Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Feb 14, 2020

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If you are planning to file for bankruptcy in the near future, it is important to consider the gifts you have given to family members in the recent past. Giving large gifts or transfers that are under fair market value to an “insider” within two years of filing for bankruptcy can trigger the finding of a fraudulent transfer under federal law. An insider is someone who is related to or close to the individual or business, like a family member, another member of the business entity or other affiliate of the individual or business. Further, while federal law only looks back two years, many state bankruptcy laws include their own version of the fraudulent transfer time period. In some states, the court may look back for a period of up to seven years before the debtor filed for bankruptcy to determine if there were any fraudulent transfers.

How Courts Uncover Fraudulent Transfers

While there are several ways a court may find a fraudulent transfer, it is important to note that a fraudulent transfer can be voluntary or involuntary, as well as intentional or in good faith. A court will find a fraudulent transfer when a debtor transfers his assets to an insider for the purpose of protecting his property from future bankruptcy proceedings. A court may also find a fraudulent transfer when the debtor gives a large gift to a family member, with no intention of trying to shield the asset from his creditors.

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Unfair Preference Fraudulent Transfers

Another type of fraudulent transfer is an unfair preference. This means that when an individual or a business favors a creditor or pays off one particular creditor too soon after filing for bankruptcy, this unfair preference can trigger the finding of a fraudulent transfer. While many people would prefer to pay back family members before other creditors, this can cause problems down the line. Under federal law, a large payment to an insider is an unfair preference when made within one year of filing for bankruptcy. A large payment to a creditor is an unfair preference when made within three years of filing for bankruptcy.

Consequences of Fraudulent Transfers

When a fraudulent transfer is found, the court will recover the property or the value of the property and consider it an asset for bankruptcy purposes. Further, if the court finds that the fraudulent transfer was done to intentionally shield the asset from bankruptcy, the court will not allow the debtor to go through with the bankruptcy.

Getting Help

Fraudulent transfer in bankruptcy law does not mean that you are barred from giving any gifts to family members. Small customary gifts, generally under $200 in price, will not give rise to a presumption of fraudulent transfer. However, before you give any gifts or transfer any assets, you should consult with a bankruptcy attorney to prevent creating problems for yourself down the line.