An individual who is faced with the impending failure of a business and large claims from creditors may be tempted to dispose of certain assets to protect them from claims by creditors and to generate cash to pay a few of these debts.
Any person who follows this route may face significant liability under the Fraudulent Transfers and Obligations sections of the United State Bankruptcy Act.
The fraudulent transfer section of the Bankruptcy Act gives the trustee the right to void any transfer of an interest in the debtor’s property that was made within two years of the filing of the bankruptcy petition.
This law gives the trustee the power to set aside any transaction that satisfies the definition of fraudulent transfer and to recover assets for the bankruptcy estate.
If the trustee prevails in an action to set aside the transfer, the debtor can be required to repay the estate for the difference between the amount paid to the debtor and the fair market value of the property transferred. The trustee may also recover criminal penalties from the debtor.
California’s Voidable Transfer Act
In California, unlike other states, the making of a voidable transfer can be deemed to be a criminal act. While no criminal convictions appear to have occurred under this law since its passage in 2011, the possibility of a debtor becoming a convicted criminal for a fraudulent transfer still exists.
Anyone who is facing either a civil case under the Bankruptcy Code or a criminal charge under the California VTA may benefit from consulting an experienced bankruptcy attorney for an evaluation of the evidence, suggestions of potential defense strategies, and an opinion on the likelihood of the plaintiff prevailing in the litigation.