What are your options when debtors commit a fraudulent transfer?

What are your options when debtors commit a fraudulent transfer?

| Dec 3, 2020 | Consumer Debt Collection

Few things are more frustrating than securing a judgment against a debtor only to discover that they have transferred assets beyond your reach. Fortunately, you do have legal recourse for recovering what you are owed.

The Uniform Fraudulent Transfers Act (UFTA) enables creditors to take action whether their claim arose before or after the fraudulent transfer. In other words, an asset transfer could be considered fraudulent even before any lawsuit has been filed against the debtor.

Actual fraud vs. constructive fraud

There are two types of fraudulent transfers. Actual fraud involves the specific intent of defrauding creditors. Usually, a debtor will transfer assets to someone they know, typically a friend or family member, to keep their assets out of the hands of creditors. The court may apply several factors to determine whether actual fraud occurred, including:

  • Whether the transfer was concealed
  • Whether the transfer involved the bulk of the debtor’s assets
  • Whether the transfer was made before going into debt
  • Whether the debtor was subject to a collections action

Constructive fraud, on the other hand, does not require a specific intent to defraud creditors. To determine whether constructive fraud occurred, it’s necessary to look at the underlying economics of the transfer. For example, if a debtor transfers an asset for significantly less than what it’s worth, this may be a sign of constructive fraud.

Available remedies

Legal remedies are available for both present and future creditors if a debtor is found to violate the UFTA.  The creditor can file a lawsuit alleging the UFTA violations against the debtor and any and all recipients of the assets. In essence, if the asset was transferred to a friend or family member, the creditor can now bring that friend or family member into the lawsuit and hold them personally liable for the original debt as well. This creates a tremendous amount of pressure on everyone involved. The creditor can file a lawsuit alleging the UFTA violations against the debtor and any and all recipients of the assets. In essence, if the asset was transferred to a friend or family member, the creditor can now bring that friend or family member into the lawsuit and hold them personally liable for the original debt as well. This creates a tremendous amount of pressure on everyone involved. It’s also possible to receive an injunction to prevent any further transfer of assets by the debtor.

Fraudulent transfer cases can be complicated. You should work closely with a skilled legal professional who can help you recover what is rightfully yours.