You’re not asking for anything you aren’t fairly due, but your debtor seems to be suddenly bereft of any funds and they’re claiming insolvency.
Should you suspect a fraudulent transfer? Possibly. Understanding more about what constitutes a fraudulent transfer can help you assert your rights and collect on a debt – even when a debtor tries to hide under bankruptcy protections.
A fraudulent transfer is a transfer of money or property made with the intention to deceive, delay or defraud a creditor. There are two types: actual fraud and constructive fraud.
What is actual fraud?
Actual fraud refers to intentional actions taken to defraud creditors or hinder their ability to collect debts during bankruptcy proceedings. These transfers are typically made with the knowledge that the debtor is insolvent or will become insolvent as a result of the transfer – and the goal is to hide assets they might lose in the bankruptcy.
For example, imagine that Andy is “cash poor” but “land rich.” He could sell off some property he owns to pay his debts, but he doesn’t want to do that. Instead, he sells the property to his brother, Ben, for a nominal sum, with the agreement that he’ll buy it back as soon as he gets through bankruptcy. That’s clearly an attempt to keep assets out of the hands of his creditors.
What’s constructive fraud?
Constructive fraud is a little more complicated. It’s not done with the intent to defraud any creditors, but it has the effect of doing so because it unfairly disadvantages some creditors and favors others.
For example, imagine that Charlie owes his brother Dave $20,000 for a business loan. Before filing for bankruptcy, he pays Dave back – and that leaves him $20,000 less that can be used to pay his other creditors.
Fraudulent transfers have profound legal implications for creditors, affecting their ability to collect debts. However, the Uniform Fraudulent Transfer Act (UFTA) provides legal remedies, including the recovery of transferred assets, obtaining judgments against debtors and voiding transfers. If you need help collecting a debt, legal guidance is wise.