In anticipation of a bankruptcy filing, some people might transfer important assets to loved ones or friends to prevent their liquidation. They assume they will be able to transfer this property, obtain a discharge, and then take the property back upon completion of their case. The bankruptcy court is aware of these actions and has mechanisms for trustee or creditor to prevent this type of abuse. A Lincoln County bankruptcy lawyer can discuss your situation to help you prevent a fraudulent transfer that could impact your bankruptcy filing.
There are two types of fraud that a trustee will look for when looking for fraudulent transfer – actual fraud and constructive fraud. Actualy fraud occurs when someone intends to defraud creditors. In the example above, if someone owned a classic car and didn’t want it liquidated, they might transfer title to a friend to prevent its liquidation. This would be actual fraud and the car would be liquidated by the trustee (assuming the bankruptcy exemptions did not cover its value).
In searching for actual fraud, the trustee will look for “badges of fraud” that shows signs of intent. These might include, among others:
- Insolvency due to the transfer
- Lack of adequacy in consideration
- Family or insider relationships among the parties involved
- The general chronology of events
If these or other badges are found, it can constitute circumstantial evidence of fraud. It may then fall to the debtor to prove that these transfers were legitimate and not actual fraud.
Constructive fraud occurs when a debtor transfers property without receiving “reasonably equivalent value” for the property exchanged. In constructive fraud there does not need to be intent to defraud creditors. For example, a couple might transfer title of a home to an adult child. This might be done in an attempt to clarify who owns the home without any intent to defraud. Even still, unless the child can pay the parents a fair amount for the home or they can pay the sum of the parents’ debt (whichever is greater), the home will be liquidated in bankruptcy.
Ultimately, a debtor needs to be ethical when dealing with bankruptcy court. A Lincoln County bankruptcy lawyer can discuss your situation and help you avoid any unethical behavior that could impact your bankruptcy.
At Westbrook Law Group, we have helped many clients in Troy, St. Charles, and across Missouri with debt problems. An experienced bankruptcy attorney can discuss your options and help you make the right decision for you and your family. To learn more, contact Westbrook Law Group today for a free consultation.