Bankruptcy relief offers powerful protection for individuals and business owners with insurmountable debt. That said, filers must adhere to strict Bankruptcy laws. As a New Jersey banking attorney can explain, the Bankruptcy trustee will give close circumspection to transfers made by the debtor. In the event the trustee suspects fraud, a separate action can be brought against the debtor and the Bankruptcy proceeding itself might be in jeopardy.
A New Jersey Banking Lawyer Discusses How to Spot a Fraudulent Transfer
When a debtor subjects themselves to the jurisdiction of the Bankruptcy court, they put their financial life in the hands of the Bankruptcy trustee. The trustee has a variety of powers and responsibilities to the court. One responsibility is to review transfers made by the debtor. A fraudulent transfer may be one aimed at concealing assets from the reach of the Bankruptcy Court or to prefer one creditor over another.
The look-back period on fraudulent transfers aimed at concealing assets is 90 days to two years prior to the filing of the Bankruptcy action. In addition to straight asset transfers, the look-back applies to employment contracts even if the company was in the black at the time the transfer was made.
The Bankruptcy trustee will also give close inspection to the value given for the debtor’s property. If an asset is transferred under fair market value or without fair consideration, this can raise major red flags for the Bankruptcy trustee and expose the debtor to a fraudulent conveyance action.
Example of a Fraudulent Conveyance
If a debtor collected stamps over a period of years and amassed a collection of great value, it’s understandable he or she may not want to part with it. If that collector falls into financial hardship and files for Bankruptcy, he may be concerned about being required to sell off that collection to pay back creditors. Say he contacts a neighbor or close friend and offers to sell the collection to him for $1, even though the collection is worth thousands. He may also secure an agreement from the neighbor to sell it back to him for that same $1 once the Bankruptcy case closes. This type of transfer would likely be considered fraudulent.
Good Faith Purchases
Even good faith purchases can fall under the scrutiny of the Bankruptcy court. The Uniform Fraudulent Transfer Act controls which transfers are fraudulent or not. An attorney can help review your financial picture and help you understand what purchases or transfers may set off alarm bells for the Bankruptcy trustee.
If you are considering Bankruptcy, it’s a good idea to discuss your case with a Bankruptcy attorney before you decide to transfer assets. Even if you have innocent intentions when making a transfer, you may still be exposed to a violation of the fraudulent transfer act. To make an appointment with the law offices of Snelllings Law LLC call 973.265.6100.