Question

Debtor owes 10 creditors $50,000 and is in default on 7 of the debts. Five creditors bring lawsuits against the Debtor. Debtor’s only nonexempt asset is a valuable painting she inherited from her father, worth $40,000. Debtor sells the painting to Art Mann, a wealthy collector, for $38,000. Art Mann knows nothing of Debtor’s financial situation. Debtor deposits the cash in her bank, wire transfers the money to a Swiss bank, and disappears. Two months later, an involuntary chapter 7 for relief is entered against Debtor. Is this a fraudulent transfer? Will the transferee be protected from recovery?

Same facts except that Debtor sells the painting to Art Mann for $20,000, and Art Mann then gives the painting to his daughter. Fraudulent Transfer? Daughter protected from recovery?

Same facts except Debtor sells the painting to her mother.

Same facts except Debtor gives the painting to her mother.

Same facts except Debtor donates the painting to the Art Institute.

Answer 1

When considering filing for Chapter 7 bankruptcy, the first thing most people want to know is how much property they’re allowed to keep. The answer largely depends on the type of property you have, how much that property is worth, and the bankruptcy "exemptions" that you can use.

Scenario 1 : This is non-exempt property & defaulter has received fair market value for painting. Hence it is fraudulent transfer, but there might not be any recovery against Art Mann

Scenario 2 : Since fair value of asset is not the transaction amount, it can be determined as fraudulent transfer & can be recovered

Scenario 3 : Fraudulent transfer & can be recovered.

Scenario 4 : Fraudulent transfer & can be recovered.

Scenario 5 : Fraudulent transfer & can be recovered.