what is a fraudulent transfer

Lending money is always a risk, but our economy is built on the ability of those without funds to borrow money and pay it back over time. Despite creditors’ precautions, however, sometimes those they loan money to cannot pay. Other times, the debtor can pay but attempts to put assets out of creditors’ reach by fraudulently transferring the assets. If you loaned money and believe a debtor has fraudulently transferred funds you are entitled to collect, contact the Hunnicutt Law Group. Our firm was founded by attorney Stephen Hunnicut, who is still its leader after 30 years of practicing law. When you hire us, we offer our honest advice and stand by your side every step of the way. We provide our services as experienced legal advocates alongside our understanding that, while we chose to enter the legal profession, few clients choose to end up in a courtroom. We make every effort to minimize your stress, whether this is your first, tenth, or fiftieth lawsuit.

What Is a Fraudulent Transfer?

The Texas Uniform Fraudulent Transfer Act (TUFTA) defines what it means to “transfer” funds and explains what makes the transfer fraudulent. 

What Qualifies as a Transfer?

Unfortunately, the law’s definition of transfer is not the most reader-friendly. Cutting through the wordy description, a transfer includes methods of conveying or disposing of assets, including:

  • Paying money, 
  • Releasing a claim to property,
  • Leasing an asset, and
  • Creating claims in others against the asset.

If a debtor conveys or disposes of an asset in these ways, it qualifies as a transfer regardless of whether the disposition is:

  • Direct,
  • Subject to conditions, or
  • Involuntary.

The one exception is when a debtor disclaims property

What Makes a Transfer Fraudulent?

Naturally, a fraudulent transfer of property must involve fraud. So, what is a fraudulent conveyance? In short, a transfer is fraudulent in two circumstances. The first consists of the debtor intending to defraud a creditor, while the second involves unequal value exchanged. 

In addition, a transfer can be fraudulent as to both current and future creditors. A transfer is fraudulent as to future creditors when the creditor obtains claim to the property within a “reasonable time” after the transfer. 

TUFTA is exacting and precise, but that precision can make it difficult to follow. Breaking the text down a piece at a time helps. 

Debtor’s intent

First, a transfer is fraudulent when the debtor intended to: 

  • Defraud a creditor,
  • Hinder the creditor’s ability to recover, or 
  • Delay the creditor’s ability to recover.

The statute provides several factors that may indicate the debtor had an improper intention. 

The first factor is whether the transfer was to an “insider.” If the debtor is an individual, an insider is:

  • A relative, 
  • A business associate, 
  • A business associate’s relative, 
  • A business the debtor has or shares control over, or 
  • An agent of the debtor.

If the debtor is a business, insiders include:

  • People who control the debtor,
  • Relatives of people who control the debtor, and
  • Businesses the debtor is a part of.

A transfer is fraudulent if made to an insider, even if the debtor uses an intermediary.

In addition, the debtor may have intended a fraudulent transfer when the debtor:

  • Continued to possess or use the property after the transfer;
  • Concealed the transfer;
  • Was sued or threatened with a lawsuit before the transfer;
  • Absconded after the transfer;
  • Removed or concealed assets;
  • Was insolvent or became insolvent shortly after the transfer; and
  • Transferred assets shortly before or after incurring substantial debt.

Note that this list is not exclusive.

Value of the exchange

Second, a transfer is fraudulent in two situations where the debtor did not receive something of “reasonably equivalent value” in exchange. The first occurs when the transfer involved a business or a transaction where the debtor’s assets were “unreasonably small” relative to the value of the transaction. The second occurs when the debtor transferred the asset when they intended, expected, or reasonably should have expected to incur debt beyond their ability to pay.

Filing a Lawsuit

If you believe a debtor has fraudulently transferred property to avoid a debt they owe you, you can sue them to protect your interest. The fraudulent transfer statute of limitations is typically four years, meaning you must file the lawsuit within four years of when the transfer occurs. 

Under TUFTA, you can ask that a court:

  • Void the transfer to the extent necessary to settle your claim;
  • Attach your claim to the asset;
  • Prevent the debtor from making additional transfers;
  • Appoint a receiver to take charge of the transferred asset; or
  • Levy execution against the asset.

What remedy you request will depend on the circumstances.

How Can an Attorney Help?

Lending assets to others always involves some risk. But you can fight back when your debtors attempt to avoid their obligations by transferring away assets. An experienced creditor attorney, like those at Hunnicutt Law Group, can guide you through the process of fighting to protect your interests. We are there throughout the entire process, from determining where to file a fraudulent transfer lawsuit to the best remedy to pursue. Contact us today to learn more. We are available by videoconferencing, online, or by phone.

Author Photo

J. Stephen Hunnicutt

Our founding attorney, Stephen Hunnicutt, set the precedent for a commitment to excellence and a focus on the client. With 25 years of experience, he has handled countless cases involving business litigation and commercial litigation. Over the years, Mr. Hunnicutt has worked as in-house counsel for a Fortune 500 energy company, a large firm, a small firm, and finally, in his own practice.

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