Attorney at Law

Fraudulent Transfer

Daisy Rogozinsky
June 13, 2022

Sometimes, bankrupt debtors will attempt to keep more property than they are legally allowed to when filing for bankruptcy. One way to do this is to execute a fraudulent transfer. In this article, we define “fraudulent transfer,” explain the two types of it, and outline the consequences one can expect if they are caught.  

Key Takeaways

  • A fraudulent transfer is the transfer of property by a bankruptcy debtor to another party in order to avoid paying debt
  • There are two types of fraudulent transfers: actual fraud and constructive fraud
  • Actual fraud is a transfer knowingly intended to defraud creditors 
  • Constructive fraud is a transfer for less than the equivalent value of the property when the debtor was insolvent - or they were rendered insolvent by the transfer
  • Badges are fraud are used to prove fraudulent transfers
  • In both types of fraudulent transfers, the bankruptcy court can render the transfer void and order the property to be returned

What Is a Fraudulent Transfer?

A fraudulent transfer, also called a fraudulent conveyance, is when a bankruptcy debtor transfers assets or property to another party in order to avoid paying debt.

Types of Fraudulent Transfers

There are two types of fraudulent transfers.

  • Actual fraud is when the transferor knowingly and intentionally transfers assets in order to hinder, delay or defraud a creditor.
  • Constructive fraud is when a debtor received less than a reasonably equivalent value in exchange for the property they transferred and either was insolvent at the time of the transfer or was rendered insolvent by the transfer.

In constructive fraud, the intention may not have been to commit fraud, but the consequences are the same.

Proving Fraudulent Transfers

Proving actual fraud can be challenging, so the bankruptcy court usually looks to something called badges of fraud to determine intent. Badges of fraud include things like:

  • Cash payments
  • Lack of accurate documentation supporting the transaction
  • Unusually fast transactions
  • Secrecy surrounding the transaction
  • Failing to disclose a transaction
  • Selling a property for less than the fair market value
  • Transferring assets to an insider such as a family member or close friend
  • Transferring the ownership of an asset to somebody else while keeping the property for yourself

For constructive fraud, courts look to several factors to determine whether or not the property was sold for a reasonably equivalent value, including:

  • The fair market value of the property
  • Whether the transfer was made in exchange for a promise of future business
  • Whether the transfer was made in the ordinary course of business
  • The value of other offers received for the same property

Consequences for Fraudulent Transfers

In order to catch potential fraudulent transfers, the bankruptcy trustee will review all transfers made within two years before filing for bankruptcy. There are also certain laws allowing bankruptcy trustees to look as long as four years back. For a self-settled trust, the period may increase to ten years.

If a debtor is found to have executed a fraudulent transfer, they can be sued by a creditor or the bankruptcy estate. If there is sufficient evidence to prove that fraud did indeed occur, the court can render the transfer void and order a return of the transferred money or property. They can also enter a money judgment against the debtor equal to the value of the asset transferred.

Ask a Lawyer

Ask your own question and get advice from expert attorneys
Ask Question

Featured Bankruptcy Lawyers

Mackey & Brown, Attorneys at Law

40 years in practice
Auto Accidents, Bankruptcy, Divorce & Family Law, Personal Injury
View Profile

Samuel Johnson and Associates

6 years in practice
Auto Accidents, Bankruptcy, Criminal Defense, Divorce & Family Law, Personal Injury
View Profile

McGuire, Peláez & Bennett PC

29 years in practice
Bankruptcy, Criminal Defense, Personal Injury, Traffic Ticket
View Profile

Law Office of Edwin Burnett

36 years in practice
Copyright, Intellectual Property
View Profile

Aldrich & Brunot, LLC

9 years in practice
Auto Accidents, Personal Injury
View Profile

Horn Wright, LLP

28 years in practice
Employment Law, Personal Injury, Sexual Assault
View Profile


Are you looking for an attorney? Do you have questions about a legal case you are facing? Contact us now and we will put you in touch with a lawyer for free.

Related Posts

Bad Debt
Daisy RogozinskyMay 31, 2022
Liability Insurance
Daisy RogozinskyJune 13, 2022
Additional Insured
Daisy RogozinskyMay 31, 2022
Preferential Debt Payment
Daisy RogozinskyJune 19, 2022
Attorney At Law is changing how clients connect with lawyers. By providing an innovative platform to lawyers who want to expand their practice’s reach, AAL is bringing law practices into the future.
6142 Innovation Way
Carlsbad, California 92009
Some of the content of this website may be considered attorney advertising under the rules of certain jurisdictions. The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship.
crossmenuchevron-upchevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram