Whenever I teach a continuing legal education bankruptcy seminar, I always get questions about fraudulent transfers. Bankruptcy Code Section 544 as well as the Official Code of Georgia make transfers by an insolvent debtor to another person for less than market value a fraudulent transfer.
The Bankruptcy Code gives trustees the right to recover fraudulent transfers and Section 727 of the Code makes a fraudulent transfer grounds to deny a debtor’s discharge.
I think that fraudulent transfer cases can be especially dangerous because the law that has developed around this area often defies common sense. Often the neither the debtor nor the transferee has any bad intention and, in the 11th Circuit, you cannot "undo" the transfer. Attorneys not famliar with this area of the law are often surprised at the harsh results that follow.
I recently came across a case out of Ohio that illustrates how unforgiving the fraudulent transfer law can be. The Ohio case involved a situation where a young man transferred title to a motorcycle to his father. The young man’s wife did not like having the motorcycle around. The father never drove the motorcycle nor did he ever insure it. My guess – although the case does not say this – is that the son periodically drove the motorcycle away from the watchful eye of his wife.
In any case, the father found himself in financial trouble and in need of bankruptcy relief. Prior to filing the father "gave" the motorcycle back to his son.
When the father filed bankruptcy, the trustee asserted that the transfer was fraudulent and demanded that the motorcycle be turned over to the bankruptcy estate. The Ohio bankruptcy judge agreed with the trustee and found that the transfer was, indeed fraudulent.
My collegues in the Bankruptcy Law Network have written extensively about fraudulent transfers and I urge you to review their postings. The point here – if you are considering bankruptcy, think hard about any transfer that you might have made even if you never really considered the property to be yours. These type of "oh, by the way" matters are the statements that keep bankruptcy lawyers up at night.