CBS Fraudulent Transfers & Avoidance Actions 1 — Questions and Answers
Question 1: Under the Bankruptcy Code, what is the standard look-back period for avoiding fraudulent transfers made to non-insiders?
- 1 year before the bankruptcy filing
- 2 years before the bankruptcy filing (Correct answer)
- 4 years before the bankruptcy filing
- 6 years before the bankruptcy filing
Correct answer: 2 years before the bankruptcy filing
Section 548 of the Bankruptcy Code allows trustees to avoid fraudulent transfers made within 2 years before the petition date.
Question 2: Which of the following elements must a trustee prove to avoid a transfer as an 'actual' fraudulent transfer under Section 548?
- The debtor received less than reasonably equivalent value
- The debtor was insolvent at the time of transfer
- The debtor made the transfer with actual intent to hinder, delay, or defraud creditors (Correct answer)
- The transfer occurred within 90 days of filing
Correct answer: The debtor made the transfer with actual intent to hinder, delay, or defraud creditors
Actual fraudulent transfer requires proving the debtor's intent to hinder, delay, or defraud creditors, which distinguishes it from constructive fraudulent transfer.
Question 3: A 'constructive' fraudulent transfer under Section 548 requires proof that the debtor received less than reasonably equivalent value AND which of the following?
- The transferee had knowledge of the fraud
- The debtor was insolvent, undercapitalized, or unable to pay debts as they came due (Correct answer)
- The transfer exceeded $10,000 in value
- The transfer was made to a family member
Correct answer: The debtor was insolvent, undercapitalized, or unable to pay debts as they came due
Constructive fraud under Section 548 requires both inadequate consideration and one of three financial conditions: insolvency, unreasonably small capital, or inability to pay debts.
Question 4: Under Section 544 of the Bankruptcy Code, the trustee is granted the 'strong arm' powers of which party?
- A secured creditor with a perfected lien
- A hypothetical lien creditor, judgment creditor, and bona fide purchaser of real property (Correct answer)
- The bankruptcy court itself
- The U.S. Trustee Program
Correct answer: A hypothetical lien creditor, judgment creditor, and bona fide purchaser of real property
Section 544 gives the trustee the powers of a hypothetical lien creditor, judgment creditor, and bona fide purchaser, allowing avoidance of unperfected security interests.
Question 5: A debtor transfers property to a creditor on account of an antecedent debt while insolvent, 45 days before filing bankruptcy. This transfer is most likely avoidable as a:
- Fraudulent transfer under Section 548
- Preferential transfer under Section 547 (Correct answer)
- Post-petition transfer under Section 549
- Statutory lien avoidance under Section 545
Correct answer: Preferential transfer under Section 547
A transfer to a creditor for a pre-existing debt while insolvent within 90 days of filing meets the elements of a preferential transfer under Section 547.
Question 6: Which 'badges of fraud' is most commonly cited as evidence of actual fraudulent intent in transfer avoidance litigation?
- The transfer was made for fair market value
- The transfer was made to an unrelated third party
- The transfer was made to an insider shortly before filing bankruptcy (Correct answer)
- The debtor had substantial assets remaining after the transfer
Correct answer: The transfer was made to an insider shortly before filing bankruptcy
Transfers to insiders (family members, business partners) shortly before bankruptcy are classic badges of fraud indicating intent to hinder creditors.
Question 7: If a trustee successfully avoids a transfer under Section 548, what remedy is typically available under Section 550?
- The trustee may recover the property transferred or its value from the transferee (Correct answer)
- The transferee receives an administrative expense priority claim
- The debtor is automatically denied a discharge
- The court imposes criminal penalties on the transferee
Correct answer: The trustee may recover the property transferred or its value from the transferee
Section 550 allows the trustee to recover the transferred property itself or its monetary equivalent from the initial transferee or certain subsequent transferees.
CBS Fraudulent Transfers & Avoidance Actions 1
Under the Bankruptcy Code, what is the standard look-back period for avoiding fraudulent transfers made to non-insiders?