Ch. 6: Fraudulent Transfer and
Bankruptcy Considerations

• Introduction

Definition: Fraudulent transfer (also known as a fraudulent conveyance) – A transfer in derogation of the rights of a creditor to satisfy his judgment against the assets of the debtor.

• The Uniform Fraudulent Transfers Act (UFTA)

Synopsis: Discusses the basic operation of UFTA, including how UFTA creates remedies for certain creditors who appear only after the transfer has taken place.

Definition: Uniform Fraudulent Transfers Act (UFTA) – A statute that sets forth the fraudulent transfer laws of most states.

More information on the Uniform Fraudulent Transfers Act, including the text of the Act, original source materials, our commentary, and an exhaustive collection of the cases interpreting the Act, are available at http://www.assetprotectionbook.com/fraudulenttransfers.php

• Badges of Fraud

Synopsis: Discusses the result-oriented “bad tuna” test known as the “Badges of Fraud” that allows a judge to make a finding that a transfer was fraudulent even if the bright line tests were not met.

Definition: Badges of Fraud – In the fraudulent transfer context, a historically recognized non-exclusive list of circumstances that tend to show that the debtor intended to make a transfer in derogation of the rights of creditors.

The Badges of Fraud are found in Section 4(b) of UFTA at http://www.assetprotectionbook.com/section_4_future_creditors.htm but please note that this list is not exhaustive and other facts may be considered. Indeed, under the Common Law, many more Badges were identified.

• Federal and State Bankruptcy Laws

Synopsis: Discusses basic federal bankruptcy procedure, preferential transfers, and the interaction of the federal bankruptcy laws with state bankruptcy laws and exemptions.

Definition: Preferential Transfer – A transfer that has the effect of alienating property in advance of a bankruptcy filing, and which may usually be set aside by the bankruptcy court within a defined time period.

• What Is “Acceptable” Prebankruptcy Planning?

Synopsis: Discusses planning done in advance of a bankruptcy filing to protect assets that will typically not be set aside at preferential transfers.

Definition: Pre-Bankruptcy Planning – Planning that is done immediately in anticipation of a bankruptcy filing, and which seeks to maximize exemptions and avoid claims of preferential transfers.

• Proposed Bankruptcy Reform Legislation

Synopsis: Discusses anticipated changes to the federal bankruptcy laws that would have the effect of eliminating several favorable state exemptions, such as unlimited homestead protection.

Summary of New Bankruptcy Act, by Jay Adkisson
http://www.assetprotectionbook.com/Dev_May2005.htm#NewAct

Involuntary Bankruptcy as a Creditor Strategy, by Richard Reynolds
http://www.assetprotectionbook.com/Dev_May2005.htm#involuntary

• Criminal Issues in Bankruptcy

Synopsis: Discusses the criminal penalties for bankruptcy fraud and similar misconduct.

• Case Study: In re Stephen Jay Lawrence:
  Out of the Frying Pan and into the Fire

Synopsis: The example is given of the Stephen J. Lawrence case and how by filing bankruptcy he converted a purely civil dispute into years of jail time.

More information on the Lawrence case is available at http://www.assetprotectionbook.com/Lawrence.htm