What is Fraudulent Conveyance in Bankruptcy?
Fraudulent conveyance is when a bankruptcy debtor transfers something of value, such as cash, real estate or other assets to someone or something else. If this transfer of wealth is made with the intention of defrauding the creditors, made while the debtor is insolvent or is transferred for considerably less value than it's worth, the bankruptcy trustee will label it fraudulent conveyance.
The usual suspects in fraudulent conveyance are friends, family and close business acquaintances. If the bankruptcy trustee notices that certain assets or cash has been transferred to any of these three classes of individuals in the few years preceding the bankruptcy filing, he/she will inspect the transfers for signs that there's fraudulent conveyance.
Something For Nothing
Selling houses, cars and other assets for pennies on the dollar will raise the suspicions of the bankruptcy trustee. For example, the most common transfer is selling real estate property for $1 (or some other ridiculously low dollar amount) in the hopes of protecting it while in bankruptcy. This type of transfer will receive the fraudulent conveyance label and the trustee will void the transfer. A void of the transfer means that the real estate or other asset will return to the bankruptcy estate.
Losing The Bankruptcy Discharge
If the fraudulent conveyance is relatively recent, within the past year or two, the bankruptcy trustee may refuse to grant the debtor a bankruptcy discharge. But this is usually reserved for the worse offenses. A debtor who transferred assets due to ignorance not malice isn't likely to lose their bankruptcy discharge.