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What Is A Fraudulent Transfer And How To Collect?

What Is A Fraudulent Transfer And How ToWhat Is A Fraudulent Transfer of Property? Collect?  There are times when a person or company may try to avoid payment of a debt or potential debt by fraudulently transferring property to family, friends or other third parties. This is sometimes referred to as an attempt to become “judgment proof.” If you are a creditor of the person or company, can you recover the property fraudulently transferred? Can you collect from a person receiving the property?

The business litigation attorneys of Brown & Charbonneau, LLP can help. Under the Uniform Fraudulent Transfer Act, a creditor may seek to have a fraudulent transfer set aside and a judgement entered against a person receiving fraudulently transferred property, or place a lien on property fraudulently transferred. We have experience going to trial on these issues and have litigated the nuances and potential pitfalls for the inexperienced.

Fraudulent Transfers

The Uniform Fraudulent Transfer Act (“UFTA”) provides two primary tests for determining when a transfer is “fraudulent.”

A transfer is fraudulent under the UFTA if the debtor made the transfer with an actual intent to hinder, delay or defraud any creditor. In considering the intent of the debtor, a variety of factors may be considered, such as:

  • Whether the transfer was to an “insider,” such as a family member
  • Whether the debtor kept possession or control of the property after the transfer
  • Whether the transfer was concealed or hidden
  • Whether the transfer occurred shortly before or shortly after a substantial debt was incurred
  • Whether the debtor had been sued or threatened with a suit before the transfer was made
  • Whether the transfer was of substantially all of the debtor’s assets
  • Whether debtor received reasonably equivalent value in exchange for the property transferred

There is no minimum number of factors that must be present to support a finding of fraudulent intent. Fraud may be found where only one or two factors are present, and may not be found at all where several factors are present. The courts use these and other factors merely as a guide.

A transfer is also fraudulent if the debtor made the transfer without receiving reasonably equivalent value in exchange for the property, and the debtor:

  • Was engaged or about to engage in a business or transaction for which the debtor’s remaining assets would be unreasonably small,
  • Intended to incur, or believed (or reasonably should have believed) that he or she would incur debts beyond their ability to repay, or
  • Was insolvent at the time of the transfer, or was made insolvent by the transfer

Under these circumstances involving transfers for less than equivalent value, fraud is implied under the UFTA even in the absence of any showing of fraudulent intent by the debtor.

Creditor’s Rights

Fraudulent Transfers - How to Collect

Fraudulent Transfers

If a transfer is fraudulent under either of the above tests, the creditor may file a lawsuit to set aside the transfer to satisfy the creditor’s claim, and obtain a judgment against the transferee of the asset. The judgment is limited to the lesser of the amount necessary to satisfy the creditor’s claim, or the asset’s value when the fraudulent transfer was made.

A creditor may also file a lawsuit to establish a lien against the property fraudulently transferred, or for a court order preventing further transfer of the property or any proceeds.

Good Faith Transferees

A transfer that would otherwise be capable of being set aside (voided) for fraud may not be set aside against a person who took the property in good faith and for a reasonably equivalent value.

“Good faith” means the transferee did not actively participate or collude with the debtor in any fraudulent scheme.

Getting Legal Help

Call us today at 714-505-3000 or contact us online to schedule a consultation and learn more about how we can help you.

Brown & Charbonneau, LLP represents individuals as well as large and small companies in cases involving all forms of fraudulent transfer claims and judgment avoidance. If you are involved in a fraudulent transfer claim or would like to learn about your rights and how to protect your interests, we can provide you with the information you need.