25 Jan When are you Safe after a Fraudulent Conveyance?
Very generally, a fraudulent conveyance is a transfer of money or property from a debtor to someone or something else when either (1) the debtor intends to defraud creditors or (2) the debtor received less than a reasonably equivalent value in exchange for the transfer and made it while insolvent. So, for example, the proverbial: “I transfered my house out of my name so my creditors wouldn’t get it” is a fraudulent conveyance. These transfers can create quite a few problems in bankruptcy.
A strict answer to the title question is one year. That is because conveyances that are actually fraudulent disqualify the debtor from receiving a discharge if made within one year of the filing of a bankruptcy. However, the period of time in which the property can be recovered by the trustee is longer.
The limitations period for avoidance of fraudulent conveyances has changed over the years, but currently it is two years under the Bankruptcy Code (Section 548) and whatever longer period is available under state law (Section 544). The latter will clearly vary, but since I practice in Massachusetts, I will use its laws as an example. Massachusetts adopted the Uniform Fraudulent Transfer Act (UFTA) in 1996 and, in the process, created a four-year statute of limitations for avoidance of fraudulent conveyances. This blessedly simplified the patchwork of limitations periods that existed in the case law previously. However, the complexity hasn’t completed been scratched. When the trustee can allege that a hidden agreement exists between the debtor and the recipient of property–such as when a family member takes title to real estate with the understanding the debtor still really owns it–the trustee can argue that a resulting trust for the benefit of the debtor has been created. When there is such an agreement at the time a bankruptcy is filed, there really is no statute of limitations because the trustee is simply succeeding to the beneficial interest of the debtor in the real estate or other property. See, e.g., In re Simpson, 334 B.R. 298 (Bkrtcy.D.Mass. 2005).
It also warrants mention that the 2005 BAPCPA amendments created a special 10 year look-back period for fraudulent transfers to self-settled trusts of which the debtor is the beneficiary.
Fraudulent conveyances should be avoided. Contact an experienced bankruptcy attorney before transferring any property outside the usual course of conducting yourself if you are insolvent or can no longer pay your debts as they come due.
Nicholas Ortiz, Boston Bankruptcy Attorney
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