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Texas law prohibits a debtor who is subject to a valid judgment from moving assets out of reach of creditors in order to hinder, delay, or defraud a judgment creditor. This legal restriction applies even if the transfer takes place before the entry of a judgment against them. A fraudulent transfer is voidable under Texas law. So, one may ask, shat is a fraudulent transfer? The Texas Uniform Fraudulent Transfer Act (TUFTA) supplies an answer.

Texas Uniform Fraudulent Transfer Act (TUFTA)

The Texas Uniform Fraudulent Transfer Act (TUFTA) prohibits a debtor from defrauding creditors by placing assets beyond their reach. The TUFTA provides creditors with legal recourse when a debtor engages in a fraudulent transfer. Where a debtor engages in a fraudulent transfer,[1]a creditor may void the transfer.

What Is a Fraudulent Transfer?

Written by Jason Freeman | Posted in Fraudulent Transfer • Texas

Fraudulent Transfer, Fraudulent Conveyance

Section 548 of the Bankruptcy Code provides a bankruptcy trustee (or the debtor-in-possession) the power to set aside or “avoid” certain transfers of the debtor’s assets out of the bankruptcy estate that may otherwise place assets beyond creditors’ reach. Such a transfer of the debtor’s assets to a third party, with the intent to prevent creditors from reaching the assets to satisfy their claims, is known as a “fraudulent conveyance” or a “fraudulent transfer.”

Elements:

There are two types of fraudulent conveyances. The first, actual fraud, involves the intent to defraud creditors. The second, constructive fraud, involves a transfer that is made in exchange for grossly inadequate consideration. Both types of fraudulent transfers involve a two-year “look back period” and a two-year statute of limitations. Thus, to be considered a fraudulent conveyance, a transfer must occur within two years immediately before a bankruptcy filing. However, a trustee may be able to set aside certain transactions under state laws, which may provide for longer look-back periods. A transfer cannot be set aside if it occurs after a bankruptcy filing.

Written by Jason Freeman | Posted in Fraudulent Conveyance • Fraudulent Transfer