Spotting the Badges of Fraud Under the Uniform Fraudulent Transfer Act

Winning a lawsuit lets you use court procedures to collect on your judgment. But what if the debtor suddenly claims they don’t have enough money or property to satisfy the debt? The debtor seemed financially healthy until very recently, but now claims poverty. That may signal one or more fraudulent transfers, which are acts of purposeful dissipation of assets to prevent a creditor from collecting a debt. You have remedies under Illinois law, but they require that you prove the existence of fraud.

The Illinois Uniform Fraudulent Transfer Act (IUFTA) allows creditors to file a lawsuit against the recipient of certain transfers by a debtor. One type of “fraudulent transfer” claim alleges that the debtor transferred property “with the intent to disturb, delay, hinder, or defraud” his creditors. The debtor’s intent may be inferred from circumstances surrounding the transaction — known as “badges of fraud.” The IUFTA lists these 11 badges:

1. The transfer or obligation was to an insider.
2. The debtor retained possession or control of the property transferred after the transfer.
3. The transfer or obligation was disclosed or concealed.
4. Before the transfer was made or the obligation was incurred, the debtor had been sued or threatened with suit.
5. The transfer was substantially all of the debtor’s assets.
6. The debtor absconded.
7. The debtor removed or concealed assets.
8. The value of consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
9. The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
10. The transfer occurred shortly before or after a substantial debt was incurred.
11. The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

If a court finds a transfer was fraudulent, it may be declared void, which allows you to recover the property to help satisfy the debt. However these badges of fraud are not always self-evident and may require careful investigation. What’s more, court cases decided under the IUFTA show that there is no magic number of badges that automatically lead a judge to find fraud. As a creditor, you’ll want to align yourself with a law firm that has proven its ability to handle complex fraudulent transfer cases.

At Schwartz & Kanyock, LLC in Chicago, our attorneys have wide experience in this field. Member attorneys Andy Schwartz and Tom Kanyock literally wrote the book on fraudulent transfer litigation, having co-authored a treatise for the Illinois Institute for Continuing Legal Education. If you need assistance in collecting on a judgment and you suspect the debtor has committed fraud, call us at 312-436-1442 or contact us online to arrange a consultation.