There is a myriad of rules related to bankruptcy – outlining what debtors and creditors can do and what they can’t. One of these rules relates to “fraudulent transfer.”
Fraudulent transfer occurs when a debtor transfers assets to another person – often a family member – while insolvent and with the intention of defrauding creditors.
Both the United States and Wisconsin have laws regarding the fraudulent transfer of assets, with the U.S.’s law called the Uniform Voidable Transactions Act (UVTA) and Wisconsin’s law called the Uniform Fraudulent Transfer Act.
Because these illegal transfers are governed by both federal and state law, it’s best to hire an experienced Milwaukee fraudulent transfer attorney who can help protect you from damage from fraudulent transfers.
What Are Some Types of Fraudulent Transfer?
As we mentioned above, fraudulent transfer generally occurs when a debtor transfers assets to another person – often a family member – while insolvent and with the intention of defrauding creditors. This is legally known as “actual fraud.”
However, fraudulent transfers can also constitute “constructive fraud.” Constructive fraud occurs when a debtor sells assets for less than a reasonably equivalent value.
For example, this includes an insolvent family member selling assets to relatives at a heavy discount. Additionally, this may occur if the debtor “gits” assets to family members or friends.
Of course, in bankruptcy proceedings, debtors and creditors may argue about what is “reasonably equivalent value” when determining if a fraudulent transfer occurred.
What Can Creditors Do If Fraudulent Transfer Occurs?
If a fraudulent transfer occurs shortly before a debtor files for bankruptcy, then creditors can have these assets “avoided” by the court. In other words, the court may “undo” the asset transfer.
Under the federal bankruptcy code, the fraudulent transfer must have occurred within two (2) years of the bankruptcy filing. In Wisconsin, the time period is extended to four (4) years.
A Rather Well-Known Example of Fraudulent Transfer
In the 1960s and 1970s, Raymond Colliery Co., Inc. and its subsidiaries (known as the Raymond Group) were one of the largest anthracite coal producers in the U.S. However, the Raymond Group began facing financial difficulties, rendering it insolvent.
However, seven shareholders of the Raymond Group received $6.7 million through several transfers, which the company’s creditors challenged. The Raymond Group was unable to prove that it received “reasonably equivalent value.” Thus, the court determined that these transfers constituted fraudulent transfers.
This example is cited in numerous U.S. court cases, including cases in Wisconsin, serving as a warning to any business owners trying to skirt their debt obligations.
Business Bankruptcy Lawyers in Milwaukee
Our Milwaukee fraudulent transfer lawyers at Kerkman & Dunn have significant experience avoiding such transfers and holding principals liable when they attempted to hide behind the corporate veil. The result is collecting a debt that otherwise would not have been collected.
Call our offices today to speak with an experienced Milwaukee fraudulent transfer attorney who can help protect you from damage from fraudulent transfers.