TRANSFERRING ASSETS PRIOR TO BANKRUPTCY- PART IV

What happens when someone transfers assets prior to filing bankruptcy? In prior articles we explored transfers within 90 days, two years, and four years prior to filing bankruptcy. This article explores transfers to a self-settled trust within ten years before filing bankruptcy.

TRANSFERS TO A SELF-SETTLED TRUST WITHIN TEN YEARS OF FILING A CHAPTER 7 OR CHAPTER 13 BANKRUPTCY

Under the United States Bankruptcy Code thetrustee can reach back ten years prior to the bankruptcy filing to avoid fraudulent transfers to a “self-settled trust or similar device.” 11 U.S.C. §548(e)(1).

What is a self-settled trust? Generally, it is a trust where the person who set up and provided assetsto the trust, the settlor, is also the beneficiary. Some states recognize that such trusts can protect assets from creditors, some do not. Regardless, the bankruptcy trustee can look back ten years and avoid the transfer of the debtor’s assets if the transfer of assets to such trust was by the debtor, the debtor is the beneficiary, and had actual intent to defraud.

ACTUAL INTENT TO DEFRAUD CREDITORS

The trustee must prove actual intent to defraud. The trustee must show that the debtor made the transfer, “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, indebted.” 11 U.S.C. §548(e)(1)(D).

Proving the state of mind of the debtor at the time of a transfer ten years earlier can be difficult. The trustee will look for badges of fraud, such as pending lawsuits at the time of transfer, to show actual intent.

What constitutes a fraudulent transfer or obligation prior to filing bankruptcy is a complex issue. All transfers must be disclosed to, and carefully considered by, an experienced bankruptcy attorney. With over 35 yearsof experience call or contact LONG & LONG P.C. now at 303-832-2655.