The transferee was a good-faith purchaser.
The transfer did not occur within the look-back period. The debtor was solvent at the time of the transfer. The debtor received reasonably equitable value. For example, the transfer is not complete until a deed is officially recorded.ĭefenses to a Fraudulent Conveyance Action The transfer of certain types of property require multiple steps to complete the transaction. Perfection occurs when a bona fide purchaser buying property from the debtor cannot acquire an interest superior to that of the transferee. A transfer is deemed to be made once is it “perfected” under applicable state law. Thus, it is important to determine precisely when a transfer occurred. However, transfers made solely for the benefit of third parties are not reasonably equivalent value.Īgain, to be considered a fraudulent conveyance, a transfer must occur within two years immediately before a bankruptcy filing. Generally, for an exchange to be considered legitimate, value does not have to be received directly by the debtor, but may exist in the form of additional business opportunities made available through new lines of credit or new affiliations created by the transfer. the net effect on the debtor’s estate with respect to funds available to unsecured creditors. the competitiveness of bids for the property, and. whether the transaction was made in good faith in the ordinary course of business by parties of independent interests,. Some of the factors the courts consider include: However, when something of value is given, the question becomes whether the value was truly adequate compensation for the property.Ĭourts will, again, look at the circumstantial evidence surrounding a transaction to determine whether the exchange appears fair. When there is no value given in exchange for the transfer of the debtor’s property, the answer is an easy one. Of course, “reasonably equivalent value” is a subjective measure. The only important issue is whether the debtor received reasonably equivalent value. While not an absolute defense to actual fraud, establishing that the debtor received reasonably equivalent value for the transferred property tends to rebut inferences of intent to defraud.Ĭonstructive fraud requires two conditions: 1) in exchange for the transfer, the debtor received less than “reasonably equivalent value”, and 2) the debtor is unable to pay debts either at the time the transfer was made or as a result of the transfer itself. Whether they do in fact prove the debtor’s fraudulent intent is determined on a case by case basis. These are merely factors to be considered by the court in determining intent. a special relationship with the person to whom the property is transferred. transfer to a newly created corporation, and. transfer of substantially all the debtor’s assets,. a retention of possession or control of the property,. actual or threatened litigation against the debtor,. Some examples of these circumstances are: 
Courts have set forth circumstances, the existence of which indicate the intent to defraud. Actual fraud requires proof of intent from the individual challenging the transfer. The intent of the transferee is irrelevant-the only relevant inquiry is the intent of the debtor. A transfer cannot be set aside if it occurs after a bankruptcy filing.Īctual fraud is committed when a transfer is made with the intent to hinder or defraud a creditor. However, a trustee may be able to set aside certain transactions under state laws, which may provide for longer look-back periods. Thus, to be considered a fraudulent conveyance, a transfer must occur within two years immediately before a bankruptcy filing. Both types of fraudulent transfers involve a two-year “look back period” and a two-year statute of limitations. The second, constructive fraud, involves a transfer that is made in exchange for grossly inadequate consideration. The first, actual fraud, involves the intent to defraud creditors. There are two types of fraudulent conveyances. Such a transfer of the debtor’s assets to a third party, with the intent to prevent creditors from reaching the assets to satisfy their claims, is known as a “fraudulent conveyance” or a “fraudulent transfer.”
DEFINITION OF INSOLVENCY IN A FRAUDULENT CONVEYANCE CODE
Section 548 of the Bankruptcy Code provides a bankruptcy trustee (or the debtor-in-possession) the power to set aside or “avoid” certain transfers of the debtor’s assets out of the bankruptcy estate that may otherwise place assets beyond creditors’ reach.
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