Whether they are devious, desperate, or dishonest, some debtors trying to appear judgment-proof, will fraudulently conceal assets through some third-party transfer. In California, the Uniform Voidable Transfer Act (UVTA) provides some protection for creditors in this circumstance.
The UVTA supersedes the former the Uniform Fraudulent Transfer Act. Applicable transactions under the UVTA are voidable as to creditors. In some circumstances, California law criminalizes transferring property with the intent to make it more difficult for a creditor to collect. It is important to note that California property owners are permitted to sell their property if they receive a commensurate price in return. The UVTA only allows a creditor to undo a transaction where “reasonably equivalent value” was not received.
The procedures available under the UVTA are more advantageous than the provisions contained in § 548 of Title 11, the U.S. Bankruptcy Code, since any recovery under UVTA benefits the plaintiff directly, while any recovery by the trustee under § 548 benefits the entire pool of unsecured creditors in the bankruptcy case. Of course, this law applies to debtors in bankruptcy.
Typically, an action under the UVTA is available at any time a fraudulent transfer is discovered or reasonably suspected, and preferably the action is filed long before the debtor files for bankruptcy relief. The California legislature enacted the Uniform Voidable Transactions Act in 2015, which replaced similar legislation known as the Uniform Fraudulent Transfer Act.
The UVTA applies to transfers or obligations made or incurred with actual intent to hinder, delay, or defraud any of the debtor’s creditors where the debtor fails to receive a reasonably equivalent value in exchange for the transfer or obligation, and the debtor either was:
(A) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction.
(B) Intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.
The claim is voidable whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred. Thus, UVTA authorizes a creditor to void a transaction between a debtor and another party if the debtor:
- Did not receive a reasonably equivalent value in exchange for the transfer; and
- The debtor was insolvent at the time of the transfer or became insolvent as a result of the transfer.
Plaintiff-creditors have four years from the date of a voidable transfer to undo it. If the transaction remains undiscovered until more than four years later, creditors still have one year to undo it, provided that no more than seven years have passed since the transfer was made or the obligation was incurred.
California law makes it a crime to fraudulently sell, convey, assign, or conceal property with the intent to defraud, hinder, or delay a creditor of its rights, claims, or demands. This crime is a misdemeanor, punishable by a $1,000 fine or up to one year in jail or both. If the property is stock in trade, such as the equipment of a business, with a value of greater than $250, then the crime is a felony, which presents the possibility of one year of jail time.
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