What is a fraudulent transfer?
The Bankruptcy Code recognizes two types of “fraudulent transfers”. The first involves a transfer made by the debtor with the actual intent to avoid creditors. The second involves a transfer made by an insolvent debtor for which less than “reasonably equivalent value” is received. If you are sued by a trustee for receipt of a fraudulent transfer, it does not necessarily mean that the trustee is accusing you of fraud. It is enough that you received more than you gave back to the debtor. Defenses to a fraudulent transfer action generally turn on arguments as to valuation. An experienced bankruptcy attorney can assist you in presenting your case to defend the claims.
A person cannot gift away or sell assets for less than fair market value in order to hinder, delay, or defraud the claims of legitimate creditors. This is what the laws regarding fraudulent transfers are about. There are many indicators of a fraudulent transfer, including transactions that are not at arms length and transfers made with an actual intent to hinder, delay, or defraud present or future creditors. If it is found that the conveyance is a fraudulent transfer, the transfer can be set aside and the creditor may be able to reach the asset. If the transfer is made with the requisite intent, this may be a felony under federal law. You must take steps to protect your assets before there are any potential claims against you.
