Debtor's Girlfriend Used to Shield Transfers Away From Creditors.

On July 18, 2013, the debtor filed Chapter 7 bankruptcy.  Before filing, the debtor owned farm equipment, a remainder interest in his mother's property, two 40-acre parcels and a log home.  Creditors held liens on the real estate.  The debtor transferred the real estate, log home and farm equipment to his girlfriend for approximately $240,000, somewhat less than fair market value.  The debtor was left with little assets, the remainder interest.  The debtor's liabilities on his bankruptcy schedules exceeded his asset values.  After the transfers, the debtor continued to use the equipment and land and turned over crop proceeds to his girlfriend.  The girlfriend never reported the income on her returns while the debtor continued to claim farming expenses on his return along with farm income.  The girlfriend also made payments to the lien holders.  The bankruptcy trustee filed an adversary proceeding to recover the transfer of the farm equipment under 11 U.S.C. Secs. 548 and 550.  Sec. 548 allows recovery if transfer was made within 2 years of bankruptcy filing.  The court determined that the evidence established that the debtor's transfer occurred within the two-year timeframe and that the logical explanation for the debtor's payments is that they were intended to reimburse his girlfriend for making payments to the creditors.  The court also determined that the transfers to the girlfriend were made with actual intent to defraud creditors insomuch as he was an "insider" with the transferee, was insolvent at the time of the transfer and continued to use the farm equipment.  Thus, the transfer was avoidable under 11 U.S.C. Sec. 548(a)(1)(A) and 548(a)(1)(B).  The court also determined that the property was recoverable under 11 U.S.C. Sec. 550 and that the good faith transferee defense of 11 U.S.C. Sec. 548(c) which could give the transferee a lien did not apply primarily because the girlfriend, as transferee, was paying many of the debtor's debts through her personal bank account.  In re Schnoor, No. BKY 13-50630, 2014 Bankr. LEXIS 2204 (D. Minn. May 16, 2014).

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