As a bankruptcy lawyer from The Law Offices of Ronald I. Chorches can explain, a person who is deep in debt and considering filing for bankruptcy is not allowed to “give away” their assets in order to protect those assets from creditors. This is an issue in many bankruptcy cases, as some debtors try to find ways around the system. This is why the federal government passed the Uniform Voidable Transactions Act (UVTA) as a way to protect creditors’ rights.

Actual Fraud

Fraudulent conveyances come in two basic forms. The first is actual fraud. In order for a creditor to prove that they have been a victim of actual fraud, they will need to prove that the alleged fraud occurred with specific intent. Often, in these cases, assets will be transferred to a close friend or family member as a clear attempt to keep them out of the hands of the creditor. In this situation, a creditor has a legally valid claim to the fraudulently conveyed assets. To prove actual fraud, the court will look to answer the following questions:

  • Was the transfer in question disclosed?
  • What percentage of the debtor’s assets were transferred?
  • What consideration was given in exchange for the transfer?
  • When, in relation to the claim by the creditor, was the transfer made?

Constructive Fraud

In the event that actual fraud did not occur, or if specific intent simply cannot be established, creditors are not out of options. There is a second type of fraudulent transfer, known as constructive fraud, which is generally easier to prove. This type of fraud does not have an intent element. Instead, when assessing a conveyance for constructive fraud, the court will only consider the underlying economic circumstances of the transaction in question. When a transaction occurs under certain circumstances, and the transaction does not make basic economic sense on its face, it can be deemed constructive fraud.

For example, if a person heavily in debt transferred away a valuable asset in return for something far below fair market value, an affected creditor may be able to prevail in a constructive fraud claim.

Fraudulent Conveyances: What Remedies are Available?

If a transfer has been determined to be fraudulent under the UVTA, impacted creditors have remedies available. A creditor may be able to get a judgment against the transferred asset. Further, a creditor may also be able to get the fraudulent transfer voided. Finally, a creditor can seek injunctive relief to avoid any further fraudulent conveyances by the debtor until all debt issues are fully and fairly resolved.

Contact a Bankruptcy Law Firm Today

If you are considering filing for bankruptcy, you may be tempted to protect some of your assets by transferring them or giving them away temporarily. However, this can get you in significant legal trouble with the court, both civilly with your bankruptcy petition, and possibly criminally if you are charged with fraud. Do not file without obtaining legal advice.

Call an experienced attorney today for help with your case.

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