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When your bankrupt customer transfers assets

Times are hard, but then times are always hard for someone. Your business may be going along fine, but one of your customers or clients may be struggling. The first signs of this struggle are typically late payments for goods or services your company provided. While you certainly understand what it's like to have financial difficulties, the fact is that your business depends on the timely payments of your customers.

If you have sent warnings and reminders to your delinquent customer without satisfaction, it may not have come as a surprise when that client filed for bankruptcy protection. What may have surprised you was learning that your delinquent client also transferred assets that should have been liquidated to pay you.

Fraudulent transfer

When a customer files for bankruptcy, the court usually appoints a trustee to oversee any financial transactions and examine any transfers of money or property in the time leading up to the bankruptcy filing. A trustee may suspect that a transfer is potentially fraudulent if certain conditions exist, including:

  • Money or property your client gave as gifts, especially to someone who was closely related
  • Transfers your client made in secret
  • Transfers of a significant portion of your client's assets
  • Transfers occurring even though your client was unable to pay what he or she owed you
  • A pattern of transfers from your client
  • Transfers of assets that should have been nonexempt

The bankruptcy trustee has the power to attempt to reclaim any fraudulently transferred assets; however, if this effort fails, the trustee may file a lawsuit, called an adversary proceeding, to force the recipient of the assets to return them to the bankrupt estate. If the trustee decides not to pursue this action, you have the right to attempt to reclaim the assets.

Fighting for what is rightfully yours

Business transactions rely on the honesty and good faith between the business and the client. If a customer breaches that trust through fraudulent transfer, you have the right to pursue every legal avenue to make it right. After all, if you held up your end of the deal, why should your business suffer?

Seeking correction for a fraudulent transfer is complex, and you may benefit from having the counsel of an attorney who has years of experience assisting business owners like you in attempting to reclaim the payment you deserve.

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  • Santa Clara County Bar Association | 1917
  • American Inns of Court
  • CWL | California Woman Lawyers
  • Bay Area Bankruptcy | Forun
  • The State Bar of California
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