Avoiding Fraudulent Conveyance in New York

Fraudulent transfers of property are not protected in bankruptcy

When filing for bankruptcy, some of your assets may be sold by the bankruptcy trustee to generate cash to pay your debts to creditors. If to avoid your property being taken for the benefit of your creditors, you sold or transferred ownership of your assets prior to the bankruptcy filing, the trustee has the right to investigate the transfers and cancel them if found to be fraudulent conveyances.

What the trustee looks at

Any conveyance made within 90 days prior to your bankruptcy filing may be set aside by the trustee. The New York fraudulent conveyance act allows a look-back period of one year if:

  • The conveyance was made to a relative or business colleague
  • You intended to deprive creditors of the benefit that the sale of the asset would bring
  • You did not receive reasonable compensation for the property conveyed and one of the following is true:
    • You were insolvent at the time of the conveyance or the conveyance transaction caused you to become insolvent
    • Your business became undercapitalized due to the conveyance transaction
    • You knew you would not be able to pay your debts

When conveyances are fraudulent?

Perhaps none of your conveyances are fraudulent. After all, until an unsecured creditor has a judgment against you, that creditor has no legal interest in your property and you should be free to do whatever you want with your property. Right?

Not quite right. It depends on your timing, your actions, and your intentions.

Actual fraud and constructive fraud

The bankruptcy court in applying fraudulent conveyance law considers a conveyance to be actual fraud if the conveyance occurred within one year prior to the bankruptcy filing and if the creditor challenging the conveyance can prove that you conveyed the property with the intent to defraud creditors.

The bankruptcy court considers a conveyance to be constructive fraud if you received less than the reasonable value of the property when you conveyed it and you couldn’t pay your debts at the time of the conveyance or the conveyance transaction caused you to become unable to pay your debts. Your intent is irrelevant to constructive fraud.

Remember, timing counts. An asset transfer to avoid creditors completed at least one year prior to filing for bankruptcy is not a fraudulent conveyance; it is asset protection!

When a conveyance is found to be fraudulent, the bankruptcy trustee can seize the property or its value from the new owner and include it in your bankruptcy estate to be used for the benefit of your creditors. There are two exceptions:

  • If a bona fide purchaser bought your property without knowing of your creditors’ claims, the purchaser gets to keep the property.
  • If contractors have improved the property without being paid, their mechanic’s liens are allowed to secure payments.

Let an experienced bankruptcy lawyer help you avoid fraudulent conveyances

If you intend to file for bankruptcy in New York, fraudulent conveyance may be a concern to discuss with a qualified bankruptcy attorney. Contact The Law Office of Gregory Messer online or at 718-717-2368 to schedule a free initial consultation. Our office is located across the street from the U.S. District Bankruptcy Court in Brooklyn and is close to the Borough Hall and Court Street subway stations. We serve residents throughout Brooklyn, Bronx, Manhattan, Staten Island and Long Island.

To ensure every client receives the personal attention he or she deserves, we are an appointment-only law firm with flexible hours adjustable to fit your needs.

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