What is a Fraudulent Conveyance as Considered in a Bankruptcy Case?

by Tony Arnest

A debtor may commit a fraudulent conveyance if they attempt to transfer to a third party their real or personal property and (in the transfer) their goal is to delay, defraud or keep a present or future creditor from obtaining the property. Bankruptcy law considers two types of fraudulent transfers.

The first is "actual fraud" which is the intentional action to defraud Creditors, and the second is called "constructive fraud" which is the transfer of real or personal property for less than it is worth.

In most cases, if the transfer of real or personal property is made within one (1) year of filing a Bankruptcy Petition and the debtor has the intent to keep the creditor from obtaining the property or defrauding the creditor, this is "generally" considered actual fraud. Determining actual fraud can often be difficult and must be done on a case-by-case basis.

Many Bankruptcy courts have outlined specific circumstances where overt or intentional actions may have occurred which constitute fraud including the following:

1) a debtor has attempted to retain or assert of control over the property after transfer;

2) a creditor has threatened to sue the debtor and action was taken to "hide or protect" the property from creditors;

3) a debtor had a special relationship with the person who receive the transferred property;

4) a debtor has attempted to transfer or convey a substantial portion of their property or assets to a new company.

Constructive fraud can be proven if there was an exchange of property made and the debtor did not receive anything in return or payment that is considered of a "reasonably equivalent value" - especially in a case where the debtor was/is having difficulty making payments for their debts when the property transfer was completed.

If you are not sure if a transfer in this context would constitute a fraudulant conveyance, one that a Bankruptcy Court may overturn for the benefit of your creditors, you should consult with an attorney.

(The presenter, Tony Arnest, is a licensed attorney in California. He is a debt relief agency and helps people file for bankruptcy. This information is being provided solely for educational purposes, and is not intended to offer legal advice or serve as a solicitation for business in anyway.)

What is a fraudulent conveyance as considered in a Bankruptcy case?

Tony Arnest