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Fraudulent Transfer Issues

Fraudulent Transfers

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.
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