What They Are | How to Avoid Them
The American bankruptcy laws were established to provide debtors with an opportunity for a fresh start. Bankruptcy allows you either to discharge or restructure debt and protects you from harassment by creditors. But there are rules you must follow that insure the process also is fair to creditors. One of the most important is that you may not make “fraudulent transfers” in anticipation of filing for bankruptcy.
What Is a Fraudulent Transfer?
A fraudulent transfer is one knowingly made with the intent to shield assets or property from creditors in a bankruptcy proceeding. It may be done innocently or with malicious intent. For example, a person may transfer valuable property to a friend or distant family member with the intent of reclaiming it once the bankruptcy is over. A fraudulent transfer also may occur when a debtor innocently sells property for less than fair market value.
Minimizing the Risk of a Fraudulent Transfer
If the bankruptcy court or trustee determines that you have conveyed property for less than its fair market value, or with the intent to keep it out of the bankruptcy estate, the transaction can be invalidated and the property reclaimed for the benefit of creditors. To minimize the risk of this happening, you should ensure that any property sold before filing for bankruptcy is conveyed at or above fair market value. If you are uncertain of the prevailing market price, have the property appraised by a knowledgeable professional. Be certain to keep written documentation of what is sold, how much is paid, and the date of sale. You can protect cherished property—e.g., a rare book collection, heirloom jewelry, and other items—by selling them to friends or family members and repurchasing them later. However, the transaction must be an “arms-length” transaction, and the property must actually be conveyed.
Contact Attorney Howard N. Sobel
At the office of Howard N. Sobel, we provide comprehensive counsel to individuals throughout New Jersey who wish to address financial challenges through a bankruptcy petition. Contact our office online, or call us at 856-424-6400 to see if you qualify for a free initial consultation (on selected cases). Evening and weekend appointments can be arranged upon request. We accept all major credit cards.
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