Scura, Wigfield, Heyer, Stevens & Cammarota Blog
The Truth about Transferring Property on the Eve of Bankruptcy
If you have recently had a judgment entered against you or if you believe that a judgment may be entered against you soon, then you may be panicking trying to figure out how to protect your assets The thought of transferring assets out of your name to a friend or family member prior to filing for bankruptcy may enter your mind as a potential solution to your problems However, this blog will explore the consequences of these transfers on the eve of bankruptcy and the effects they can have on the transferee (the person the property was transferred to).
Section 548 of the Bankruptcy Code Allows for the Trustee to Recover Fraudulent Transfers of Property
Section 548 of the Bankruptcy Code states that the “trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or involuntarily- (A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation was incurred, indebted; or (B)(i) received less than reasonably equivalent value in exchange for such transfer or obligation; and (ii) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation; (II) was engaged in business or transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital; (III) intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured; or (IV) made such transfer to or for the benefit of an insider, or incurred such obligation to or for the benefit of an insider, under an employment contract and not in the ordinary course of business.”
As a debtor, it is your obligation to disclose a transfer made outside your ordinary course of business or financial affairs within two years of the bankruptcy filing on your statement of financial affairs. The statement of financial affairs is a section of the bankruptcy petition, which is the document filed at the outset of your case providing a complete disclosure of your assets, liabilities, creditors and financial affairs. Failure to disclose such a transfer will be considered bankruptcy fraud, which can subject a debtor to various penalties including jail time. In short, transferring property without receiving fair value will be problematic for the individual or entity receiving the transfer, since the trustee will likely seek to recover the transfer from the recipient of the transfer.
The Bankruptcy Code and New Jersey State Law Allows a Trustee an Increased Lookback Period for Fraudulent Transfers
11 U.S.C. § 544(b) also allows a trustee to utilize state law avoidance powers to recover property for the bankruptcy estate. Therefore, the Trustee is not limited to the fraudulent transfer statute within the Bankruptcy Code. In the State of New Jersey, the look back period for a fraudulent transfer is four years and the statutory elements are different than the one provided for in the Bankruptcy Code Under New Jersey Statutory Law, there is a fraudulent transfer avoidance statute applicable to present and future creditors and one that is only applicable to present creditors.
N.J.S.A. 25:2-25(b) states that “[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (1) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (2) Intended to incur, or believed or reasonably should have believed that the debtor would incur debts beyond the debtor’s ability to pay as they become due.”
Additionally, N.J.S.A. 25:2-27(a) states that “[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.”
Accordingly, if you are looking to file for bankruptcy in the State of New Jersey, there is a significant look back period that a trustee will have at his disposal to avoid transfers where the debtor did not receive reasonably equivalent value in exchange for the transfer
If you are considering filing for bankruptcy, it is important to contact an experienced New Jersey bankruptcy attorney to guide you through your options and present you with the potential pitfalls. For questions regarding a potential bankruptcy, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.
Whether you need to completely eliminate your debt through Chapter 7 bankruptcy, or need to reorganize your credit payments through Chapter 13 or Chapter 11, we are well qualified as a full-service bankruptcy law firm for people in these and other New Jersey counties: Passaic County, Hudson County, Essex County, Bergen County, Morris County, and Sussex County. Call us today at 973-870-0434 or toll free 888-412-5091.
Prior to joining Scura, Wigfield, Heyer, Stevens & Cammarota, LLP, David Sklar graduated from Rutgers University-Newark School of Law with a J.D., Cum Laude. Mr. Sklar was the recipient of a Pro Bono Award and was honored by the New Jersey Bar Association for his commitment to the Street Law Program by being awarded the Street Law Prize.
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