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.
(54) The term “transfer” means—
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