351 Pleasant Street, Suite B-348
Northampton, MA 01060
351 Pleasant Street, Suite B-348
Northampton, MA 01060
A client recently asked me to explain “fraudulent transfers” to her. I was a bit surprised to have a client ask me about them, not because they are in any way unusual, nor are they something I don’t talk about often. In fact they are very common and I talk about them with my clients quite often. However, clients rarely ever specifically ask about them, because most client’s aren’t really familiar with the concept. Fraudulent transfers typically come up in one of two ways, (1) my interview and investigation uncovers them, or (2) a client just asks me if they can protect some of their assets by giving them away to a family member or close friend for “safe keeping”.
So what is a fraudulent transfer exactly? A fraudulent transfer is one several types of transfers that a Trustee in bankruptcy can recover for the benefit of creditors. Specifically, the United States Bankruptcy Code defines a fraudulent transfer in a couple of distinct ways. The first is an “Intentional Fraudulent Transfer, which is a transfer of an asset made with “actual intent to hinder, delay or defraud” any creditor. See Bankruptcy Code § 548(a)(1)(a). This definition neatly covers the client asking if they can protect some asset (such as her Mercedes) by giving it to her uncle.
The second definition is a bit more nuanced that the previous. A “Constructive Fraudulent Transfer” includes any transfer that was made for less than a reasonably equivalent value, at a time when the debtor was insolvent or where the debtor became insolvent as a result of the transfer. See Bankruptcy Code § 548(a)(1)(B)(ii)(I). This second type of fraudulent transfer is actually far more common, and usually is the type of transfer that I uncover as the result of my questions. It is important to note that in these types of transfers no one is accusing the debtor of doing anything illicit or immoral, and despite the term there is no accusation of fraud. Very often the transfer is made for otherwise legitimate purposes, such as a parent deeding a house to her children as part of an estate plan.
Nonetheless, this type of transfer is reversible by the Trustee in bankruptcy.
STATUTE OF LIMITATIONS (OR “LOOKBACK PERIOD”)
Under the Bankruptcy Code, a Fraudulent transfer, be it intentional or constructive, is recoverable by the Chapter 7 Trustee to the extent that the transfer occurred two years prior to the filing of the petition in bankruptcy. See Bankruptcy Code § 548(a)(1). However, the Bankruptcy Code also allows a Trustee to recover transfers pursuant to applicable state law. See Bankruptcy Code § 544(b). Massachusetts, like many other states, has enacted the Uniform Fraudulent Transfers Act, which allows a creditor to recover a fraudulent transfer (and the definitions are substantially similar here), for up to four years. In bankruptcy, the Trustee can stand in the shoes of any creditor, and can therefore recover a fraudulent transfer made up to four years prior to the commencement of the bankruptcy case.
As I’ve said, the Trustee has the power to reverse (or “avoid”) a transfer that falls under the definition and time requirements under either the Bankruptcy Code or applicable state law. But how does the Trustee avoid the transfer? Simply put the Trustee files a lawsuit in the bankruptcy court (called an “Adversary Proceeding”) and names the person who received the transfer as the defendant. So in our example where the parent, for estate planning purposes, executes a deed on her home to her four children and receives no value in return, the Trustee would name each of the four children. The Trustee would then seek to unwind the transfer from a legal perspective and either force the turnover of the property itself (which he could then sell), or would seek a money judgment for the value of the transfer. The parent hoping to make her estate less complicated, now is faced with losing her home, or, in the alternative, forcing her children to essentially purchase the house from the bankruptcy estate (either through a money judgment or by literally purchasing the home at the bankruptcy estate sale), in order to allow the debtor parent to stay in her home.
IMPACT ON DISCHARGE
As if losing the property was not a bad enough outcome, there in some cases the debtor herself might lose her discharge. While this is not a likely outcome in a purely Constructive Fraudulent Transfer Case, the standard for proving an Intentional Fraudulent Transfer is precisely the same as the facts necessary to deny a debtor her discharge under Bankruptcy Code § 727. Specifically, § 727(a)(2) states that the Court shall deny a debtor a discharge where “the debtor, with intent to hinder, delay or defraud a creditor… has transferred … property of the debtor within one year before the date of filing the petition.”
