FRAUDULENT TRANSFERS VS. PRE-BANKRUPTCY PLANNING
A person who merely transfers non-exempt assets to exempt assets on the eve of a bankruptcy filing is not by itself proof of fraud which would necessitate a bar to that person’s bankruptcy discharge. Rather, extrinsic evidence is required in order to set aside a transfer as fraudulent. This is what the Bankruptcy Court in the Western District of Wisconsin, by Judge Thomas Utschig, held in one particular bankruptcy case, In re Bronk, No. 09-15224-7. In that case, the debtor took out a loan on his mortgage free home in the amount of $95,000.00 and used that money to fund several college savings plans for his grandchildren. In addition, the debtor converted a certificate of deposit in the amount of $42,000.00 to an annuity. By doing this, the debtor was transferring his non-exempt assets to exempt assets in attempt to protect them in the bankruptcy action. The bankruptcy trustee objected on the grounds that the transfers were attempts to defraud the debtor’s creditors. The Bankruptcy Court disagreed with the trustee and found that pre-bankruptcy planning does not bar a discharge of one’s debts absent some act extrinsic to conversion that indicates fraud. A person’s desire to protect one’s assets in a legitimate way by proper use of the available exemptions is simply not evidence of fraudulent intent.