Fraudulent Conveyance

Category: legal

The illegal transfer of property by a debtor to a third party with the intent to delay, hinder, or defraud creditors.

This is the "asset-hiding" penalty. It also applies if a debtor sells an asset for drastically less than it is worth while insolvent (e.g., selling a $1M warehouse to a friend for $100 just before bankruptcy). The trustee has broad powers to reverse these transfers and retrieve the asset.

Common Examples

• Transferring the corporate yacht to a shell company for one dollar was immediately flagged by the court as a fraudulent conveyance.
• The look-back period for a fraudulent conveyance claim can extend several years prior to the actual bankruptcy filing date.