Asset Protection

WHEN FRAUDULENT TRANSFERS BECOME UNCONTESTABLE

The time period within which creditors must challenge a fraudulent transfer is governed by the state's statute of limitations. This time period is usually four years after the transfer, or one year after actual discovery of the transfer could have been reasonably made by the creditor, whichever date came later. Under this common rule, a fraudulently transferred asset is never completely safe as a creditor can always argue the recent discovery of the earlier transfer. This allows the creditor one more year to set aside a transfer that may have occurred many years earlier.

States with fraudulent conveyance statutes generally impose the more strict five-year statute of limitations. Later claims are not allowed regardless of when the creditor discovered the transfer. This is the prevailing rule as most states have the stricter fraudulent conveyance statutes. But do check the laws in your state so you know when creditor recovery claims become barred. Tip: Conduct the more questionable transfers of personal property in a state with the shorter statute of limitations. Real estate is always considered transferred in the state where it is located.

Fraudulent transfer actions are very frequently initiated by a trustee in bankruptcy who will claim the bankrupt fraudulently transferred assets before the bankruptcy. Under bankruptcy law, the trustee has two years from the first meeting of creditors to commence a fraudulent transfer claim. And under the Bankruptcy Code, a fraudulent transfer must occur within the year preceding the bankruptcy. But earlier transfers are not necessarily safe because the trustee can elect to sue under the state's fraudulent transfer laws rather than bankruptcy law, because the state statute of limitations extends beyond the shorter one-year statute of limitation under bankruptcy. Delay bankruptcy as long as possible if you have questionable transfers in your past. Avoid bankruptcy for at least one year. The bankruptcy court can also refuse to discharge debts when a debtor engaged in a fraudulent transfer or other inequitable conduct.