Uniform Fraudulent Transfer Act

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.”)
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This post is the second in a series in which I will discuss fraudulent transfers.  I have been told that my posts are too long.  Therefore, today I’ll briefly discuss the source of a bankruptcy trustee’s fraudulent transfer avoidance powers.

B.        The Trustee As Heir To Creditors’ Avoidance Power

One of the complications associated with fraudulent transfer jurisprudence in bankruptcy is found, not in 11 U.S.C. § 548 (the statutory section dealing with fraudulent transfers), but in 11 U.S.C. § 544(b)(1) (emphasis added):

Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502 (e) of this title.

This means that the trustee  can appeal to nonbankruptcy law to avoid a fraudulent transfer.
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