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fraudulent transfer

Fraudulent transfer or conveyance , in a bankruptcy  case, means a transfer of property  to another for less than the property's value for the purpose of hiding the property from the bankruptcy trustee . While the law governing fraudulent transfer may differ across states, Section 548 of the U.S. Bankruptcy Code protects bankruptcy trustees from fraudulent transfers in bankruptcy cases. Section 548 of the U.S. Bankruptcy Code covers two categories of fraudulent transfers; actual fraud and constructive fraud. 

• Actual fraud refers to the transfer of property “with the intent to hinder, delay, or defraud any entity to which the debtor was or become . . . indebted."
• Constructive fraud refers to transferring property for “less than a reasonably equivalent value” (see: 11 U.S. Code § 548 - Fraudulent transfers and obligations ).

In United States v. Frykholm, 362 F.3d 413  , the 7th Circuit held that “a conveyance is fraudulent when the debtor receives less than a reasonably equivalent value in exchange for such transfer or obligation and the debtor was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation.” For instance, when a debtor signs a car over to a relative to keep it out of the bankruptcy estate . Fraudulently transferred property can be recovered and sold by the trustee for the benefit of the creditors through fraudulent transfer lawsuits.

[Last reviewed in February of 2025 by the Wex Definitions Team
] 

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