History of Fraudulent Conveyance Laws in the United States

Part 1

In the United States, two sets of laws govern fraudulent conveyances or transfers. The first set of laws being the Uniform Fraudulent Transfer Act (“UFTA”) that has been embraced by all but a handful of the states. The second set of laws is the federal Bankruptcy Code.

The Bankruptcy Code and the UFTA both provide that a transfer made by a debtor is considered fraudulent if the debtor made the transfer with the “actual intention to hinder, delay or defraud ” any creditor of the debtor.

A bankruptcy trustee is authorized by the Bankruptcy Code to recuperate the property moved fraudulently for the benefit of all of the creditors of the debtor if the transfer happened within the relevant time period. The transfer might likewise be recuperated by a bankruptcy trustee under the UFTA, too, if the state in which the transfer occurred has adopted the Act and the transfer happened within the relevant time period. Creditors might likewise pursue treatments under the UFTA without pursuing it under the Bankruptcy Code.

Due to the fact that constructive transfers do not always involve any actual misconduct, it is a common trap into which honest, however, unsuspecting debtors fall into when filing a personal bankruptcy petition without a lawyer. For example, it is not uncommon for an adult child to take title to the parents’ home as a self-help probate measure to avoid disputes between family members or to protect the home from the state or medical bills upon their parent’s death. However, later, when the parents unexpectantly file a bankruptcy petition without acknowledging the problem, the parents are unable to exempt the home from administration by the trustee.

 

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