Transfer of Property
A Sacramento bankruptcy attorney answers Why Must I Disclose To The Trustee Or Any Interested Creditor Whether I’ve Transferred Property In The Past 2 Years*?
A credit card creditor takes the risk that a borrower will have no property to satisfy its claim. But if a borrower does have valuables and attempts to conceal or illegitimately dispose of it then the law gives the out of luck creditor some ability to retrieve the property so that it can be used to satisfy the debt owed.
A creditor can avoid or cancel the transfer property because the law sees the transfer as an abuse having the effect of defeating the justifiable expectations of the creditor.
There are two grounds for avoidance of the transfer: actual fraud and constructive fraud.
Actual Fraud
Over the centuries courts of law have identified typical patterns of behavior that create a suspicion of fraud i.e. badges of fraud. Some badges of fraud include transfers of property to a friend, a business insider or someone with close family connections; concealment of the transfer just before litigation or in the face of impending collection activity; or the transfer of property was made just before a significant amount of debt was incurred.
Constructive Fraud
Where actual fraud goes to the intent to conceal property, constructive fraud is found where facts give rise to an unfair diminishment of the person’s estate and should not be allowed. Here there is no inquiry into the transferor’s state of mind. For constructive fraud to be established the following elements are required: 1) the transferor did not receive reasonably equivalent value in exchange for the transfer, and 2) the transferor was in a shaky financial condition at the time of the transfer. This ‘shaky financial condition’ is established in one of three ways:
1.Transferor was involved in or was about to engage in a business venture and the transfer left the debt holder with insufficient capital for the venture.
2.The transferor was about to incur debts wit the actual intention of not paying them when due.
3.The transferor was insolvent i.e. expenses exceeded income.
If you feel you may have engaged in these transactions in the past whether intentional or not talk to an experienced bankruptcy attorney.
*Some trustees will go back as far as four years.
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