Gifts may allow debtors to avoid their obligations

Gifts may allow debtors to avoid their obligations

On Behalf of | Jul 17, 2024 | Commercial Debt Collection, Consumer Debt Collection

There are many ways for an individual debtor to avoid their financial responsibilities. Some people ignore phone calls and return mail to delay collection efforts. Others may take much more extreme steps in pursuit of limiting collection efforts.

For example, someone who owes money to a business might recognize that a creditor could potentially sue them. They might take aggressive steps to prevent a creditor from forcing them into paying what they owe. Some people quit jobs with decent salaries to avoid wage garnishment. Others may intentionally give away assets that could help repay creditors. Such tactics may constitute fraud and could provide creditors with an opportunity to take legal action.

Creditors can fight fraudulent conveyance

The law allows creditors to take legal action against those who don’t fulfill their financial obligations. Those enforcement efforts can involve seeking to garnish someone’s wages or place a lien against their property. The courts can potentially order the liquidation of resources to force the repayment of a debt in some circumstances.

Those who want to avoid responsibility for their debts while simultaneously protecting their assets may try to diminish their personal holdings, at least on paper. They may give away some of their property to friends or family. Those gifts are not sincere transfers of ownership but rather an attempt to avoid collection activity.

Other times, a debtor might sell an asset for a fraction of its fair market value to someone who agrees to sell the item back to them in the future. Both of those scenarios might constitute fraudulent conveyance. Proving that someone sold an asset for an inappropriate amount or gave it away to avoid collection efforts could help a creditor prevail in court.

How creditors prove fraudulent conveyance

Establishing that a debtor has inappropriately transferred or sold assets isn’t an easy process. Businesses attempting to collect on debts often need to initiate lawsuits so that they gain access to financial records through the discovery process.

At that point, they can potentially identify high-value assets and fraudulent transfers before moving forward with the litigation process. Fraudulent conveyance is just one of many unethical tactics individuals may employ to avoid personal financial responsibility.

Organizations attempting to collect on consumer debts often have numerous challenges ahead, especially if the situation requires legal action. Securing support when analyzing different collection options can be beneficial for California companies not receiving what they deserve from individual debtors.