What Is a Fraudulent Conveyance?

In a bankruptcy proceeding in Georgia, there are numerous rules governing how property can be handled. Before transferring any property you are well-advised to speak with an experienced bankruptcy attorney to understand the laws of fraudulent conveyance.

In short, a fraudulent conveyance occurs when a debtor who is filing for bankruptcy transfers property out of his or her name to another individual with the intent to hinder, delay or defraud a creditor. It is important to note that transfers of this kind are are prohibited by the U.S. Bankruptcy Code as well as the Uniform Voidable Transactions Act (UVTA), previously known as the Uniform Fraudulent Transfer Act.

Types Of Fraudulent Conveyance

Generally, there are two types of fraudulent conveyance under the Bankruptcy Code — actual fraud and constructive fraudulent transfer. It is worth noting that there have been discrepancies in how the courts interpreted actual and constructive fraud, and the UVTA was designed to clarify this terminology.

Nonetheless, an actual fraud involves a debtor transferring property with the actual intent of defrauding creditors by concealing assets. In a constructive fraudulent transfer, on the other hand, intent to conceal in not involved. Instead, a debtor transfers property to another person and does not receive adequate or reasonably equivalent consideration for the transfer. Such transfers are usually made with family members or close friends. As an example, a debtor may “sell” his or her home valued at $200,000 to a cousin for $10 prior to filing bankruptcy.

The Trustee’s Power To Void A Fraudulent Transfer

In the event of a fraudulent transfer, the Bankruptcy Code authorizes the trustee to recover the property, or its equivalent monetary value, and include it in the bankruptcy estate. Additionally, the trustee may file a lawsuit on behalf of the creditors in an effort to recover the value of the property.

In the example of constructive fraudulent transfer mentioned above, a lawsuit can be filed against the cousin, or any other individual to whom the property was subsequently transferred. In any event, if the transfer is deemed to be fraudulent, the debtor will also forfeit his or her right to claim an exemption for the property.

Finally, there is a time period that the trustee can look back to discover a fraudulent conveyance referred to as the “lookback period.” The lookback period under the Bankruptcy Code is two years, while the trustee has four years to unwind a fraudulent transfer under the UVTA.

The Takeaway

Although filing for bankruptcy provides individuals with a chance to reorganize their finances and make a fresh start, it is crucial to abide by the laws regarding fraudulent conveyance. This is why having the advice and guidance of a Georgia bankruptcy attorney is invaluable.