15 Nov Fix a Fraudulent Transfer Problem by Transferring it Back
It’s a story which would make any bankruptcy lawyer cringe: “I deeded my cabin to my brother so I couldn’t lose it to my creditors. My cousin’s girlfriend’s lawyer told me on the phone that would be a good move.” Ouch! As bankruptcy lawyers know, judgment creditors can reverse fraudulent transfers, negating the utility of this manuever. Worse, you can’t get a bankruptcy discharge within one year of making a fraudulent property transfer. This also illustrates that legal advice about collections issues is best obtained from a bankruptcy lawyer.
What’s not as clear is what do do about such a transfer. One option is to rule out bankruptcy altogether and work things out with the creditors. Another is to file a chapter 13 and pay the value of the property into the chapter 13 plan. Another is to file chapter 7 and wait for the trustee to take back the property from the person to whom it was transferred. However, these are not good options for most persons thinking about bankruptcy.
Serious thought should be given to a more creative idea: having the property deeded back to the debtor, who then sells it, puts the proceeds into his homestead (in states with a sufficiently large homestead exemption), and then files chapter 7, or chapter 13 with a small monthly payment he can afford.
Not all lawyers agree that transferring the property back will be regarded by a court as “undoing” the fraudulent conveyance, and it might be more risky in some federal court districts than others. Furthermore, exemption planning of this nature must be undertaken only under the direction of an experienced bankruptcy lawyer. Failure to do so may simply create yet another fraudulent transfer problem.
Although this strategy might not be appropriate for some or even most debtors, it’s worth discussing every possible solution to a fraudulent transfer problem with your bankruptcy lawyer.
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