Asset Transfers Prior to Bankruptcy Filing May Be Set Aside as Fraudulent

In a bankruptcy case, the court-appointed trustee plays an important role in managing and resolving the debtor's financial affairs. Part of this function is to find all assets that should be included in the bankruptcy estate and made available to pay creditors. One of the trustee's powers is to invalidate certain transfers made by the debtor before bankruptcy filing, known as "fraudulent conveyances," and to recover those payments for inclusion in the estate. 

A "fraudulent conveyance" is a transfer made by a debtor with the intent to hinder, delay, or defraud creditors. Bankruptcy law aims to ensure that all creditors are treated fairly and that no single creditor receives an undue advantage at the expense of others. When a debtor transfers assets that should legally be part of the bankruptcy estate, the trustee can step in to challenge and potentially vacate the transactions. The trustee is empowered to look back at transfers made prior to the bankruptcy filing — typically within two years — and determine if any were made to prefer one creditor unfairly over others or to remove assets from the reach of the bankruptcy estate.

Not all transfers made before bankruptcy are fraudulent. The debtor or the recipient of such a transfer can raise defenses against the trustee's action. One is that the transfer was made in exchange for reasonably equivalent value the debtor received in return. Another defense is that the transfer was made in good faith, without intent to defraud creditors. Prevailing on one of these defenses can protect the recipient of the transfer from having to return the asset or payment to the bankruptcy estate.

Given the complexities involved in identifying and litigating fraudulent conveyances, the guidance of an experienced bankruptcy attorney is invaluable. A skilled bankruptcy attorney can interpret the nuances of the law, represent the debtor or creditors in court and ensure that all parties' rights are protected throughout the bankruptcy process.

Marlin Branstetter Attorney at Law in Anaheim, California offers seasoned guidance and representation in bankruptcy matters. Whether you are a debtor in distress or a creditor seeking to preserve your right to fair treatment, call me at 714-276-8589 or contact me online to schedule a free initial consultation.