UNDERSTANDING FRAUDULENT TRANSFERS

Understanding Fraudulent Transfers

One of the many issues that I look for prior to filing a bankruptcy case is whether there have been any fraudulent transfers.  A fraudulent transfer is any transfer of an asset made with intent to hinder, delay, or defraud a creditor. 

Fraudulent transfers are very important because the bankruptcy Trustee who oversees the administration of the bankruptcy estate can reverse the transfer.  This means the recipient may become a defendant in an action to recover the fraudulently transferred asset.  Furthermore, the debtor seeking bankruptcy relief could have their entire discharge denied.  They could receive no relief from the bankruptcy filing. 

Obviously, not all transfers are fraudulent.  Clear examples of fraudulent transfers are gifted assets to friends and family members.  If some individual gifts away that pristine Corvette Stingray to their brother prior to filing a bankruptcy, then it’s a fraudulent transfer. 

A transfer without actual intent to hinder or defraud creditors can also be a fraudulent transfer.  If someone sells an asset for less than fair market value while they are insolvent, then it is also presumed to be a fraudulent transfer.  Luckily, if the Trustee cannot show intent, it is difficult to deny the entire discharge, but the Trustee can still reverse the sale. 

An example would be if while having financial distress, you decide to sell that Corvette to your brother for $10,000 knowing it is worth much more than that.  You may be trying to keep your prized possession in the family rather than selling it to a stranger rather than trying to defraud creditors.  This transfer would still be reversible by the Trustee. 

The important thing to understand is you should not make any transfers or sales of assets without first consulting with an experienced attorney if you are in financial distress.  You may not even be considering bankruptcy yet, but with a 2 year look back period, it is important to plan ahead.  There is a lot of grey area in fraudulent transfers.

Martin Prybylski

Attorney at Law

McFerran Law, P.S.

3906 S 74^th Street

Tacoma, WA 98409

253-284-3811