A fraudulent transfer is when a person who is in debt sells or gives away something valuable without receiving a fair price for it.
- If you sell your Ferrari to your brother for $1, that is a fraudulent transfer.
- If you sell your Ferrari to your brother for its Blue Book value, that is not a fraudulent transfer
The goal of fraudulent transfer laws is to prevent people from getting rid of valuable assets which might otherwise be sold to pay creditors.
After all, it isn’t fair if you give away all of your valuable property and then file bankruptcy when you could have sold your property and used the sale proceeds to pay off the debt.
In practice, there are lots of things which ordinary people do all of the time which are not attempts to hide money from creditors or to defraud creditors, but can still count as fraudulent transfers.
Things such as:
- Having your paycheck direct-deposited into someone else’s bank account
- Taking your name off of someone’s car title
Count as fraudulent transfers
What about property?
Another common place where people intend well but get bad results is where a family owns a cabin.
In Minnesota, it is common for families to put everyones’ name on the deed to the cabin.
- If a person’s name is on the deed to a property, that person owns the property
This is true even if the name is on the deed only “in case something happens.”
Parents and grandparents often put their childrens’ names on the deed to a cabin and don’t tell the children about it, or the children don’t understand that they own the cabin.
- If a child then gets into debt, the child’s creditors, or the bankruptcy trustee can sell the cabin to pay the creditors
HOW DO I FIX A FRAUDULENT TRANSFER?
There are some defenses against a fraudulent transfer claim.
A good Minnesota bankruptcy attorney will find out if you have any defenses and make sure that creditors do not pursue you or your friends and family unjustly.
- The best ways around a fraudulent transfer are usually to either wait it out, or to prove that you were not insolvent at the time of the transfer
- Waiting it out can be difficult because the statute of limitations is either 2 or 6 years from the date of the transfer
- Proving that you were solvent (you have more assets than debts) is also difficult
In the Minnesota bankruptcy court, the only assets that count for this are:
- Assets OTHER THAN your home
- Retirement accounts
- Some of the equity in your car
The home and retirement accounts are the largest assets of most Americans, so the best way to prove that you were solvent at the time is to show that you had no debts and were paying all of your bills on time.
Can you simply give the asset back?
- Under Minnesota bankruptcy law, you may not undo a fraudulent transfer by giving back the transferred asset.
An obvious solution is for the recipient of the valuable asset to simply give it back.
However, there is a court opinion saying that giving back a fraudulently transferred asset is like trying to put the money back in the bank vault after robbing the bank.
I don’t think that is true, because if the debtor has the asset again, then they can sell the asset to pay creditors.
The whole point of fraudulent transfer law is to keep assets available for creditors. If the asset goes back to the debtor’s ownership, then it is available to creditors again, and they are not harmed.
If you’re struggling financially and worried about fraudulent transfer, then why not contact us at 612.824.4357 now, and tell us how we can help you?