Maine Bankruptcy and Debt Relief Blog
Posted on 02/03/2006 at 05:27 pm by
Viewed 1,544 times
Bankruptcy Article #10
Transfers of property are deemed fraudulent if the transfers are incurred with the actual intent to hinder, delay, or defraud a creditor, or if less than reasonably equivalent value is given in exchange for the transfer and the debtor was insolvent at the time of the transfer. See 11 U.S.C. Section 548(a). Fraudulent transfers are avoided pursuant to 11 U.S.C. Section 550, and the trustee is able to preserve the transfer under 11 U.S.C. Section 551. Preservation of the transfer is important when the transfer is a judicial attachment or execution and there are subsequent attachments, liens, mortgages, or encumbrances. The trustee is able to place himself or herself in a superior position to those subsequent transferees and thereby protect or collect on an asset upon which others also have claim.
Under Section 548 of the Code, trustees have one year from the date of filing of the petition to initiate a fraudulent transfer action. This limited time period will occasionally cause trustees to ignore this provision of the Code in favor of 11 U.S.C. Section 544(c). Section 544(c) permits the trustee to avoid any transfer of an interest of the debtor in property that is voidable under applicable law by a creditor holding an unsecured claim. This section of the Code allows the trustee to utilize state statutes to support his or her claim that an improper transfer should be avoided or reversed. In Maine, trustees have used Section 544(c) to bootstrap themselves into position to use 14 M.R.S.A. Section 3571 et. seq., otherwise known as the Maine version of the Uniform Fraudulent Transfer Act.
The Uniform Fraudulent Transfer Act provides trustees with a formidable weapon in the recovery of transferred assets. The Act has a two pronged mechanism for trustees: first, trustees can assert that the transfer provided the transferee with a greater recovery than the transferee is entitled and second, that the transfer is without reasonable consideration. The first mechanism is more like a preference argument for the trustee while the second is similar to a fraudulent transfer analysis. This powerful tool is lethal in the hands of a trustee since it incorporates the best of the Section 547 preference with a Section 548 fraudulent transfer with a six year statute of limitations.
Recent First Circuit decisions related to fraudulent transfers include Howison v. Hanley 141 F.3d 384 (1st Cir. 1998) in which a debtor's transfer of his joint tenancy interest in his home to his wife at the time of a refinancing of the home was determined to be fraudulent; In re HealthCo International, Inc. 136 F. 3d 45 (1st Cir. 1997), in which a leveraged buy out of a troubled company was alleged to be a fraudulent transfer due to the amount of consideration provided to the debtor; and In re Rauh 119 F.3d 46 (1st Cir. 1997) wherein joint account transfers by the debtor's spouse were alleged to be fraudulent transfers.
The Howison v. Hanley case is particularly instructive regarding the role that state statutes play in fraudulent transfer analysis. The debtor claimed that the transfer was of exempt property and therefore not a fraudulent transfer. The First Circuit noted the interplay of the state exemption statute with the state fraudulent transfer statute, but summarily dismissed the debtor's argument that exempt property can not be fraudulently transferred.
Read more news in the Molleur Law Blog. You can read about everything that's going on at Molleur Law.
419 Alfred Street
537 Congress Street, Suite 411