Authors

Yaakov Seff

Document Type

Research Memorandum

Publication Date

2018

Abstract

(Excerpt)

The fraudulent conveyance provision of the Bankruptcy Code, (“the Code”), Section 548, is an “elemental and ancient provision of debtor-creditor relations.” It provides that “[t]he trustee may avoid any transfer ... of an interest of the debtor in property ... that was made ... within two years before the date of the filing of the petition . . .” where the transfer involved actual or constructive fraud.

But the ability to avoid fraudulent transfers is not limited to the bankruptcy context; parallel provisions are found in several areas of the federal legislation. For instance, there is a fraudulent transfer provision in the federal tax laws (“If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount ... shall be a lien in favor of the United States upon all property and rights to property . . .”,) and the Fair Debt Collection Practices Act (“FDCPA”) (“a transfer made or obligation incurred by a debtor is fraudulent as to a debt to the United States . . .”,), the statute that governs the collection of debts owed to the federal government.

A central issue in interpreting these provisions is how broadly to define “property.” Recent decisions addressed this point in a situation where the debtor disclaimed assets that were coming to a debtor from another source, typically money receivable upon the death of a wealthy relative. The effect of the disclaimer would be to fully renounce the debtor’s interest in the property and the assets would pass to the next beneficiary. The courts considered whether such a renunciation amounts to a fraudulent transfer of “property” that can be avoided by the creditor as a fraudulent conveyance.

The courts have applied different standards to the same transaction, depending on the statute involved. Specifically, the courts have drawn a distinction between the Bankruptcy Code and other statutes. This memorandum will explore this distinction in a three-fold approach. Part I will demonstrate that courts adopt a broad interpretation of property in the tax lien context. Part II will establish that a similarly broad definition has been embraced under the FDCPA. And Part III discusses the narrow definition of property followed by the courts in the bankruptcy context and the rationale for a different standard under the Code.

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