PRE-BANKRUPTCY TRANSFERS (FRAUDULENT TRANSFERS)

Debtors often wonder if they can transfer property (such as homes or vehicles) out of their names and into the names of family members or friends in order to avoid losing the property in bankruptcy.  This is called a “fraudulent transfer,” and is not allowed for obvious reasons.  In the context of a bankruptcy a fraudulent transfer is any transfer of property or any transfer of an interest in any property made within TWO years of filing the bankruptcy that was made EITHER:

With an intent to hinder, defraud or delay the collection efforts of the debtor’s creditors;

Example: The debtor transfers all of the debtor’s property out of his or her name personally and into the name of a newly formed shell corporation in order to thwart the collection efforts of creditors.

OR, If the transfer was made for value that was less than “reasonably equivalent” to the value          of the property that was transferred.

Example: A Debtor sells a $10,000 car to his mother for $500.

The trustee has the right to undo these types of transfers.  For instance with the car example, the trustee could go after the mother and legally obtain possession of the car.  Generally, if this was done, the trustee would pay $500 to the mother.  If the mother had sold the car, the trustee could sue the mother for the value she was given or $10,000.  Under the Bankruptcy Code, trustees can go back two years for any of these types of transfers.  However, most states have separate state laws that may allow the trustee to go back further in time to deal with this type of transfer.  For example, in Utah, state law allows trustees to go back four years.  A Utah bankruptcy attorney can assist you in understating fraudulent transfers.

A debtor is required to list all of these types of transfers on the bankruptcy schedules that are filed with the Court.  If the debtor fails to list these types of transfers, the debtor could have his or her bankruptcy discharge denied or revoked and could even face bankruptcy fraud criminal charges.

 

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