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Looking Back for Fraudulent Transfer Claims

 In Blog, Litigation and Dispute Resolution

It is common wisdom that there is a four-year lookback period in bankruptcy for fraudulent transfer claims.  A fraudulent transfer claim alleges that the debtor transferred property to someone, and that transfer should be clawed back and brought into the bankruptcy estate.  While you might think “fraud” requires, well, real fraud, in this context “fraud” is quite broad.

So, four years is four years, unless it is longer.

In light of the broad scope of “fraudulent” transfers, the lookback period for these claims is important.  The bankruptcy trustee generally gets to look back four years from the date the bankruptcy was filed.  But a recent case from the Bankruptcy Court in the Eastern District of Tennessee teaches that the period can be even longer than that.

Judge Rucker in the River City Resort case (In re River City Resort, Inc., No. 14-10745, 2014 WL 3385234, at *3 (Bankr. E.D. Tenn. July 9, 2014)) dealt with a situation where two years prior to the bankruptcy case, a creditor sued to invalidate transfers that occurred four years before suit was brought (and thus six years before the bankruptcy case was filed).   The suit didn’t get far before the bankruptcy was filed two years later.  After the bankruptcy was filed, the bankruptcy trustee sued on those same transfers.  The defendant argued the statute of limitations, because the transfers occurred six years prior to the bankruptcy.  Judge Rucker rejected that defense, holding that the trustee could “step into the shoes of an actual creditor and bring an action that might otherwise be barred.”

So, four years is four years, unless it is longer.  This rule is important to both plaintiffs and defendants, and should be kept in mind when planning transactions.

photo credit:  Stuart Miles via freedigitalphotos.net

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