What is a Voidable Transfer in Bankruptcy

Under the United States Bankruptcy Code, the bankruptcy trustee has the power to set aside or cancel certain transfers of the debtor’s property. This power is known as the voidance power. Transfers which the bankruptcy trustee can set aside or cancel by exercising the voidance power are generally referred to as voidable transfer.

Voidance Power  

Under Section 544 (b) of the United States Bankruptcy code, the trustee has the power to undo or nullify the debtor’s transactions or obligations based on state laws. The trustee can set aside transfers which violate state laws or are unfair to the creditors.  The trustee will generally exercise the voidance power to set aside transfers made by the debtor with the intention to defeat a creditor's attempts to recover it’s debts. Voidance power lets the trustee step into the shoes of an unsecured creditor. The trustee can void those transfers which are voidable by unsecured creditors.

Factors

The trustee will consider the following to determine if a transfer is a voidable transfer:

• Whether the transfer is in violation of state laws
• Intent behind the transfer – Whether you have transferred the assets or entered into the obligation with the intention to defeat a creditor’s attempts to recover its debt.
• Time of transfer – Generally the trustee will void transfers made within 90 days prior to the bankruptcy filing. 

The bankruptcy trustee will also consider the amount that can be recovered by selling the property and the expenses for filing the voidance action in the bankruptcy court. If the amount that will be recovered is less than $1000, the bankruptcy trustee will rarely exercise the voidance power.

Other transfer

Certain other transfers can also be voided by the bankruptcy trustee. The bankruptcy trustee can void a transfer of any property made by you within 10 years before the filing of your bankruptcy petition if the transfer was made to self settled trust or similar device of which you are the beneficiary and the transfer was made with an intent to frustrate, hinder or delay any creditor to whom you are or you became indebted to on or after such transfer. The bankruptcy trustee can also void transfers made to your relative, general partners, directors or officers of your business up to one year prior to your bankruptcy filing.

Getting legal help

Bankruptcy trustee can exercise the voidance power and void your transfers. Consult with an experienced bankruptcy attorney to know if any of your transfers is a voidable transfer.