Dirt-For-Debt Transfer Law and Legal Definition

A dirt-for-debt transfer is a transaction in which a bankrupt debtor satisfies all or part of a secured debt by transferring the collateral to the creditor. It is a bankruptcy term.

The following is an example of a case law referring to the term:

A dirt for debt transfer, under 11 U.S.C.S. § 1129(b)(2)(A)(iii), requires the debtor to transfer to a secured creditor the asset securing the original loan obligation. Conceivably, the transfer may be either a full transfer or a partial transfer of the collateral. When a debtor proposes a partial transfer of collateral pursuant to a plan of reorganization, it is essential for the bankruptcy court to estimate the value of the "dirt" in order to determine how much of the collateral will ultimately be transferred to the creditor in satisfaction of the debt. [United States ex rel. Farmers Home Admin. v. Arnold & Baker Farms (In re Arnold & Baker Farms), 177 B.R. 648 (Bankr. Fed. App. 1994)].