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Home 9 Chapter 7 Bankruptcy 9 Recent USSC ruling clarifies relationship between ‘actual fraud’ and fraudulent conveyances

Recent USSC ruling clarifies relationship between ‘actual fraud’ and fraudulent conveyances

by | Jun 13, 2016 | Chapter 7 Bankruptcy

We’ve been looking in recent posts at the issue of fraudulent transfer and what bankruptcy law says on the matter. Last time, we mentioned the term actual fraud, which is a term used in the bankruptcy code. The law prohibits the discharge of debts obtained by false pretenses, false representation or actual fraud.

Last month, the United States Supreme Court ruled in a case involving an issue which was causing a split among circuit courts: whether the term actual fraud includes fraudulent conveyances, even those in which there was no false representation. The court ultimately ruled in the case that the term actual fraud does include fraudulent conveyance schemes, including those in which there is no false representation made.

Without going too much into the details of the case, the court based its decision at least partly on the fact that the term fraud, in the context of bankruptcy, historically meant asset transfers which impaired a creditor’s ability to collect a debt. The upshot of the case is that a fraudulent conveyance could be considered actual fraud in bankruptcy, which can result in inability to discharge debts.

Those who are considering a bankruptcy filing should always work with an experienced advocate to ensure that they have guidance navigating bankruptcy law and the court system. This is particularly important for those who have made transfers that could be considered fraudulent conveyances prior to their filing. Working with an experienced advocate ensures that unnecessary problems are avoided in bankruptcy and that any problems which do come up are handled as effectively as possible.

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