Many people that find themselves in serious debt trouble, lawsuits or judgments, decide to file bankruptcy to discharge or cancel their debts.

But if they own a lot of "non-exempt" property that they would lose to a bankruptcy trustee, they may also decide to transfer that property to someone else before they file bankruptcy, so that it is no longer in their name and won't be taken by the trustee and sold to pay creditors.

That's why there are "fraudulent transfer" laws, that allow a creditor or a bankruptcy trustee to go to court and ask a judge to reverse transfers that were made by a debtor in anticipation of bankruptcy, or made without consideration, i.e. a gift to a friend or relative, for example.What happens is, they sue your friend or relative (in addition to you) to get a court to order them to give the property back, then they seize it to satisfy the court judgment.

If you see that you are going to have to file bankruptcy, and you want to transfer assets to someone else, how long do you have to wait after the transfer before a bankruptcy trustee can no longer reverse the transfer?

There is a time limit, a "statute of limitations" after which creditors or trustees can no longer file a fraudulent transfer action in court. Prior to today, I would have said that the time limit is 4 years, because that is the Texas state statute of limitations for fraudulent transfers.

But a recent court case from the Southern District of Florida has held that if the debtor (the person or company that filed bankruptcy) also owes an unsecured debt to the I.R.S, then the bankruptcy trustee can "step into the shoes" of the I.R.S., and use the 10 year I.R.S. statute of limitations to go after property transfers that occurred as long as 10 years before the filing of the bankruptcy. In re Kipnis, Bankr. S.D. Florida 2016.

The court cited a number of cases that agree with the holding, from various jurisdictions. The court stated that not many bankruptcy trustees had used this procedure, probably because the holdings are not well-known. 

So if you have made transfers of property to avoid creditors or to avoid a bankruptcy trustee, and you owe an unsecured claim to the I.R.S., you would have to wait ten (10) years after the transfers were completed, to be certain (as certain as you can be) that the transfers would not be attacked by a bankruptcy trustee as a fraudulent transfer. 

So you think this is a fair ruling? Do you think creditors or bankruptcy trustees should have this much power, to go back and try to reverse transfers of property that happened 10 years prior to a bankruptcy filing? Please leave your comments or questions below.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
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