Fraudulent transfers

Some transfers may be considered fraudulent. If the trustee suspects that the debtor (you) attempted to conceal assets from creditors, or to delay the proceeding by transferring property to another, the trustee may pursue a fraudulent conveyance action. If the debtor transfers property between 90 days to two years of filing in an effort to conceal the asset, it may be considered fraudulent. This also pertains to employment contracts, even if the company was solvent at the time of the contract. A fraudulent conveyance is also one in which a creditor obtains an asset from the debtor without fair consideration. For example:

A debtor collected coins for many years and had a very valuable collection. He did not want to give the collection to the trustee, who would sell it and disburse the money among creditors, so he sold it to his brother-in-law for $25 saying, “I’ll give you the $25 back when the bankruptcy is over and you can give me my coin collection back.” Since the collection was worth $2,500, $25 was not fair consideration. The sale would be considered fraudulent and subject to avoidance.

If assets were transferred to a self-settled trust, or similar device, within 10 years of filing and the trustee determines that the assets were transferred to deceive creditors, the trustee may void that transaction. However, the trustee must establish that the assets were transferred to avoid paying a claim rather than to protect assets in general.

Uniform Fraudulent Transfer Act

Questions of whether particular transfers are or are not fraudulent transfers represent some of the most important questions in asset protection planning. One section of the Uniform Fraudulent Transfer Act provides that a creditor may effectively set aside a conveyance against anyone, except for a good faith purchaser or a party claiming under such a purchaser.