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When is a transfer considered “fraudulent” in bankruptcy?

Posted by Elyssa Harvey | Jul 14, 2021 | 0 Comments

Have you thought of transferring the vehicle that you have had for years to a child, sibling, or parent, in order to help them get to or from work? Have you ever thought about taking the money in your savings account and putting it all into an IRA? Depending on when you are considering filing bankruptcy, these transfers could be deemed fraudulent under the U.S. Bankruptcy Code.

A fraudulent transfer in bankruptcy is a transfer of any interest in property, made within two years (under the federal code) or four years (under the Florida statutes). The transfer could be to a friend, family member, business associate, or a complete stranger. It does not matter who the transfer was made to in determining whether it was fraudulent. It could even be a transfer of one asset to another. Other factors that go into determining whether a transfer is fraudulent are (a) whether the transfer was made in order to hinder creditors possible interest in that asset, (b) whether the value received for the asset was less than the fair market value of the asset at the time of the transfer, and (c) whether you were insolvent at the time of the transfer. Being insolvent means that the value of your total assets is less than the total of what you owe your creditors.    

These transfers could be in the form of a physical asset, like a vehicle or real property. They could also be transfers of cash or intangible assets, like stocks or bonds. For example, your sister needs a vehicle to get to and from work, and you have a vehicle that you do not use as often. It is worth $10,000 fair market value, but you decide to sell it to her for $1,000. You have multiple credit cards and personal loans, and no other assets with value. This is a fraudulent transfer. Another example is that you sold a rental property and received net proceeds of $20,000. You take $10,000 of the proceeds and give it to your son to help him open a business in his name. Again, your liabilities are higher than the value of assets. This is also a fraudulent transfer. As a final example, you have a lawsuit pending and you know the $15,000 in your savings account is reachable by creditors if they receive a judgment. You take this money and move it into an IRA that you know is protected from creditors. This is a fraudulent transfer.

If a fraudulent transfer was made within the two, or four, years prior to filing your bankruptcy, the trustee of the bankruptcy court can void that transfer. This means that the trustee can take possession of the asset that was transferred, in order to pay your creditors. If there is no rush to file the bankruptcy, you could wait until the time frame has passed in order to file. If the bankruptcy needs to be filed immediately because of wage garnishment, etc. you will have to be prepared for the trustee to take possession of the property from the person/entity it was transferred to or pay the value of the asset to the trustee in order to avoid them from taking possession of it.

If are concerned about a transfer you have made, or were considering making, it is best to speak to an experienced bankruptcy attorney. Holland Law Group has experienced bankruptcy attorneys that can provide you with advice regarding fraudulent transfers. Call now to schedule your free consultation.

About the Author

Elyssa Harvey

Elyssa M. Harvey is from Bradenton, FL. She received her J.D. cum laude from Western Michigan University Cooley Law School where she was a member of the Dean's List and Honor Roll each term. She was a Senator before being elected as Secretary of the Student Bar Association. She was also elected a...

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