In Focus: Fraudulent Conveyance

If you are considering filing for bankruptcy, there are numerous rules governing how your property can be handled. In particular, it is crucial to understand the laws regarding fraudulent conveyance before transferring any property.

What is fraudulent conveyance?

In a bankruptcy proceeding, a fraudulent conveyance involves transferring property out of the name of the debtor who is filing for bankruptcy into another person’s name with the intent of hindering, delaying or defrauding a creditor. Such transfers are prohibited by the Bankruptcy Code and the Uniform Fraudulent Transfer Act (“UFTA”). In short, there are two types of fraudulent conveyance:

• Actual fraud – occurs when a debtor transfers property with the actual intent of defrauding a creditor by deliberately concealing assets.
• Constructive fraudulent transfer – intent is not necessary, rather a debtor transfers property without receiving adequate or reasonably equivalent consideration in exchange for the transfer. An example would be a debtor who sells his or her home valued at $100,000 to a relative for $1 prior to filing for bankruptcy.

What are the powers of the trustee?

If the transfer occurred within the relevant time frame, the bankruptcy trustee is authorized by the Bankruptcy Code to recover property that is fraudulently transferred or its equivalent value, and include it in the bankruptcy estate. In Florida, the property can also be recovered under the UFTA since the state has adopted the law.

If the transfer is deemed to be fraudulent, the trustee can also file a lawsuit on behalf of the creditors seeking to recover the value of the property. In constructive fraudulent transfer example referenced above, the case would be brought against the relative who received the home or any other person to whom the property was subsequently transferred. Additionally, the debtor will forfeit his or her right to claim an exemption for the property.

What is the “lookback period?”

This is the time period that the trustee can look back to discover a fraudulent conveyance. Under the Bankruptcy Code, the look back period is two years. Under the UFTA, however, the trustee has four years to unwind fraudulent transfers.

The Takeaway

If you are considering bankruptcy, it is important to understand the laws regarding fraudulent conveyance. For this reason, you are well advised to seek the advice and counsel of an experienced Florida bankruptcy attorney who can explain rights and responsibilities and help you explore all of your debt relief options. Please call our office for a free consultation or complete the contact form on our website.