Some people with legitimate financial obligations want to do whatever they can to avoid their financial responsibilities to others. Creditors may struggle to collect a debt from an individual who doesn’t mind quitting their job, changing their phone number or moving to a new home to avoid or at least delay collection efforts.
Occasionally, creditors have to take legal action to assert their right to repayment. They can go to court and ask for a lien against real property. Other times, creditors can pursue a wage garnishment that allows them to intercept a portion of a debtor’s paycheck without relying on them to pay voluntarily.
Sometimes, people who owe money may try to diminish their personal holdings prior to or in response to a creditor lawsuit. In such cases, creditors could ask the courts to intervene and hold the debtor accountable. What might constitute a fraudulent transfer?
1. Funding a trust
One of the most common tactics people use to protect specific assets from creditor lawsuits is to transfer those assets to a trust. The legal owner of those assets changes from the person who owes money to the trust that they created.
If an individual established a trust long before they had financial obligations, then a creditor may not be able to question their transfers. However, transfers that occurred after taking on a debt or when facing imminent collection activity can constitute fraud.
2. Gifting assets or taking on a co-owner
Sometimes, people execute documents to add a spouse, child or other person as a co-owner as a means of preventing creditor claims against assets. Other times, they might simply give those resources away to someone within their inner circle.
The goal is to retain access to those resources while preventing creditors from placing liens against them or forcing their liquidation through legal action. Inappropriate gifts and partial ownership transfers can help people diminish their personal holdings.
3. Selling assets for unreasonably cheap
Some people are vaguely aware of regulations prohibiting fraudulent transfers. They may take certain actions to obfuscate their true intentions. Instead of transferring resources to a trust or giving them away, they might sell them to a friend, neighbor, coworker or family member.
Sales can constitute fraudulent transfers when the alleged sale price is unrealistically low. Someone selling a vehicle worth thousands of dollars for $500 is a red flag in a debt collection scenario. Debtors sometimes try to make inappropriate transfers look like sales, which they can claim were intended to help settle their financial responsibilities.
Raising questions about fraudulent transfers is one way to hold individuals accountable for questionable financial activity. Organizations attempting to collect on debts may need help evaluating their options, reviewing financial disclosures and planning the most reasonable response given their unique circumstances, and that’s okay.