Fraudulent or Preferential Transfers

A transfer of the debtor’s property to another party in order to deter, hinder or defraud a creditor, or to unfairly place such property out of the reach of a creditor is a fraudulent transfer under § 548 of the Bankruptcy Code. In bankruptcy cases, a trustee is given the power to set aside or avoid these transfers under either federal law or state law.

This is limited to transfers during the 2 year period prior to filing the petition.

Aside from §548, there is a wholly separate line of attack for the trustee trying to avoid a fraudulent transfer. This is §544(b) of the Bankruptcy Code, which provides that the trustee may avoid a transfer “that is voidable under applicable law by a creditor holding an unsecured claim.” This means that the trustee may look to non-bankruptcy law (usually “state” law) and deploy any avoiding power that he finds there. The most common use of §544(b) is to give the trustee a right of action under state fraudulent transfer law, the UFTA or UFCA.

State law claims may allow the trustee (or DIP) a longer reach-back period based on the state Statute of limitations.