For debtors wishing to transfer property before filing bankruptcy, consulting with an attorney practicing bankruptcy law in their state is only means of ascertaining whether the transfer of property would constitute fraudulent conveyance. Though there are a number of alternatives to transfer property and assets before bankruptcy to prevent creditor claims on the assets, the ability to do so is only determined in a case-specific basis, and in turn, the state laws applicable to fraudulent conveyances and statutes of limitations will vary. Under the Bankruptcy Code, as well as the UFTA (Uniform Fraudulent Transfers Act) and the UFCA (the Uniform Fraudulent Conveyances Act), debtors are susceptible to fraudulent conveyance claims from creditors for a varied period of years before actually filing bankruptcy.
Constructive Fraud and Actual Fraud in Fraudulent Conveyance
Depending on the specific transfer of property and the individual factors surrounding a given debtor’s financial situation, the courts must use a case-by-case method to determine whether a given property transfer constitutes fraudulent conveyance. This is often done at the court’s discretion, most often with requests from creditors to look into transfer of property by a debtor owing the credit for a given secured or unsecured amount. Should a creditor believe a given asset transfer by a debtor be an attempt to place the asset out of reach of creditors and bankruptcy trustees once bankruptcy has been filed, they can request a preliminary injunction against the transfer and request the courts investigate the transfer.
But what constitutes fraudulent conveyance, whether actual or constructive? Again, this is determined on a case-specific basis, but the following elements factor into proving fraudulent conveyance:
- Each state contains varied laws and policies concerning fraudulent conveyance of assets before filing bankruptcy. The timeframes allowed and disallowed by each state will vary, depending on the nature of the transfer of the assets and other factors
- A debtor, from a uniform standpoint, cannot transfer assets within one year of filing bankruptcy without the transfer being construed as constructive fraud in most cases. Typically, these timeframes are longer in certain cases
- A debtor’s disposition before transferring the assets will be investigated by a bankruptcy trustee. Although, as in the case of constructive fraud, it is impossible to decipher the exact intention of a debtor at the time of the asset transfer, the courts typically adhere to set standards when reviewing certain elements and actions that will be indicative of intent to defraud creditors, which will include timing of the transfer, whether transfer was done in light of threatened or actual litigation, whether the transfer was done at less than an actual equitable value, whether the transfer involved a third party with a special relationship to the debtor, and whether the transfer involved placing assets under the perceived protection of a business entity or corporation
Getting Legal Help with Transferring Property before Filing Bankruptcy
Loss mitigation before filing bankruptcy is a reasonable reaction from debtors, but any action taken before bankruptcy will be subject to the scrutiny of the courts and one’s creditors in most cases. Only an attorney can truly determine what alternatives a debtor may have concerning their assets and preventing them from entering the overall bankruptcy estate. The shorter before a bankruptcy filing any attempt to transfer assets occurs, the less likely these transfers will be allowed by a bankruptcy trustee. Consult with an attorney before making any asset transfer if bankruptcy filing seems likely in one’s future.
