Let’s assume that you lost your job and are no longer able to make the mortgage payments on your house, so you quitclaim the house to your son who takes over the mortgage payments. Your house has equity of $70,000. Next week, you decide to file for Chapter 7 relief because you owe $50,000 of credit card debt. The bankruptcy trustee then sues your son to get the house back into your bankruptcy estate because he argues that the transfer to your son was preferential and at the expense of your credit card creditors. Trustee intends to sell the house and use the net proceeds to pay off your credit cards. After suing your son, the trustee also sues you to get the $70,000 from you as an alternative saying the transfer to your son was fraudulent. Note that there are two different legal issues here. The first issue is the FRAUDULENT TRANSFER to son. The second issue is RECOVERY of the amount transferred from the right person, the debtor father or the son.

§550 of the bankruptcy code is the applicable law on this matter. It states that “…the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from- (a) the initial transferee of such transfer or the entity for whose benefit such transfer was made; or (2) any immediate or mediate transferee of such initial transferee. What this means is if it is found that there is a fraudulent transfer, the trustee can recover the property from the son, the transferee, but not the debtor father, the transferor, unless it was for the father’s benefit that the transfer was made. If the father testifies that he made the transfer to his son because he could no longer make the mortgage payments because he lost his job that would mean that the transfer may not have been made for his own benefit.