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Fraudulent transfer
A fraudulent transfer is a transfer of a debtor's property made with intent to defraud, or one for which the debtor receives less than the property's reasonably equivalent value. Remedies under state law use the name fraudulent conveyance. 1 2
Talk to a lawyerHow does a fraudulent transfer work in bankruptcy?
Under the Bankruptcy Code the trustee may undo such a transfer if it was made within two years before the filing. One ground is actual intent to hinder, delay or defraud a creditor. The other does not turn on intent: the debtor received less than reasonably equivalent value and was insolvent at the time or became insolvent because of the transfer. 1
A Chapter 7 trustee can also pursue fraudulent conveyance remedies under state law. 2
The person who received the property may have to give it back. The trustee may recover the property, or its value if the court orders, from the first recipient or from anyone who later received it from that person. A recipient who paid value in good faith may keep an interest to the extent of the value given. 3 4
Transfers are disclosed up front. The statement of financial affairs asks the debtor, in writing, about transfers of property, and concealing property in a bankruptcy case can be a crime. 1 5
What can a fraudulent transfer lead to?
| Consequence | When it can apply |
|---|---|
| The trustee undoes the transfer 1 | A transfer within 2 years before filing, made with intent to defraud, or for less than reasonably equivalent value while insolvent 1 |
| The court denies a Chapter 7 discharge 6 | Property transferred or concealed with intent to hinder, delay or defraud a creditor within one year before filing, or estate property after filing 6 |
| A smaller homestead exemption under state law 7 | Home value that comes from nonexempt property disposed of with intent to defraud in the 10 years before filing 7 |
General rules only. Other conditions and exceptions apply.
Common questions
I gave or sold something to a relative before filing. Is that a problem?
Who brings a fraudulent transfer claim?
The trustee, who may try to recover the money or property using what are called avoiding powers. 2
Can a fraudulent transfer cost me my discharge?
Yes. A court may deny a Chapter 7 discharge if the debtor transferred or concealed property with intent to hinder, delay or defraud creditors within one year before filing. 6
Sources
Moved or sold property recently?
Talk to a bankruptcy lawyer in your state before you file.
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