Fraudulent Conveyance

Meaning

Unlawful transfer occurs when a debtor moves assets to a third party with the intent to hinder or defraud creditors. A fraudulent conveyance often involves selling property for substantially less than its fair market value or gifting it to a relative. Courts look for specific badges of fraud to determine if the transaction was legitimate or a deceptive attempt to hide wealth from those to whom the debtor owes money.

Intent Determination

Direct evidence of a plan to cheat creditors is rarely available in these cases. Determining a fraudulent conveyance relies on circumstantial factors such as the timing of the transfer relative to a lawsuit. If the debtor remains in control of the asset after the title has passed, the suspicion of a sham transaction increases.

Transaction Reversal

Trustees and liquidators have the power to sue the recipient to bring the property back into the bankruptcy estate. The remedy for a fraudulent conveyance is typically the voiding of the transfer or a judgment for the value of the asset. This ensures that the collective pool of assets available for distribution remains intact.

Creditor Injury

Protected status is given to purchasers who acted in good faith and paid a reasonable price. A successful claim for fraudulent conveyance requires proof that the transfer actually reduced the amount of money available to satisfy debts. It acts as a primary deterrent against the stripping of assets from a failing company or a troubled individual who seeks to evade their financial obligations through deceptive bookkeeping.

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