Fraudulent Transfer Issues

DIS: whereas a preference is strictly mechanical, a fraudulent transfer involves the transfer of property of the Estate for inadequate value (“constructive fraud”) or actual fraud.

Key Inquiry: effect the transfer has on the Estate

e.g. Conditions for a fraudulent transfer mirror the Uniform Fraudulent Transfer Act 740 ILCS 160/1

• A gift or transfer of debtor’s property
• for little or no value
• while debtor was or became insolvent as a result
• Debtor knew he could not pay his debts or obligations
• With intent to hinder, delay or defraud creditors

Avoiding Fraudulent Transfers
§548 of the Code grants Trustee the ability to recover fraudulent transfers on behalf of the Estate.

Time Limitations

• According to §548 the Trustee may avoid a fraudulent transfer that occurred within one year of the filing of the subject case, unless State law provides a longer statute of limitations.
• The Illinois Fraudulent Transfer Act (UFTA) can extends the 1 year limitation to 4 years. Establishing a case for recovery
• 2 out of the following must be proven before the Court can find a fraudulent transfer:

• Actual fraud: intent to hinder delay or defraud;
• Constructive fraud: inability to repay debts;
• Less than equivalent value for the transfer.