The two theories a creditor can use
A fraudulent conveyance claim usually proceeds on one of two theories. The first is actual intent: the debtor moved property to hinder, delay, or defraud creditors, which courts often infer from circumstances such as a transfer to a relative while a lawsuit was pending. The second, often called constructive fraud, does not require proving intent and focuses on whether the debtor received fair value while in financial distress. New York has updated its law in recent years to a version of a uniform act that calls these transfers voidable, though many people and courts still use the older term. Which law applies can depend on when the transfer happened.
Building the record
These claims are proved largely with documents. Deeds, mortgage records, corporate filings, bank statements, and transfer records show what moved, when, and to whom. Compare the timing of transfers with the timing of the debt, the lawsuit, or the demand letter. Post-judgment discovery tools, such as subpoenas to banks and the debtor, are often how creditors find the transfers in the first place. Keep your own records of the debt and every communication with the debtor, since they establish when the obligation arose.
Remedies and the decisions ahead
A court that finds a transfer voidable can set it aside to the extent needed to satisfy the creditor's claim, or allow the creditor to reach the property in the hands of the recipient. In some situations, a court can also freeze assets while the case is pending. Recipients who paid fair value and acted in good faith may be protected, so the identity and knowledge of the transferee matter. If the debtor files for bankruptcy, the claim may pass to a trustee instead. The recipient may raise defenses of its own, so a claim against a transferee is litigated rather than assumed. We evaluate whether pursuing the transfer is worth the cost compared with other collection options.
