When is a Transfer Voidable in a Bankruptcy Case?

In the course of a bankruptcy case, a trustee will be appointed to oversee the administration of one’s estate, which will facilitate an equitable transfer of assets to creditors. However, in some cases, individuals may attempt to transfer property to a relative or friend, in order to prevent the trustee of the estate from accessing these assets to turn over to creditors. If these actions are taken during the filing of Chapter 7 with the intent to defraud the trustee or creditors, this is known as a fraudulent bankruptcy transfer and your bankruptcy may be dismissed.

How to Avoid Fraudulent Bankruptcy Transfer Actions

The courts commonly consider two types of fraudulent bankruptcy transfer, which as known as fraudulent conveyances, these include active fraud with intent to defraud one’s creditors, and the other form, which is known as constructive fraud. Constructive fraud fails to show actual intent to defraud the trustee and creditors, however, is an exchange made for grossly inequitable value, which prevents further repayment of debts. The transfer itself must somehow inhibit a debtor from repaying their own debts. Attempts to transfer property to a relative, for little or no compensation, could easily be viewed as a constructive fraud during or before bankruptcy. Timing of the transfers are also essential to determining whether or not the transfer was relevant to the bankruptcy proceedings and if they are even relevant with regards to creditors collecting reimbursement for their losses.

What Happens if Fraudulent Conveyance Occurs during Filing Chapter 7?

In the event a given transfer is found to be fraudulent, the court’s bankruptcy trustee will begin action to recover the transferred assets, as well as provide creditors access to make claims on these assets. There are also grounds for the bankruptcy to be dismissed if the actions are found fraudulent. However, there are legal actions available to protect one’s assets with the assistance of an attorney.

Talk to a Lawyer First

An attorney experienced with bankruptcy cases can assist clients in protecting their rights to transfer assets in numerous ways. For starters, the law prohibits the return of assets acquired by a bona fide purchaser, or an individual who acquired the assets in good faith, as well as for assets that have been improved upon by the purchaser or transferee. These items and others are all well known to bankruptcy attorneys, who can assist with your case. If you are thinking about filing chapter 7, you should talk to a bankruptcy lawyer BEFORE you make any decisions or transfer any property.

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