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Fraudulent Transfers in Bankruptcy
Fraudulent Transfers in Bankruptcy

11 U.S.C. 548 defines a fraudulent transfer as follows:

(A)(1) The trustee may avoid any transfer of an interest of the debtor in property, incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition if the debtor,

    (A) made such transfer or incurred such obligation with actual intent to hinder delay or defraud any entity to which the debtor was or became , on or after the date that such transfer was made, indebted... OR

    (B)     ( I) received less that a reasonable equivalent value in exchange for such transfer or obligation; and
        (ii) (1) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation;
        (ii) was engaged in business or a transaction for which any remaining capital of the debtor was unreasonably small;
        (iii) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured, or
        (iv) made such transfer to or for the benefit of an insider, or incurred such obligation to ro for th benefit of an insider, under an employment contract and not hin the ordinary course o business.

This is quite a bit to absorb. But in essence what it means is that the trustee in your case can “unwind” transactions that you make within two years of filing your bankruptcy, where you do not sell to an independent third party for a fair price. A classic fraudulent transfer would be to sell a valuable car say a $50,000 Porsche to your sister a year before filing your bankruptcy case.

But it is more complex than that. 11 U.S.C, 544 also gives the trustee in your case the power to unwind transactions that are avoidable under State (Colorado) law. So a fraudulent transfer that is “safe” under the above provisions or time limits can also be found fraudulent and challenged by a trustee if the transaction runs afoul of Colorado law. Notably Colorado’s basic provision for fraudulent transfers is 4 years, not the two years provided for by the Bankruptcy Code. Colorado’s fraudulent transfer law is found in 13-8-101- 13-8-112.

Selling non exempt items to an independent third party for a fair price is legitimate pre-bankruptcy planning. If you think a bankruptcy may become necessary, you would want to involve a lawyer as soon as possible to review all of your options.