The law on fraudulent transfers
Under 11 U.S.C. § 548(a)(1), the trustee can void any transfer made within 2 years of filing if the debtor made the transfer with "actual intent to hinder, delay, or defraud" a creditor.
The trustee can also void transfers where the debtor received "less than a reasonably equivalent value" while insolvent -- even without fraudulent intent. This is called a constructive fraudulent transfer under § 548(a)(1)(B).
11 U.S.C. § 548(a)(1)(A): "The trustee may avoid any transfer of an interest of the debtor in property... that was made within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily made such transfer with actual intent to hinder, delay, or defraud any entity to which the debtor was indebted."
Common transfer mistakes
- Putting the house in a spouse's name. This is the classic fraudulent transfer. The trustee can reverse it and sell the property.
- Signing a car title to a family member. Even if you think it is "their car," the title transfer within 2 years is voidable.
- Moving money to a friend's bank account. The trustee reviews bank statements and will see the transfers.
- Creating an LLC and moving assets into it. This is transparent to any trustee and adds potential criminal exposure.
- Paying off a family member's mortgage with your funds. This is both a fraudulent transfer and a preferential payment.
What happens if the trustee finds a fraudulent transfer
- The trustee sues to void the transfer under § 548
- The court orders the property returned to the estate
- If the recipient spent or sold the property, the court orders payment of the value
- The trustee may also seek denial of your discharge under § 727(a)(2)
- In serious cases, the U.S. Trustee refers the matter for criminal investigation under 18 U.S.C. § 152
The 2-year lookback is a minimum. Under state fraudulent transfer laws (which the trustee can also use via 11 U.S.C. § 544), the lookback period can be 4 to 6 years or longer. A transfer you made 3 years ago may still be avoidable.