A lawsuit is threatened in order to obtain a judgment for a debt owed, and instead of paying the debt, the debtor (the person or entity which owes the debt) indicates that they are “judgment proof,” have no assets or income, and obtaining a judgment will be a waste of time. While this may be the case in limited circumstances, a transfer of assets in order to avoid payment of a judgment can be voided and funds sought from the person or entity who received the asset.

If a debtor has transferred assets with actual intent to delay, hinder or defraud a creditor’s or another’s ability to recover the assets and did not receive reasonable value in exchange for the asset, then the creditor may be legally able to avoid the transfer. This is true even if the creditor is unable to prove the debtor’s actual intent if the creditor’s claim arose prior to the transfer, the debtor was insolvent or became insolvent as a result of the transfer and the debtor did not receive reasonably equivalent value for the asset. Lawsuits have been brought in order to attempt to set aside transfers of real estate, personal property, customer lists, telephone numbers, and even funds gambled at a casino.

By way of example, the Michigan Court of Appeals upheld a lower court’s award of a judgment for the value of real property against defendants when judgment debtors transferred several parcels of property to defendants with the intent to render the judgment debtors uncollectable to avoid payment to plaintiffs on a previously granted consent judgment. See Burke v. Maurer, No. 329839, 2017 Mich. App. LEXIS 271 (Ct. App. Feb. 21, 2017). Here, several parcels of land were transferred to the defendants by the judgment debtors just days prior to plaintiffs filing a cause of action against the judgment debtors. Judgment debtors eventually entered into a consent judgment with plaintiffs. Plaintiffs then learned that the judgment debtors had transferred the parcels of land just before the filing of the underlying lawsuit. Plaintiffs then filed a lawsuit against the defendants, who received the parcels of land, in order to recover the value of the property. The lower court and Court of Appeals sided with plaintiffs and determined that plaintiffs were entitled to a judgment for the value of the transferred property against the defendants because the defendants had fraudulently received the parcels of land from the judgment debtors who were trying to avoid payment to plaintiffs.

Authored by: Carina Kraatz

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Transfers Made in Order to "Hide" Assets From Collection May Be Voidable

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