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How fraudulent conveyance could harm a business 

On Behalf of | Jan 7, 2024 | Fraud

Not everyone follows through on their financial obligations to others. In fact, some parties intentionally break the law in an effort to sidestep their responsibilities to others. Businesses that provide goods and services to the public sometimes need to engage in collection activity to obtain payment from individuals or other organizations. 

Collection activity often culminates in a lawsuit. Litigation can help a business harmed by contractual violations and non-payment recoup its financial losses and enforce prior agreements with outside parties. Unfortunately, many people and even business professionals go to great lengths in their efforts to avoid personal financial accountability. 

They may reject mail, file for bankruptcy and attempt to hide assets to dodge collection efforts. One of the many ways that people and businesses attempt to avoid personal financial liability is through fraudulent conveyance of assets. 

What constitutes fraudulent conveyance? 

The first question people often have about allegations of fraudulent conveyance is what financial behavior actually constitutes this common type of fraud. Fraudulent conveyance occurs when an individual or business attempts to transfer ownership of assets to protect them from liquidation during bankruptcy proceedings or creditor claims in civil court. 

Fraudulent conveyance might look like someone gifting valuable property to friends or family members. It might involve using valuable assets to fund a trust. Fraudulent conveyance could even entail selling resources for far less than their fair market value, possibly with the intent of regaining control of them later. 

How fraudulent conveyance affects businesses 

An organization seeking to hold an individual or another company accountable for a financial obligation needs to establish that the other party has resources that can pay the debt. In a case involving fraudulent conveyance, the plaintiff in a lawsuit or a creditor at risk of losses during a bankruptcy must establish that the other party violated the law by transferring resources with the specific intention of avoiding financial responsibility. 

The timing of transfers and attempts to hide them from creditors or the courts may help strengthen claims of fraudulent conveyance. A business that successfully proves that fraudulent transfers occurred can potentially take action against the assets that the other party attempted to hide or protect. Obtaining full repayment from a party willing to commit fraud to avoid financial responsibility may necessitate a thorough investigation and an understanding of financial laws.

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