In other words, an intentional fraudulent transfer that occurs within one year prior to commencing a bankruptcy case will lead not only to a loss of the property, but also to a denial of the debtor’s discharge. In the example of our debtor putting title to her Mercedes into her uncle’s name, she would not only lose the Mercedes, but would also still owe all her debts even after her bankruptcy was complete.
Fraudulent transfers are just one type of pre-petition transfer that can be problematic for debtors and their family members. Fully disclosing all transfers of property to your attorney can help to avoid a nightmare scenarios for you and your loved ones. If you are contemplating bankruptcy be certain to consult with an experienced bankruptcy attorney. If you are contemplating bankruptcy, or if someone has transferred property to you who is now considering bankruptcy or in bankruptcy, call the Law Offices of James Wingfield at 508-797-0200 to schedule a consultation today.
There is no question in my mind that debt can and does put a major strain on a marriage. I often hear from people considering marriage with worries about how their future spouse’s debt will impact them, or from a fiancé struggling with debt who wonders whether he should file for bankruptcy before walking down…Continue Reading
Typically when reviewing a client’s asset situation in preparation for a bankruptcy filing I feel confident that retirement funds — those in a qualified pension, 401(k), 403(b), TSP or other ERISA qualified plans are safe from the grasp of a Chapter 7 trustee and do not need to be considered in the liquidation analysis for…Continue Reading
I often find when I meet with new or potential clients they have a litany of questions about the process, the meaning of the law, and the issues that are relevant to their specific circumstances. I generally attempt to anticipate and answer most of the important questions that a client might have without having to…Continue Reading
Nearly every day in my practice someone asks me what impact a bankruptcy will have on a spouse, or whether both spouses are required to file when one does. There seem to be a great number of people in Central Massachusetts that want to file a bankruptcy, but leave their wife (or husband) out of it.…Continue Reading
Most of my clients are not immediately concerned with their current credit rating. They have far more pressing issues, like keeping a roof over their heads, keeping their cars from being repossessed or sold at a sheriff”s sale or avoiding having their wages garnished by a judgment creditor. In fact, when people in my office…Continue Reading
More than full two-thirds (71%) of all students graduating college in the United States are doing so with some amount of student debt. According to the Consumer Financial Protection Bureau outstanding student loan debt has surpassed $1.2 Trillion. This debt is saddled upon the youngest of people, as they just begin to attempt to enter the workforce. There…Continue Reading
I generally avoid political discourse in this space. Casino gambling, and legalized gambling in general, has been a hot button issue in Massachusetts these past few years. Many level headed people have vastly different opinions about the short and long term economic impact of gaming in Massachusetts. On the plus side there will most assuredly…Continue Reading
In my practice I’m often faced with questions about college loans and other student debts. Typically in the business of being a bankruptcy lawyer we focus the bulk of our attention, when representing consumers, on credit cards, mortgages and medical bills. The sad truth is, however, that the largest amount of unsecured consumer debt is not credit…Continue Reading
It is probably no surprise that my clients sometimes are struggling with their utility bills. A New England winter (particularly this past one) can cause even those of us not in financial crisis to stress over the cost of heating our homes. For those already struggling with medical bills, credit card debt or an out of control mortgage…Continue Reading
The Law Offices of James Wingfield is proud to be a debt relief agency. We help the individuals, families and small businesses of the Worcester area file for bankruptcy relief under the United States Bankruptcy Code. The Law Offices of James Wingfield serves Central and Western Massachusetts clients in Worcester County, Hampden County, Hampshire County and Middlesex County including Worcester, Shrewsbury, Springfield, Westborough, Southborough, Framingham, Northampton, Natick, Amherst, Fitchburg, Leomister, Douglas, Uxbridge, Gardner, Belchertown, Holyoke, Wilbraham and Chicopee. The information contained and obtained in this website does not, nor is it intended to be, legal advice. Contacting us, be it through this website, via email of by telephone does not create an attorney-client relationship. An attorney-client relationship is only created upon execution of an engagement agreement or fee agreement.