This post is the third in a series in which I will discuss fraudulent transfers.  It covers the statutory definitions.  This one’s a bit long because the definitions are a bit labyrinthine.  If you think it’s dry, then avoid Syrahs and stick to Rieslings.

C.        The Definition Of Fraudulent Transfer

1.        The Intent Definition

i.          The Bankruptcy Code’s Definition

11 U.S.C. § 548(a) contains two independent definitions of fraudulent transfer.  We begin with the first definition, found in § 548(a)(1)(A).  A transfer is fraudulent (with emphasis added):

if the debtor voluntarily or involuntarily — made such transfer or incurred such obligation 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 or such obligation was incurred, indebted.

An interesting feature of this definition is that the transfer need not have been voluntary on the part of the debtor.  Thus, even though the term “fraudulent transfer” seems to imply ill intent on the part of the debtor, the debtor might not have wanted the transfer to take place.  The statutory ill intent is on the part of the transferor, who may or may not be the debtor.

This first definition in the Bankruptcy Code captures the essence of Horace’s behavior.  (Horace was the ancient Roman we met in our first fraudulent transfer post.)  The transfer was done with the intent to hinder, delay, or defraud the creditor.  An important feature of this definition is that it requires the transfer to have been made after the debt in question was incurred.  Therefore, using § 548 the trustee would be unable to avoid transfers that antedated the incurrence of the debtor’s debts.  This is in contradistinction to the first definition given in California’s UFTA.  (As with the Bankruptcy Code, the UFTA has two independent definitions of “fraudulent transfer.”)
Continue Reading Fraudulent Transfers III