A variety of different types of businesses may need to collect on debts. Some companies provide financial services, and those organizations are always at risk of borrowers falling behind on their payments. Another company may have arranged for material delivery and then failed to pay the invoice. Even service providers sometimes need to engage in collection activities when clients don’t pay their bills in full and on time.
When the balance due is significant and the debtor has failed to commit to appropriate payment arrangements, creditors may need to pursue aggressive collection efforts. Frequently, that process involves taking legal action. Creditors can seek to garnish wages, place liens against property or ask the courts to order an individual to pay, possibly by liquidating some of their assets.
People facing collection activity may engage in fraudulent behavior to avoid financial responsibility. Fraudulent transfers are among the tactics people and businesses may utilize to avoid paying their debts.
What constitutes a fraudulent transfer?
State law requires that those with financial obligations make good faith efforts to pay what they owe. Transferring assets as a means of avoiding collection efforts is the antithesis of operating in good faith. As such, the law recognizes some transfers as fraudulent, thereby empowering creditors and lenders to take legal action against debtors.
Fraudulent transfers may involve people gifting assets or money to others. They can also involve the sale of assets for a fraction of their fair market value. Some people take on co-owners for valuable assets in an attempt to protect them from collection efforts. Others might transfer assets to a trust to limit their vulnerability to creditor activity.
Timing is key when determining whether a transfer was fraudulent or not. Transfers that occurred before an individual assumed the debt or faced collection activity may not constitute fraud. However, transfers completed after they opened a new line of credit, received service for a creditor lawsuit or started getting collection calls could be indicative of a fraudulent attempt to avoid responsibility.
The financial discovery process during a creditor lawsuit allows creditors to identify suspect transfers and raise questions during civil court proceedings. Judges may have the authority to reverse fraudulent transfers in some situations or to at least hold debtors accountable for the value of the resources inappropriately transferred other times.
Businesses trying to optimize the success of their debt collection efforts may need support and guidance. Reviewing the origins of a debt and other details with a skilled legal team can be critical when companies need to hold people or other companies accountable for unpaid debts.