Ch 7 Non-Consumer debt case & Fraudulent transfer

[cridge]

I need advise...I am being told by my atty that the trustee after my 341 meeting this week may file a fraudulent transfer case...here are the details:
I have been helping my fiance cover her monthly expenses for the last 2 years due to her unemplyment and can show each month where the money I have given to her has gone to pay her living expenses. Does this sound like a grounds for fraudulent transfer?

[HHM]

Depends...

1. How much money are we talking about?
2. During this 2 years, were you paying your debts?

You will want or read bankruptcy code section 548. Fraudulent transfer does require "intent" to hinder, delay, or defraud an entity (e.g. creditors). Given the circumstances, that may be difficult to prove in the situation you describe, but that doesn't necessarily mean the trustee won't try. But, it sounds like a long shot.

[cridge]

Over the last 2 years it was probably $30,000, but I was never late on any payments to any creditors. The reason I filed ch7 bk was because of a default judgement that was entered 2/2011. This judgment was not pursued until 10/2011 and I can't pay the large amount of the judgment so I filed ch7 on 1/2012. At the time I filed I had about $25,000 in cc debt but was current on all payments.
To me, since I always paid my creditors, I don't think it would be considered fraudulent transfer.
Not that it matters but we did get married last October.

[despritfreya]

Depends... 1. How much money are we talking about? 2. During this 2 years, were you paying your debts? You will want or read bankruptcy code section 548. Fraudulent transfer does require "intent" to hinder, delay, or defraud and entity. . .

Be careful. Intent to hinder etc is not required and, while the disclosure requirements on the Statement of Financial Affairs is a 2 year period and 548(a)(1) references 2 years the Trustee can utilize state law which typically is a 4 year window.

All the Trustee has to show is that you did not get an equal exchange for value and, at the time of the transfer(s), that you were insolvent. Making your payments as they come due (minimum payments included) does not show that you were not “insolvent” at the time you gave money to your fiancé. Insolvent means “financial condition that the sum of (your total) debts is greater than all of (your) property at a fair valuation exclusive of. . . property that may be exempted from property of the estate. . .”

Chances are you were “insolvent” as that term is defined under 11 USC 101(32) and the Trustee has the right to recover the $$. How much are we dealing with? If it is not a substantial sum, sounds like a compromise settlement is in your future.

Des.

[HHM]

Desp...You are referencing 548(a)(1)(B), I am referencing 548(a)(1)(A).

I would pose this question...what is the "expected" "reasonably equivalent value in exchange for a "GIFT". At least, that is how I would pose the issue. Also, in any case, there are good facts and bad facts.

But you are correct, The trustee has an argument under 548(a)(1)(B)(ii)(I). But, the trustee will need to establish a "date" of insolvency. Maybe the debtor was not insolvent during the entire avoidance period.

In any event, I hope the OP reports back on the outcome?

As with any litigation in bankruptcy, after a preliminary review of the facts, I would pose the issue like this:
1. Estimate the cost in attorney fees to fight, probably $5,000 in this case.
2. Offer Trustee a settlement in the range of, not to exceed, the cost of attorney fees to fight.
3. If trustee refuses, fight it...the debtor has nothing to lose, it delays when payment would need to be made (assuming you lose) and you might actually win.

[despritfreya]

I would pose this question...what is the "expected" "reasonably equivalent value in exchange for a "GIFT". . .

Good question and we have a name for this: "The ____ Principle". I can't fill in the blank since it is the last name of our client that got caught on this issue.

There is never a reasonable equivalent value for a "gift". The issue will turn on the amount paid in the last 2-4 years. If it is simply a few hundred dollars here and there, probably not worth the Trustee's time. But if it amounts to thousands then the Trustee will go after the $$. In our case we settled for about $50k and that was after we were able to trace the gifts back and forth showing at least a partial equivalent exchange for value.

Des.

[cridge]

As stated, the amount of financial help I gave to my fiance and now wife was probably $30,000-$40,000 over the last 2 years to help with living expenses and bills while she tried to find another job. I can at least reconcile where this money went and for what. I was always able to pay my bills and never late and always paid more than the minimums on all CC debt. I don't think I would have been considered insolvent based on my total debt of probably $28,000 and my income of over $100,000 until the default judgement was being pursued in 10/2011. It was after this that I filed for ch7 bk in 1/2012 because I certainly could not pay the judgment.

[justbroke]

I would only add that the Trustee is interested but hasn't made any moves to actually attempt to claw back the alleged conveyance. It's always a tough position when you're dealing with a non-spouse.

[HHM]

What was the default judgment about or for...?

[despritfreya]

the amount of financial help I gave to my fiance and now wife was probably $30,000-$40,000 over the last 2 years. . .

This is a sufficient amount for the Trustee to mess with. There is a relatively simple solution but may not be the one you want to hear. Assuming the issue takes on a life of its own, other than settling, your (now) wife could file her own bk. Your Trustee would be nothing more than a general unsecured creditor in her case and subject to the entry of her discharge.

In the case we handled that had this issue, we were dealing with the client's spouse. Normally, in a community property state this is not an issue, however, in this case, the couple were to live separate financial lives through a valid and enforceable pre nuptial agreement. Unfortunately for them, they constantly violated the agreement by each paying the other's bills, hence the transfer/accounting issue. The non-filing spouse was not a bk candidate therefore, once we had a handle on the accounting we opted to negotiate a settlement.

Des.

[justbroke]

That would be an awesome case to litigate Des. It has everything you could ever want in a bankruptcy!

[HHM]

LOL, nice solution Desp, BK the spouse

[justbroke]

All you need is a murder too. (There was a case where i think the co-debtor murdered his wife and then wanted to do something with the case.)

[cridge]

I checked PACER today and it says "Meeting of Creditors Held - Asset. Trustee requests Notice of Assets be sent to all creditors. "
What exactly does this mean?

My atty said that the trustee was to send a request to explain where some of the money went for (1) month written to my now wife. It was actually the month before we were married and I had a check for $1100 to reimburse her for (3) dress and shoes for the wedding. I also paid the rent to her apt. which the lease is in my name. Seems that I would have received "value" in the check for the wedding expenses?

Thanks for all the help in your responses!

[despritfreya]

I checked PACER today and it says "Meeting of Creditors Held - Asset. Trustee requests Notice of Assets be sent to all creditors. " What exactly does this mean?

The Trustee believes there will be assets to distribute. This does not mean there will be a distribution it only means there may be one and he is asking the Clerk to issue a bar date notice to creditors to file claims. This probably all leads back to the conveyance issue with the fiance and the ability of the Trustee to recover the funds.

Des.