Michael Vick’s Gifts May Result in Fraudulent Transfer Lawsuits

The Wall Street Journal’s Bankruptcy Beat Blog reports that the Bankruptcy Trustee is going after Michael Vick for making allegedly fraudulent transfers to family and friends. Well, the Trustee is technically going after the family and friends to recoup the $2 million in gifts and transfers.

Under Section 548 of the Bankruptcy Code, a trustee can reach back and recover transfers within two years of the case filing, where the debtor had “intent” to delay or defraud creditors or where the debtor didn’t receive “reasonably equivalent value” in exchange for the transfer. This is fairly common: as things start going bad, an insolvent person transfers his valuable property to others in order to keep it out of his creditors’ reach.

But, where a bankrupt just gives money or property to others, particularly friends and family, that puts a big target on those recipients. The goal of the fraudulent transfer statute is to recover those assets, and then distribute them evenly to all creditors–not just the people the debtor likes. (Note to Creditors: Most states have similar laws as well.)

So, whether the goal was to protect his assets or help his family, all Vick did was get them sued in Bankruptcy Court.

How to Get a Chapter 7 Trustee’s Attention: Show Off Your Stuff on TV

In most cases, Chapter 7 Bankruptcy Trustees have far more cases than they have time to focus on each case. It’s common that there are 30-40 cases on each 2 hour docket.

But, a sure-fire way to stand out and really get the Trustee’s attention is show off your wealth on reality TV. That’s what one cast member of The Real Housewives of New Jersey did, and, now, in her individual Chapter 7, the Trustee’s scrutiny of her disclosures revealed that the debtor failed to disclose all her assets, which may allow the Trustee to contest the discharge under 11 U.S.C. 727.

A bankruptcy discharge wipes out all debt, but the price to be paid for that benefit is that a debtor must disclose everything–both debts and assets. From a creditor’s perspective, a well-informed Trustee can be the last hope for any recovery.