Fraudulent Transfer Litigation

Every state in the in the United States has its own fraudulent conveyance law. Additionally, the Bankruptcy Code has its own fraudulent conveyance law.

There are two types of fraudulent transfer claims under the bankruptcy law – actual fraud and constructive fraud.

To succeed on a claim of actual fraud, the plaintiff must prove that the transfers at issue were made: (1) within a year of filing the bankruptcy petition; and (2) made or incurred with actual intent to hinder, delay or defraud a creditor of the debtor.

To succeed on a claim of constructive fraud, the plaintiff must prove that the transfers at issue were made: (1) within a year of filing the bankruptcy petition; (2) the debtor received less than reasonably equivalent value ; and (3) the debtor was either insolvent at the time of the transfer or was made insolvent as a result of the transfer.

Insolvency is not presumed in a fraudulent transfer action under the bankruptcy law.

There is a “good faith transferee” affirmative defense available to fraudulent transfer defendants. It says that a transfer may not be avoided to the extent of the value given, so long as the defendant received the transfer in good faith and for value. Good faith requires: (1) an arm’s length transaction; (2) belief that the transfer in question was proper; (3) no intent to disadvantage others; and (4) no intent or awareness that the transfer would hinder, delay or defraud others.

Under state law, the fraudulent transfer look back period is often longer than the 1 year provided for under the bankruptcy law.