Occupied Residence Becomes Part Of Bankruptcy Estate

In a recent Chapter 7 bankruptcy, the bankruptcy court challenged the debtor who transferred a property into a trust within two years prior to filing bankruptcy.  The bankruptcy court ruled that the transfer of the property was fraudulent because the debtor did not receive equivalent value for the transfer.

The Details of the Bankruptcy Case

The issue in this case stems from Debtor’s conveyance of her one-half interest in the Property to the Jody Aiello Trust. Plaintiff contends that the conveyance is fraudulent under 11 U.S.C. § 548. According to 11 U.S.C. § 548(a)(1), a trustee may avoid any transfer of an interest of the debtor in property that was made within two (2) years before the date of the filing of the petition if the debtor voluntarily or involuntarily:

(B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and

(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation. . .

The parties agree the transfer was made within two (2) years of filing the petition and that Debtor was insolvent or became insolvent as a result of the transfer. Debtor contests the allegation that she received less than reasonably equivalent value in exchange for the transfer.

While the debtor claims that the property has no value, the fact is that it was appraised at a value of $161,000 with no liens against it. Furthermore, the debtor has rented out the property to a tenant at no cost other than the obligation of the tenant to pay property taxes and maintain the property.  The transfer of the property to the trust and then the rental to the tenant at no cost constitutes an unfair exchange.  Because of this and the fact that the debtor could regain the property if the tenant failed to keep up his end of the bargain, the bankruptcy court ruled that the property should be part of the bankruptcy estate.