By Ryan C. Wood

The good news is that fraudulent transfers in bankruptcy are relatively uncommon. Section 548 of the Bankruptcy Code defines these types of transfers. Hopefully prior to filing the case your bankruptcy lawyer asked the right questions and learned about possible transfers of the client’s assets and to whom. But there is light at the end of the tunnel. Please read all the way to the end of this article to find how to fix bankruptcy fraudulent transfers.

Transfers for Less Than Fair Market Value

Probably the most common fraudulent transfer is selling an asset or giving away an asset for less than fair market value. If your car is worth $10,000 and it is paid in full you have the right to transfer title or sell to anyone you want. The issue is for how much? If you know that the California bankruptcy exemptions cannot protect all of your assets you may be tempted to sell or transfer title to a friend or family member for less than fair market value. It is not okay to give away assets to the detriment of your creditors. It is just not fair and that is what bankruptcy is all about. It is about treating all parties fairly given not so good financial circumstances. You must get fair market value for your stuff if you sell it prior to filing bankruptcy.

Transfer to Insiders 2 Years Prior to Filing Bankruptcy

The Chapter 7 or Chapter 13 trustee assigned to your case may avoid (undo) any transfer of an interest of the bankruptcy filer in property, or any obligation incurred by the debtor, which was made or incurred on or within 2 years before the date of the filing of the bankruptcy petition.

So What Can be Don About Fraudulent Transfers?

In the Ninth Circuit at least get the thing or money back that you transferred prior to filing for bankruptcy protection. See In re Adeeb, 787 F.2d 1339 (9th Cir.1986). Faced with financial difficulties Mr. Adeeb transferred some of his real property to friends and family members on the advice of an attorney that did not practice bankruptcy law. Once Mr. Adeeb spoke with a bankruptcy lawyer he tried to undo the transfers, but while transferring title back to his name three of his creditors filed an involuntary bankruptcy petition against him. He acquiesced and filed a voluntary petition for bankruptcy not long after. The bankruptcy court ruled Mr. Adeeb should not receive a discharge due to his transfer of assets within one year of filing for bankruptcy. On appeal to the Ninth Circuit Court of Appeals held that if a debtor reveals the transfers to their creditors, recovers substantially all of the transferred property before he/she files a bankruptcy petition they should still be eligible to receive a discharge.