When filing bankruptcy, debtors may be tempted to transfer assets in an effort to protect the assets from the bankruptcy estate. However, § 548(a)(a)(A) encompasses transfers made by the debtor within two years of filing the bankruptcy, and such transfers would be fraud if transferred "with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation incurred, indebted . . . ." 11 U.S.C. § 548(a)(1)(A).
The Uniform Fraudulent Transfer Act (UFTA), which Minnesota has adopted, provides “badges” of fraud which include: (1) a transfer to an insider; (2) debtor insolvency at the time of transfer; (3) insufficient consideration at the time of transfer; and (4) a concealed transfer.
When it comes to transfers the badges of fraud can be indicators for the court of fraudulent transfers. For example: neglecting to list all transfers within the two years preceding the bankruptcy weighs in the favor of concealment, and courts have consistently found that the existence of a family relationship and the lack (or inadequacy) of consideration supports a finding of fraud. Additionally, when a transfer is made, while the debtor is insolvent, but the debtor continues the use and enjoyment of the asset after the transfer it is suggestive of fraud.
Transfers in the two years preceding a bankruptcy filing are permitted, but a debtor should be cautious not to commit fraud while undertaking these transfers. Any transfers made during the two years prior to the bankruptcy filing is required to be disclosed in the bankruptcy petition.
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Although, it may see logical to rid oneself of assets prior to filing bankruptcy, to do so, with the intent to hinder, delay, or defraud one’s creditors could cause an issue in the bankruptcy filing. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.
