Bankruptcy Hijacking

Apparently, bankruptcy hijacking is a scheme that has taken off in the Central District of California. It looks like what happens is someone transfers their property into the name of a debtor in bankruptcy to take advantage of that debtor’s automatic stay. As you might imagine, this is wrong and a problem on many levels. The debtors often have no idea this is happening and never accept title to the property. But the transfer can cause significant problems in the debtor’s bankruptcy. Section 362(d)(4) provides that if such a transfer is intended to defraud a creditor, the creditor can be granted significant relief. However, a finding that such a transfer was done with intent to defraud a creditor can cause other problems in the bankruptcy case for the debtor unless there is a finding that the debtor had no involvement in the scheme.

I have not seen similar problems in Fresno, but debtors and attorneys for debtors should keep a watchful eye out for this, because problems in Southern California often make their way north to the Eastern District.

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