Adversary Proceedings For Bankruptcy: A Guide To Fraudulent Transfers

24 June 2015
 Categories: Law, Articles

National debt in the United States of America has surpassed a formidable $18 trillion. As the U.S. continues to slide deeper into debt, more and more Americans struggle financially. More than 1 million Americans file for bankruptcy each year to alleviate the financial stress on their shoulders. When filing for bankruptcy, a trustee, your creditors and the court will review your bankruptcy application in detail to determine whether your application should be approved. If there are any discrepancies, the bankruptcy proceedings can be interrupted by an Adversary Proceeding (AP), which is basically a civil case filed by one or more Plaintiffs. This article will examine Adversary Proceedings as they apply to fraudulent transfers.

Understanding Adversary Proceedings

The bankruptcy trustee will file an Adversary Proceeding if there are any discrepancies, concerns or inaccuracies surrounding your bankruptcy application or case. For example, the bankruptcy trustee may believe that you have made fraudulent transfers or preferential transfers. An Adversary Proceeding can also be filed if the trustee would like to debate the dischargeability of a debt.

Adversary Proceedings are filed within your bankruptcy case; however, the contents of the case will have its own separate case number and may require a different attorney. If you receive a complaint, you must respond to any allegations that have been made against you. If not, the bankruptcy trustee will receive a default judgment against you.

The Basics of a Fraudulent Transfer

If you have transferred any assets, such as property or money, to another person within two years of filing for bankruptcy or within the time limit allowed by your state – whichever is greater – to hinder, delay or defraud your creditors, you have committed fraud. If your bankruptcy trustee decides to file an Adversary Proceeding against you, he or she is looking to collect the property you transferred, so that it can be distributed back to your creditors. However, the burden of proof is on the trustee.

There are two different types of fraudulent transfers that you may be guilty of. They include:

  • Actual fraud. This type of fraud can be difficult for the trustee to prove, as he or she must have evidence that the transfer was intended to delay, hinder or defraud the creditors and made with the purpose to keep the funds away from the bankruptcy estate. Actual fraud transfers must have been made within one year of the bankruptcy filing.
  • Constructive fraud. This type of fraud is much easier to prove. Your trustee does not need to prove that the transfer was made with malicious intentions. You could have committed constructive fraud transfers with innocent intentions. The trustee only needs to prove that the debtor that you paid did not receive a reasonably equivalent value for the transfer. For example, if you did a favor for a buddy by selling him or her your car at a price lower than the market value of the car at the time, the trustee may claim that you have committed constructive fraud although you may not have intended to do so.

If the bankruptcy trustee is able to prove that you have made fraudulent transfers, he or she may be able to collect some of the assets through a court order to pay off your creditors. The amount that is collected will also then be calculated as an asset in your bankruptcy filing.


If you receive a complaint from the bankruptcy trustee, who has brought an adversary proceeding regarding fraudulent transfers, speak with a bankruptcy attorney immediately to figure out what you should do next. Fortunately, there are many defenses that can be used against these claims. If the trustee succeeds in his or her complaint, numerous changes may be made to your bankruptcy filing. For example, you may have too many assets to qualify for chapter 7. This is why you should work with an experienced attorney like Wade Bettis, J.D., Ph.D., PC.