Bankruptcy & Transfer of Property
The bankruptcy code limits the rights of a debtor from making certain transfers, not only during the bankruptcy but before the case is filed as well. If a transfer is made that is considered unauthorized, the trustee may have the right to "avoid" the transfer and return the property to the bankruptcy estate.
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Preferences
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A preference is a payment made to a creditor within 90 days of filing for bankruptcy, or between 90 days and one year if the creditor is an insider, if it is determined that the debtor was insolvent at the time of the transfer. The amount of the transfer must exceed the amount the creditor would get through a Chapter 7 bankruptcy. For example, if you paid off an unsecured personal loan one month before filing a Chapter 7 bankruptcy, the trustee would likely avoid the transfer as being preferential treatment to that creditor. The $1,000 would be returned to the estate and distributed equally to all creditors.
Fraudulent Transfers and Obligations
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A fraudulent transfer or obligation is one that took place within two years of filing for bankruptcy with the intent to hinder, delay or defraud a creditor, or one that occurred for less than valuable consideration when the debtor was insolvent. For example, if you have a boat that you believe to be non-exempt property in bankruptcy and you give it to your brother before you file so it will not be taken, it is considered a fraudulent transfer. You did not receive valuable consideration for the transfer and it was done to avoid the property being taken, sold and the proceeds being distributed to creditors.
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Postpetition Transactions
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Postpetition transactions are unauthorized transfers that take place after the bankruptcy is filed.
This may include paying debts that are to be paid within the bankruptcy, or transferring property that is part of the bankruptcy estate and subject to the control of the trustee.
Who is Liable?
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When an unauthorized transfer takes place, the person who received the property is liable for the value of the property to the bankruptcy estate. If that person transfers the property to someone else, they, too, may be liable.
Good Faith
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A potential defense to the claim of unauthorized transfers is that of good faith, meaning the debtor and the transferee had no intent to harm or defraud anyone and the transfer was made for valuable consideration.
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References
- Photo Credit Transfer of money from hands in hands image by Irina smolina from Fotolia.com
