Fraudulent Transfer of Assets
A fraudulent transfer is an infringement of a creditor's right to realize repayment through the debtor's available assets where the debtor conveys that property to another without fair consideration. The purpose of fraudulent transfer laws is to make it possible for creditors to access assets that are part of a debtor's estate even if they have been transferred. As a creditor in New York or elsewhere, it is important to consult a commercial debt collection attorney to make sure you consider all possibilities when trying to collect on a debt, including a potentially fraudulent transfer of assets.Protecting Your Interests against a Fraudulent Transfer of Assets
Under New York Debtor Creditor Law § 276, any conveyance that is made with an actual intent to delay, hinder, or defraud present or future creditors is considered fraudulent. If you have already sued a debtor to collect a debt, and that debtor conveys the property without fair consideration after suit has been commenced, the transfer is fraudulent under § 273-a, irrespective of the actual intent of the debtor, if after you have received a final judgment the debt is not satisfied. Other sections of the Debtor Creditor Law will deem transfers to be fraudulent regardless of actual intent if at the time of the transfer, the debtor was unable to pay its debts, the debtor was insolvent or the transfer left the debtor with unreasonably small capital.
If a transfer is fraudulent as to a particular creditor, that creditor has two different possible remedies under § 278. It can have the conveyance set aside to the extent necessary to satisfy the claim. Or it can disregard the conveyance and attach or levy execution on the property conveyed. However, if the purchaser does not have actual fraudulent intent and gave less than fair consideration or payment for the conveyance, the purchaser can keep the property as security for repayment.
What if a creditor's claim has not matured? As a creditor who does not have a mature claim, you can proceed in court and ask the court to restrain the defendant from disposing of the property, appoint a receiver to take control of the property, set aside the transfer, or make other orders as necessary.
Sometimes a fraudulent conveyance is made just before bankruptcy so that the debtor can preserve the assets through another entity or avoid paying off creditors. The federal statutory basis to challenge a fraudulent transfer is § 548 of the United States Bankruptcy Code. The basis for challenging fraudulent transfers in bankruptcy court under state statutory law is § 544 of the Bankruptcy Code. Bankruptcy judges have broad discretion to determine whether a transfer is fraudulent.
There are two types of fraudulent transfers in the eyes of a bankruptcy judge: actual fraud and constructive fraud. Actual fraud is when a conveyance happens a year before the bankruptcy filing, and the creditor is able to prove that the debtor conveyed the property with an intent to defraud creditors. Constructive fraud exists if a debtor receives less than what the property is reasonably worth when it is transferred, and the debtor cannot pay debts at the time of the transfer, or the transfer makes the debtor unable to repay debts. The debtor's actual intent is irrelevant.
When determining whether a transfer is fraudulent, bankruptcy courts look at its effect on the debtor's estate. The issue is whether the transfer unfairly diminished the debtor's estate when the transferred portions would otherwise have been available to the creditor.Consult a Litigation Attorney in New York to Explore Your Options
If you are a creditor seeking to collect on a debt, you should be concerned about the potential for a fraudulent transfer of assets. With substantial experience in litigation and other techniques, the New York lawyers at Klapper & Fass can help you pursue your debts from our offices in White Plains and Manhattan. We serve all five boroughs of New York City as well as Nassau, Orange, Dutchess, Suffolk, Westchester, and Rockland Counties. Our attorneys also provide services in other states, such as Texas and Florida. Contact our office at 914.287.6466 or via our online form to arrange a free consultation.