The Law Offices of Kenneth E. Lindauer
Call today for free initial consultation

When is a debtor's transfer of property void in Massachusetts?

In a Chapter 7 bankruptcy, the debtor's non-exempt assets can be sold to pay creditors. Sometimes a debtor who anticipates filing for bankruptcy will transfer an asset to another person, to avoid having the asset become part of the bankruptcy estate and subject to a creditor's claims. This is known as a fraudulent transfer, and under either the Bankruptcy Code or Massachusetts law, the bankruptcy trustee can generally undo the transfer and recover the asset for the estate.

The Bankruptcy Code allows the trustee to void any transfer by the debtor up to two years before the bankruptcy was filed, if the transfer was made with the intent to defraud creditors. The trustee can also void any transfer within the two-year "look back" period, without proving intent to defraud, if the transfer was made when the debtor was insolvent and the debtor received less than reasonably equivalent value in return for the asset.

The Bankruptcy Code also allows the trustee to recover an asset under applicable state law governing fraudulent transfers. Massachusetts, like many other states, has adopted the Uniform Fraudulent Transfer Act, which allows a creditor or bankruptcy trustee to void a fraudulent transfer within four years after the transfer was made.

A person contemplating personal bankruptcy should be aware of the serious legal consequences of a fraudulent transfer. In addition to having the transfer voided and the property brought back into the bankruptcy estate, the debtor can lose any bankruptcy exemption the property may have had. If the asset was an exempt asset, such as the debtor's homestead, the asset is deemed to have lost its exempt status when the debtor transferred it.

Source: Cornell University Law School, "11 U.S. Code §§ 544(b)(1); 548," accessed Feb. 4, 2017

No Comments

Leave a comment
Comment Information