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The Bankruptcy Hotline

By ALM Staff | Law Journal Newsletters |
September 01, 2003

Bankruptcy Counsel Not Liable for Debtor's Fraudulent Transfer

In an unreported decision, the Third Circuit has ruled that an attorney's mere assistance of a client in a fraudulent asset transfer is not sufficient cause for liability. In re Yacuk, 02-2926 (August 20).

A husband and wife hired an attorney to transfer their home to their son for $1. The couple told counsel they were making the transfer because their son was paying the household bills. Counsel was told there were no judgments, liens or claims against the couple and he prepared the closing documents. In addition, the attorney also prepared a letter stating that he had not done a title search and could not make any representations with regard to liens or encumbrances. A year later the mortgagee on the property foreclosed on the property and it was sold to a third party. After the husband and wife were sued for fraudulent conveyance in state court, they filed for bankruptcy. The suit was removed to bankruptcy court and the attorney was added as a defendant. The bankruptcy court dismissed the count against the attorney and held the mother, father and son liable for fraudulent conveyance. The district court affirmed.

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