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Creditors’ rights and fraudulent conveyances

On Behalf of | Jan 19, 2021 | Corporate Finance, Credit & Bankruptcy |

As a creditor, bankruptcy poses a very real risk. After all, a successful bankruptcy discharge could leave your bottom line hurting, in some instances significantly so. To protect your interests as fully as possible, you need to do everything you can to increase the size of the debtor’s bankruptcy estate. By doing so, you increase the chances that you’ll be able to recover some, if not all, of the debt you are owed. There are many ways to do this, but one way that we’ll briefly look at this week is showing fraudulent conveyances.

How fraudulent conveyances occur

In general, a fraudulent conveyance occurs when a debtor transfers assets to another with the intent of avoiding creditors. There are two types of fraudulent conveyances: actual fraud and constructive fraud. Actual fraud occurs when a debtor unloads assets for the purpose of protecting certain assets from the reach of creditors. Many times actual fraud is identified when a debtor takes actions such as creating shell corporations or transfers assets to individuals who are merely placeholders and who agree to allow the debtor to continue to use and essentially own the assets in question.

Constructive fraud is a little different. Here, the debtor sells assets for an amount that is much lower than the asset is worth. The asset’s worth is known as the reasonably equivalent value, which is a number that is often contested in bankruptcy proceedings. The reason for this dispute is because the asset itself or the reasonably equivalent value increases your likelihood of recouping your debt.

Fighting to protect your interests in bankruptcy proceedings

If you’re owed a significant amount of money, then you shouldn’t take a back seat in the bankruptcy process. Instead, you need to be active and find ways to recoup the debt owed to you. Looking into fraudulent conveyances is one way to do so. There are time limits that apply to these matters, though, so you need to be quick and thorough in your actions. Fortunately, law firms like ours can help you fight to protect your rights as a creditor and secure the outcome that is just.