Bankruptcy

Are Support Payments To Debtor's Parents Prior To Filing Bankruptcy Reversible Fraudulent Transfers?

By Jonathan Alper

If a debtor transfers money to his parents prior to filing Chapter 7 bankruptcy the bankruptcy trustee could try to recoup the money from the parents as recipients of fraudulent transfers. The general rule is that prospective bankruptcy filers should not try to remove non-exempt assets from their bankruptcy estate by transferring the asset to parents or other family members.

A client consulted with me today about the benefits and risks of his filing bankruptcy. The client is a well-paid computer consultant who will pass the means test because of significant ongoing medical expenses. The client?s family lives in India. The family is not well-off and they depend upon the client for support. Each month during the past few years this client sends money to help support his parents so they can have what we would consider necessities of life. Over the past year he has paid is parents over $20,000.

In most cases the transfer of $20,000 from a bankruptcy debtor to his parents within the year prior to bankruptcy could be reversed as a fraudulent conveyance. This case is different. I don?t think the client?s support of his parents evidences his intent to hide the money from his creditors. Among other reasons, he has been paying support for many years and did not increase transfer amounts prior to bankruptcy. I don?t think it is reasonable for this client to cut off financial support and deprive parents of basic necessities in order to file bankruptcy; some readers may disagree.

This clients questions illustrates that fraudulent transfer analysis depends on the facts of each case. All transfers prior to bankruptcy are not automatically fraudulent transfers. The most important element in fraudulent transfer law is the debtor?s intent. Transfers intended primarily for purposes other than hindering or delaying creditors are not reversible as fraudulent transfers.

Full post as published by Florida Bankruptcy Law on April 29, 2010 (boomark / email).