Proving Intent in a Fraudulent Transfer Bankruptcy Case

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What is a “Fraudulent Transfer”?

Fraudulent transfer refers to a transfer wherein the debtor rearranges or moves assets to a different account or owner in order to hide them from creditors.  Such acts are usually done in connection with bankruptcy proceedings and are considered illegal. 

Fraudulent transfers are also commonly made in connection with debt discharge as well as debt collection efforts.  The term is also used interchangeably with “concealment of property”.

Some types of acts that can be considered fraudulent transfers include:  falsifying documents or record books, failing to explain discrepancies in credit statements, and transferring property without notifying an interested creditor.

What is Fraudulent Intent?

In order for a person to be liable for fraudulent transfer, it must be proven that they acted with fraudulent intent.  That is, their act must be motivated by the intent to deceive, hinder, delay, or defraud the creditor who is trying to obtain a proper statement. 

So for example, if a person accidentally fails to record a certain transfer, they probably can’t be held liable for fraudulent transfer, since they didn’t act intentionally. 

On the other hand, if a person demonstrates an intent to hinder or frustrate the efforts of a creditor, they might be held liable for fraudulent transfer, even if the act wasn’t necessarily fraudulent.  An example of this is when a person purposefully avoids responding to collection communications. 

What Can be Used as Evidence of Fraudulent Intent?

When proving fraudulent transfer, a court can use a variety of means to prove that the person actually acted with fraudulent intent.  For example, a judge may look to circumstantial evidence as well as evidence based on the person’s conduct. 

In most fraud cases, the defendant won’t likely testify that their intent was fraudulent.  Thus, the court may have to look to the following as evidence of fraudulent intent:

All of these different circumstances may provide evidence in support of a fraudulent intent.  While they may not necessarily prove fraudulent transfer in themselves, they can definitely be damaging for the debtor’s defense.  This is especially true if it can be shown that the debtor engaged in a number of the acts listed above.

Are there any Defenses for Fraudulent Transfer Allegations?

Yes- the most common defense in a fraudulent transfer case is lack of intent.  That is, if the debtor didn’t act purposefully or intend to defraud their creditor, they can’t be held liable for fraudulent transfer.  In most jurisdictions, the burden of proof is on the debtor to show that they lacked the required intent.
Another common defense that is raised in response to fraudulent transfer is that of mistake.  That is, if the creditor made an error or mistake in any of their communications, it might be used as a defense in court.  A common mistake is for creditors to confuse the identity of their clients, especially those who have a very common name (such as John Smith). 

Do I Need a Lawyer if I am Accused of a Fraudulent Transfer?

If you are being accused of a fraudulent charges, you may wish to contact a lawyer immediately.  Your lawyer will be able to assist you with your case and can determine if you have any defenses available in your favor.  In any fraudulent transfer case, it needs to be proven that you acted with fraudulent intent.  If you lacked the required intent when you acted, you cannot be held liable for fraudulent transfer. 

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Last Modified: 08-17-2011 11:39 AM PDT

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