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The bankruptcy process
Reasonably equivalent value
The measure used to decide whether a debtor received a fair exchange for property transferred before bankruptcy. A transfer for less than reasonably equivalent value can be treated as a fraudulent transfer. 1
Talk to a lawyerHow it works
The federal courts' glossary describes a fraudulent transfer as one made with intent to defraud, or one for which the debtor receives less than the reasonably equivalent value of the property. The second kind turns on what the debtor received and on the debtor's finances at the time, not on what the debtor meant to do. 1 2
The trustee may undo a transfer made within 2 years before the bankruptcy filing if the debtor received less than a reasonably equivalent value and was insolvent on the date of the transfer, or became insolvent because of it. The statute lists other situations as well. 2
The person who received the property is not always left with nothing. Someone who took it for value and in good faith may keep an interest in it, or a lien on it, up to the value that person gave the debtor. 2
Whether a price was reasonably equivalent depends on the facts of each transfer. A sale or gift to a relative or friend before filing is something to raise with a bankruptcy lawyer. 2
Common questions
Does the transfer have to be dishonest?
No. A transfer made with actual intent to hinder, delay or defraud a creditor can be undone, but so can one where the debtor received less than reasonably equivalent value while insolvent. 2
Is a gift to a relative a transfer for less than reasonably equivalent value?
A gift brings the debtor nothing in return, so the trustee can undo it if the other conditions are met, for example if it was made within 2 years before filing while the debtor was insolvent. 2
Where do past transfers get reported?
The statement of financial affairs asks the debtor written questions about transfers of property, among other things. 1
Sources
Sold or gave away property before filing?
A bankruptcy lawyer in your state can tell you how a past transfer is likely to be treated.
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