Consumer: The Uniform Fraudulent Transfer Act
Authored By: Legal Aid of North Carolina
If a creditor is threatening to file a lawsuit against you to recover a debt, or if a judgment for money owed has already been entered against you, it is important not to sell, transfer or dispose of your property or assets unless you consult with an attorney first.
In North Carolina, it is unlawful for a debtor to put some or all of his property beyond the reach of his creditors. Transfers or conveyances of property or assets that could be used to satisfy a creditor's claim for money owed are called "fraudulent conveyances." The Uniform Fraudulent Transfer Act is designed to prevent fraudulent transfers and allow a creditor to cancel the transfer.
Some Examples of Fraudulent Conveyances:
1. A debtor has received letters or calls from a creditor attempting to collect on a debt. The creditor has told the debtor that they will file a lawsuit if the debt is not paid. The debtor owns a vacant lot that she inherited from her mother. She conveys the vacant lot to a friend who secretly agrees to return the vacant lot to her after the creditors give up. In this case, the debtor has lied to her creditors when she represents that she has no property, when she really does have property. This is a fraudulent conveyance and the creditor is permitted to cancel the transfer of the property to the friend. The creditor may then use that property to satisfy the debt.
2. A debtor has been sued for a credit card debt. He has a bank account with a $10,000 balance. He withdraws the $10,000 from the bank account and places it into an account in his daughter's name. This is a fraudulent conveyance and the creditor will be able to cancel the transfer and seize the money.
To Establish a Fraudulent Conveyance, The Following Elements Must be Present:
1. Existence of a creditor: There is someone to whom a debt or claim is owed by the debtor.
A claim is a right of payment whether or not that right was reduced to a judgment
2. Transfer or conveyance of property: The debtor, or someone acting on his or her behalf, makes a transfer or conveyance:
with intent to defraud or delay the creditor; or
the debtor did not receive fair value for the transfer
3. Actual intent to defraud the creditor: The debtor has the actual intent to defraud his creditors. The following are some of the circumstances that can show intent to defraud the creditor:
the transfer was to a relative or other insider
the debtor transferred all his property
the debtor removed or concealed all his property or assets
the transfer occurred shortly before or after the debt was incurred
If a transfer is fraudulent, the court can cancel the transfer and the creditor can use the property or assets to satisfy the debt.