Fraudulent Transfer

A transfer by the debtor (including the incurring of an obligation by the debtor) voidable under Section 548 or under state law imported into the bankruptcy case through Section 544.

A party attacking a transfer under Section 548 must show that the transfer occurred on or within two years of the date of the debtor’s bankruptcy filing. In addition, it must be shown that the debtor either (1) made the transfer with the actual intent to hinder, delay or defraud any entity to which the debtor was or became, on or after the date of the transfer, indebted, or (2) received less than reasonably equivalent value in exchange for the transfer.

Finally, the party seeking to avoid the transfer must show that (a) the debtor was insolvent on the date of the transfer or became insolvent because of the transfer, (b) the debtor was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital, (c) the debtor 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 (d) the debtor made the transfer to or for the benefit of an insider under an employment contract and not in the ordinary course of business.

Forty-three states and the District of Columbia have enacted the Uniform Fraudulent Transfer Act (“UFTA”), similar to Section 548 in purpose and application. In Maryland and New York, transfers by the debtor may be attacked under the Uniform Fraudulent Conveyance Act (“UFCA”), also similar to Section 548. The remaining states (Alaska, Kentucky, Louisiana, South Carolina, and Virginia) have state-specific fraudulent transfer statutes. The look-back period for actions under UFTA and UFCA is generally four years (as contrasted with the two-year look-back period under Section 548). Estate representatives are sometimes able to take advantage of this longer look-back period by employing the strong arm powers of Section 544.

Bankruptcy Code §§ 544, 548, 550. See also Avoidance Action, BFP Case, Constructively Fraudulent Transfer, Durrett Case, Intentionally Fraudulent Transfer, Regularly Conducted Foreclosure Sale, Strong Arm Powers, Transfer.

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