Fraudulent Transfer Act

Fraudulent transfer act refers to laws enacted by states that establish the rights of creditors against debtors where it appears the debtor fraudulently transferred property to avoid paying creditors. Almost every state has enacted the Uniform Fraudulent Transfer Act or the Universal Voidable Transfers Act which establish basic terms for when a creditor can bring a claim to recover fraudulently transferred property. Under these acts, a court will look to whether the debtor intended to defraud their creditors or whether the transactions were made without sufficient consideration. The standard case of fraudulent transfer involves a debtor gifting property or selling it at a fraction of its value to family members, friends, or to individuals trying to aid in the fraud. The fraud can occur before or after a creditor attempts to initiate claims for the debt, but if the transfer occurs after the debt proceedings occur, the transactions are looked at with even more skepticism by the court. The debtor may not even intend for the transaction to be fraudulent in the situation where they make a sale to someone, but creditors still can retrieve the assets if the court finds them to be constructively fraudulent due to their price.

[Last updated in January of 2022 by the Wex Definitions Team]