Transfer of property to a spouse to frustrate creditors

Here at Shenwick & Associates, we often get questions from clients if they may transfer a house or an apartment from one spouse to the other after being sued or prior to a bankruptcy filing. In In re Panepinto, Case No. 12-11230K (Bankr. W.D.N.Y., Feb. 25, 2013), an upstate Bankruptcy Court considered this question and held that such a transfer could be a fraudulent conveyance and set aside.

In this case, in 2008 a judgment creditor was seeking to collect on a debt owed by Mrs. Panepinto, an insolvent who owned a house with no mortgages or other liens encumbering the property. So, to thwart her judgment creditor, she transferred the house to her husband with no consideration for the transfer.

Last year, Mrs. Panepinto filed for Chapter 13 bankruptcy, and her judgment creditor sought to set aside the transfer as a fraudulent conveyance under New York Debtor and Creditor Law §273. The Bankruptcy Court sustained the judgment creditor's challenge to the transfer.

The lesson is that before transferring ownership in property, a debtor should seek advice from an experienced bankruptcy attorney, such as Jim Shenwick.