Articles Posted in Fraudulent Transfers

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By WPPilot (Own work) [CC-BY-SA-3.0 ( or GFDL (], via Wikimedia CommonsA federal district court in Santa Ana, California found that a quitclaim deed from a debtor to the debtor’s spouse, named as a defendant in an adversary proceeding, constituted a fraudulent transfer. In re Sui, No. 8:11-bk-20448-CB, findings of fact (C.D. Cal., Sep. 20, 2013). The court’s findings affirmed a report and recommendation by the bankruptcy court. The district court held that the defendant grantee’s failure to respond to the trustee’s discovery requests constituted an admission of the trustee’s allegations, and that the defendant failed to rebut the trustee’s evidence of fraud. It entered a summary judgment order avoiding the transfer and returning the debtor’s interest in the property to the bankruptcy estate.

The debtor filed a petition for Chapter 7 bankruptcy in July 2011. The following November, the court-appointed trustee filed an adversary proceeding against the debtor’s spouse. The debtor and the defendant had previously owned real property in Costa Mesa, California as joint tenants, but the defendant had received full title via a quitclaim deed recorded by the debtor in 2009. The debtor and the defendant were married at the time of the transfer. The trustee alleged that the quitclaim deed was an intentionally fraudulent transfer.

The trustee served the defendant with requests for admissions (RFAs) in August 2012. RFAs are a type of discovery conducted during litigation, in which one party asks another to admit or deny various questions of fact. These can be used to save time later on, such as by asking a party to admit undisputed facts, but they can also put a party on record as admitting or denying issues of fact that are in dispute. If a party does not respond to a set of RFAs within a specified period of time, usually around thirty days from the date of service, the RFAs are deemed “admitted,” and the burden falls on the non-responsive party to “un-deem” the admissions. The defendant in the present case did not respond to the RFAs at all, resulting in the court adopting the trustee’s factual allegations as true. Continue reading

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dhester from morguefile.comThe term “payday loan” refers to a financial transaction in which a lender makes an unsecured loan, usually of a relatively small amount of money, to a borrower at a high rate of interest and for a very short term. The name comes from a requirement by many lenders that borrowers repay the loan amount and interest from their next paycheck. Payday loans may present special challenges to a debtor, depending on the debtor’s circumstances and the terms of the agreement with the lender.

Payday lenders, who may also use terms like “cash advances” and “check cashing” for their business model, offer certain advantages over other forms of credit. Someone who needs money quickly, due to an emergency situation, is likely to get money far more quickly from a payday lender than from a bank. A person with a poor credit score may still be able to obtain a payday loan if they can show employment history and steady income. A typical payday loan includes the borrower’s agreement to make periodic payments to the lender, or to pay the amount back in full from a future paycheck. The borrower pays a fee to the lender that is similar to a significantly high rate of interest. The lender may require the borrower to provide a post-dated check for the total amount owed, or to provide bank account wire transfer information.

In a Chapter 7 or Chapter 13 bankruptcy case, payday loans are considered low-priority unsecured loans. At least two challenges may arise with regard to payday loans. The lender may challenge the dischargeability of the debt based on factors common to such loans. Additionally, if the borrower provided a postdated check to the lender, the automatic stay might not prevent the lender from collecting on the loan. Continue reading

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2businessbayIn a bankruptcy proceeding, a trustee may avoid transfers made, or obligations incurred, by the debtor during the two years prior to the filing date, if the transfer or obligation was actually or constructively fraudulent. 11 U.S.C. § 548(a). The Ninth Circuit recently considered whether a transfer made to pay a purported debt was constructively fraudulent, finding that the Bankruptcy Code requires courts to apply state law. In re Fitness Holdings International, Inc., No. 11-56677, slip op. (9th Cir., Apr. 30, 2013). The court articulated a procedure for evaluating a purported debt, and it held that courts have the authority to recharacterize a debt under certain circumstances.

The debtor, Fitness Holdings International (FHI), signed multiple promissory notes to its sole shareholder, Hancock Park (HP), in exchange for over $24 million in funding from 2003 to 2006. The company also received about $12 million in loans from Pacific Western Bank (PWB) in 2004, secured by FHI’s assets and guaranteed by HP. In June 2007, FHI refinanced its loans with PWB, which included favorable repayment terms and a release of HP from its guarantee. From the funds received in the refinance, FHI made a $12 million payment to HP to pay off its unsecured promissory notes. Despite these efforts, FHI filed for Chapter 11 bankruptcy in October 2008. Continue reading