales are generally not subject to the Durrett Rule.