Find The Avoidable Transfers Before Trustee Does

Remember “Where’s Waldo”?  As a bankruptcy lawyer, can you pick the transfer out of the crowd?

Transfer is a defined term in the bankruptcy code.  Both lawyers and clients understand a sale or a gift as a transfer.  But do you recognize the grant of a security interest as a transfer?

I conferred in a case  recently where six months before the bankruptcy filing, a business lawyer had drafted security agreements to  secure  years- old loans from family members  with  the debtor’s assets.

Those security agreements constituted transfers of an interest in the debtor’s property.  Because they benefited family members, the look back period for the trustee’s avoiding powers under §547 was 12 months.

Upon the filing of the case, two unpleasant prospects loomed:  the family members stood to become merely unsecured creditors, and the debtor’s calculation of assets available to the trustee just increased by the value of the security held by creditors with avoidable security interests.

§101(54) reads

(54) The term “transfer” means—

(A) the creation of a lien;
(B) the retention of title as a security interest;
(C) the foreclosure of a debtor’s equity of redemption; or
(D) each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with—
(i) property; or
(ii) an interest in property.
Add the “creation of a lien” and the “grant of an interest in property” to the patterns you search for in your debtor’s affairs.

Image courtesy of gabemac.

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  • http://www.bourguignonlaw.com George E. Bourguignon, Jr.

    Avoidable transfers are a tough subject to cover and take a great deal of energy to uncover.  Yes, you still have to find them before the trustee though.  Thank you.

  • Berta

    my hasband and I bough a house when we were married and hi did a quitclaim and order to avoid giving me the house or sale it before I have filed for divorce