Fraudulent Conveyance

A transfer of property that is made to swindle, hinder, or delay a creditor, or to put such property beyond his or her reach.

For example, a man transfers his bank account to a relative by putting the account in the relative's name. He informs the relative that he has not relinquished ownership of the funds, but merely wants to isolate the money from the reach of his creditors. This is a fraudulent conveyance that can be set aside by the court at the request of the defrauded creditor.

A creditor who seeks to set aside a fraudulent conveyance must comply with state statutes. Most states have adopted some version of either the Uniform Fraudulent Transfer Act (UFTA) or the older Uniform Fraudulent Conveyance Act (UFCA). Generally, the individual must acquire a lien (a right or claim) or a judgment (a court decision) against a debtor's property. A judgment is usually required to show with certainty the existence of a valid and enforceable debt, but it can be dispensed with, depending upon the particular circumstances of the case. In many jurisdictions, a court will not set aside the conveyance if the debtor owns property, other than that which has been fraudulently conveyed, that is sufficient to pay the debt.

Bankruptcy

In the context of BANKRUPTCY law, a fraudulent conveyance can be the basis for an objection to discharge (the legal elimination of debt). Federal law denies a discharge to a debtor who transfers property with intent to hinder, delay, or defraud within the 12 months immediately prior to the filing of the bankruptcy petition or after the filing of bankruptcy petition.