Creditors’ Remedies Under the Illinois Uniform Fraudulent Transfer Act

The Illinois Uniform Fraudulent Transfer Act (IUFTA) is designed to protect creditors from debtors who attempt to evade their financial obligations by improperly shielding assets. Creditors can challenge transfers of assets that are made with the intent to defraud creditors or without receiving reasonably equivalent value in return. The law also gives creditors remedies to undo the damage done.

To pursue an IUFTA claim, a creditor must demonstrate that a transfer of assets was made with the intent to hinder, delay, or defraud any creditor of the debtor. This can be established directly by showing the debtor’s intent or indirectly by identifying certain “badges of fraud.” These include the transfer of assets to insiders, the retention of possession or control of the transferred assets by the debtor, the transfer of substantially all assets, the secrecy or haste of the transaction and the transfer of assets below their reasonable value.

Once a fraudulent transfer is established, the IUFTA allows creditors to pursue these remedies:

1. Avoidance of the transfer — If the court finds a transfer fraudulent, it can avoid and unwind the transfer. This means that the asset transferred is legally returned to the debtor’s estate, thereby becoming available to creditors as part of the debtor’s available assets to satisfy the outstanding debts. 
2. Money judgment — If the fraudulently transferred asset cannot be recovered, the creditor may seek a money judgment against the party who received it. An example is when the recipient of the fraudulently-transferred asset has sold it to third party, or if the asset has depreciated in value. This judgment would be against the transferee for the value of the asset at the time of the transfer. 
3. Attachment or injunction — To prevent further dissipation of the debtor’s assets, a court can issue an injunction that prohibits further fraudulent activities or transfers. Additionally, an attachment can be placed on assets, which acts as a legal hold, securing them so they remain available to satisfy the judgment once the court process concludes. 
4. Appointment of a receiver — In more complex cases involving extensive fraudulent schemes or when the debtor’s financial affairs are in disarray, a court may appoint a receiver. This official manages the debtor’s assets to ensure they are not further wasted or fraudulently transferred. The receiver marshals the assets and distributes them to creditors according to a priority structure.

In an IUFTA case, an attorney skilled in fraudulent transfer litigation can be instrumental in identifying signs of fraudulent transfers and effectively advocating for the creditor’s rights in court. Their skill and knowledge not only enhances the chances of a successful IUFTA claim but also protects the creditor’s legal rights throughout the process.

Andrew R. Schwartz, a member of Aronberg Goldgehn Davis & Garmisa in Chicago, is a recognized expert in fraudulent transfer litigation. Andy has written a treatise on the subject as well as articles published in the prestigious Illinois Bar Journal and has lectured on this topic locally, statewide and nationally. Call us at 312-755-3164 or contact us online to arrange a consultation.