Bankruptcy and Examples of Fraudulent Transfers - Westgate Law

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Bankruptcy and Examples of Fraudulent Transfers

Many bankruptcy filers don’t realize how the stakes are if they try to transfer property fraudulently that is associated with the bankruptcy. Consider these examples of situations in which a debtor could be accused of bankruptcy fraud:

  1. Consider if you owned a vehicle worth $10,000. There are no liens on the vehicle’s title. You own the vehicle free and clear. You plan to file bankruptcy, but you don’t want the bankruptcy trustee to sell the vehicle you own free and clear to satisfy your creditors. To avoid losing the vehicle, the owner might be tempted to put the title in their sister’s name. You don’t charge your sister for the truck and she doesn’t use it. The vehicle is still used by you as it was before you transferred the title. Say you file for bankruptcy within two years of this title transfer. This transfer will be viewed as an attempt to keep the truck from the trustee/your creditors. It will be classified as a fraudulent transfer. The trustee will have the ability to undo the fraudulent transfer, recover the vehicle, sell it and use the proceeds to distribute amongst your creditors. You can also be sued for fraudulent transfer and be denied the discharge of your debts if the fraudulent transfer was completed within a year of your bankruptcy filing. You can even be charged with a crime if you didn’t disclose the transfer in your bankruptcy paperwork. If you are found guilty of attempting to defraud creditors or hinder/delay the process, you could be sent to prison for 5 years.
  2. Imagine that you sell several assets in order to raise cash so that you can make your mortgage payments within two years of filing for bankruptcy. It was an art collection that was appraised at approximately $6,000. When you sold the collection, it was obvious that you needed cash so the dealer offered you 1/3 what it was worth. You DID need the money so you sold at the low price. When the trustee looking over your bankruptcy paperwork reviews the terms of the sale, the trustee will have the opportunity to recover the property and sell it for it’s full worth. After the art collection is recovered and resold, the dealer would be reimbursed for the amount they paid previously. If the dealer already sold the collection, the trustee can recover the difference between the appraisal value and what was paid for the art collection from the dealer in order to use the difference to distribute amongst your creditors.

If you are unsure if the trustee could view actions in your financial history as fraudulent, contact the southern Californian bankruptcy law experts at Westgate Law today.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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