Fraudulent Transfer
What does "Fraudulent Transfer" mean in law?
A fraudulent transfer, actionable under 11 U.S.C. section 548 and often supplemented by state fraudulent transfer laws incorporated via section 544(b), is a pre-petition transfer of the debtor's property that may be avoided by the trustee on two grounds: actual fraud or constructive fraud. Actual fraud requires proof that the debtor made the transfer with intent to hinder, delay, or defraud creditors, often established through circumstantial "badges of fraud" such as transfers to insiders, retention of possession, or concealment. Constructive fraud exists when the debtor received less than reasonably equivalent value for the transfer while insolvent or rendered insolvent by the transaction. Section 548 reaches transfers made within two years before filing, while state law claims under section 544(b) may extend the look-back period significantly.
Definition
A fraudulent transfer, actionable under 11 U.S.C. section 548 and often supplemented by state fraudulent transfer laws incorporated via section 544(b), is a pre-petition transfer of the debtor's property that may be avoided by the trustee on two grounds: actual fraud or constructive fraud. Actual fraud requires proof that the debtor made the transfer with intent to hinder, delay, or defraud creditors, often established through circumstantial "badges of fraud" such as transfers to insiders, retention of possession, or concealment. Constructive fraud exists when the debtor received less than reasonably equivalent value for the transfer while insolvent or rendered insolvent by the transaction. Section 548 reaches transfers made within two years before filing, while state law claims under section 544(b) may extend the look-back period significantly.
Example
A debtor transferred his vacation home to his brother for one dollar six months before filing bankruptcy, and the trustee avoided the transfer as constructively fraudulent because the debtor received far less than reasonably equivalent value.