There are numerous regulations in place restricting Chapter 7 bankruptcy filings to prevent abuses of the process. A surprising number of individuals or businesses will use bankruptcy not as a tool for their own protection but as a means of avoiding financial responsibility.
Fraudulent transfers are often a big part of such questionable Chapter 7 bankruptcy proceedings. The party filing will try to change ownership of property so that they don’t have to sell it off to repay creditors during a bankruptcy.
When a business or individual that owes your company money files for bankruptcy, you can fight back if you suspect recent fraudulent transfers.
You can ask the courts to look more closely
If you believe that a business has intentionally transferred assets away from the company or that an individual has made inappropriate gifts so that they will not have to liquidate property in a bankruptcy filing, you can ask the courts to intervene. A fraudulent transfer by an individual might go to someone else they know or a business they own. Businesses might transfer assets to subsidiaries or even to individuals to keep them out of the pool of assets subject to liquidation in a Chapter 7 bankruptcy.
Provided that they agree that a fraudulent transfer has taken place, they may hold the debtor responsible for that transfer. There may even be situations in which you can convince the court to exclude your debt from the bankruptcy filing entirely. Understanding your rights as a creditor who suspects fraudulent transfers as part of a bankruptcy will assist you in getting the payment your business deserves.