Potentially yes, unfortunately.
I have three questions that will help me give you a more concrete answer:
1) How long before the bankruptcy was filed was the money lent to the borrower?
2) What is the borrower's relationship to the debtor (i.e. friend or family)? If family, what is the specific relationship (i.e. mother-daughter, sister-brother, etc.)?
3) How much money did the debtor lend to the borrower?
hi, this is just a general open-ended question, but assuming it was longer than 12 months after the money was lent, please give different situation for when and when it will not be done
also, assume it was family (cousin, aunt, uncle, etc)
If it was definitely more than twelve months between the date the money was lent and the date the bankruptcy was filed, the Trustee would likely only be able to clawback the money lent under Section 548 of the Bankruptcy Code, Fraudulent transfers and obligations.
Section 548 provides that the Trustee may avoid a transfer that was made within 2 years of the bankruptcy filing date, if:
(a)(1)(A) the transfer was made with "actual intent to hinder, delay, or defraud" [actual fraud]
(a)(1)(B) the transfer was made at a time when the debtor was insolvent or became insolvent because of the transfer, and the debtor received less than "reasonably equivalent value" in exchange for the transfer; OR the transfer was made to or for the benefit of an insider (an "insider" is defined elsewhere in the Code as a relative of the debtor or of a general partner of the debtor, if the debtor is an individual) [constructive fraud].
(Under (a)(1)(B), note that no intention to defraud is necessary).
In the 43 states that have adopted the Uniform Fraudulent Transfer Act, the Trustee may also be able to file parallel state law claims in order to extend the potential lookback period to four years rather than two.
Scenario where the Trustee would likely be able to clawback a pre-petition transfer: X loans his cousin Y $50,000. 18 months later, X files for bankruptcy. At the time of filing, Y has only repaid $10,000 of the loan. The Trustee would probably be able to claw back $40,000 from Y.
Scenario where the Trustee would probably not be able to clawback a pre-petition transfer: X loans his cousin Y $50,000 to buy a brand-new Hummer. Y buys a Hummer for $50,000 and X records a security interest in the vehicle. 18 months later, X files for bankruptcy. At the time of filing, Y has only repaid $10,000 of the loan. The Trustee probably would not be able to claw back the additional $40,000 from Y (the bankruptcy estate would still have a lien on the vehicle, however).
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