Fraudulent Transfer

Bankruptcy filing should be simple despite posed complexities brought by its required procedures. However, technicalities around some aspects of properties may seem quite complicated than expected and may even result to problems like fraudulent transfer. This is a scenario everyone filing for bankruptcy should avoid.

Fraudulent Transfer

Defining Fraudulent Transfers

The process of transferring an asset to another person, usually an insider, two years before bankruptcy filing is regarded as a fraudulent transfer. A debtor may do this process to defraud creditors of repayment. This transfer is a ground for trustees to sue the asset recipient and file adversary complaints and proceedings. The recipient can be an individual or another entity.

In most cases, people who face preferential payments and fraudulent transfer issues are insiders or people who have control over the debtor. They can be employers or relatives that lent the debtor some money in the past, which results to the latter preferring to pay the former first than loan providers. In other cases, debtors may not owe them money, but they are individuals whom the former can enturst their assets. Once trustees tracked down possible fraudulent transfers, the situation shifts to him to prove his case.

Examples of Fraudulent Transfers

There are two types of fraudulent transfers. The first is actual fraud where debtors knowingly transferred assets to third parties with the goal of keeping creditors from taking them for repayment. For instance, an individual wants to file for bankruptcy may transfer his money to another person to avoid collection and keep creditors from getting their repayments. However, this case is often hard to prove since a debtor may claim that the asset or money transferred is for another purpose and not to defraud creditors.

The other example is constructive fraudulent transfer. Trustees find this type of transfer easier to prove since they don’t have to prove a debtor’s intention behind the transfer. A debtor may be innocent, but some technicalities behind the transfer process may be sufficient grounds for a fraudulent transfer case. A good example is when a person received a fair equivalent transfer value like giving something for a small amount or value for the transfer. Another case is when a debtor running a business is left with extremely low capital after the transfer through the business. A debtor with insolvency issues during the time of transfer may also fall under the category of constructive fraud.

Working with a Bankruptcy Lawyer

Regardless of the intention, a debtor would want to avoid this issue as much as possible to keep them from experiencing other serious problems during the bankruptcy process. Consulting an expert will keep people a debtor from all the headaches that come with the process. A bankruptcy lawyer will double check if transfers have been done during the time before filing for bankruptcy then see whether they fall under these categories. In case there are transfers, a lawyer can advise debtors with the best procedures to avoid having problems with fraudulent transfers.

A fraudulent transfer can be problematic for a debtor. Consulting a bankruptcy expert will keep a debtor from experiencing this issue while keeping other people from having a case in bankruptcy courts.