Fraudulent Conveyances

Question 1

A fraudulent conveyance is…

Answer 1

Giving (or selling under certain circumstances) property to someone in order to keep creditors from seizing it.

Question 2

What are the two kinds of conveyances that can be attacked?

Answer 2

1. Conveyances made with the actual intention to frustrate, hinder or delay creditors. Called “fraudulent conveyance” or “actual fraud.”
2. Conveyances made for less than fair value while debtor is insolvent or which make the debtor insolvent. Called a “voluntary conveyance” or “constructive fraud.”

Question 3

What are the two kinds of creditors?

Answer 3

1. Present creditors. Their claims arose before the transfer being attacked happened. These guys can attack voluntary or fraudulent transfers.
2. Future creditors. These are creditors whose claims arose after the transfer was made. They can only attack conveyances made with “actual fraud”.

Question 4

A debtor cannot attack ________ transfers, even if a creditor can.

Answer 4

regretted

fraudulent conveyance law is for the benefit of creditors.

Question 5

What happens if the transferee took the property with knowledge that it was made with the intent to hinder creditors?

Answer 5

No right to recovery against creditor. May be able to sue debtor for breach of contract if the property was purchased, but not if the property was just gifted.

Question 6

What happens if the transferee is a bona fide purchaser who paid fair consideration without notice of the creditor’s rights?

Answer 6

The transferee keeps the property, and the creditor must go after the money the purchaser paid to the debtor.

Question 7

What if the transferee is a bona fide purchaser who paid less than fair consideration?

Answer 7

The purchaser must give up the property, but he gets a lien on it for the amount paid to the debtor, plus any improvements.

Question 8

What is a preferential transfer?

Answer 8

A transfer of property to a creditor to satisfy a debt, which means that other creditors cannot satisfy their debts using that property.

Question 9

Can creditors attack preferential transfers?

Answer 9

Under Virginia fraudulent conveyance law, no. Virginia is okay with preferential transfers.

Creditors can attack them under federal bankruptcy law if the debtor has filed.

Question 10

How do you show that a transfer was made with the intent to frustrate hinder or delay creditors?

Answer 10

Certain fact patterns are deemed “Badges of Fraud” from which you can infer intent:

1. Renouncing a bequest under a will
2. Transfers between spouses
3. Transfers in consideration of support, e.g. giving property in exchange for care when debtor is elderly.

Question 11

The procedure for setting aside a fraudulent conveyance deopends on…

Answer 11

The kind of creditor.

Question 12

To set aside a fraudulent conveyance, a judgment creditor brings a special equity proceeding that…

Answer 12

inquires only into the transfer.

Question 13

A general creditor, i.e. a creditor without a judgment, must bring a…

Answer 13

creditor’s bill in equity.

Question 14

What are the procedures for a creditor’s bill in equity?

Answer 14

1. A writ of attachment and lis pendens against the property must be filed, with priority back to the time of filing the suit.
2. The court will then determine the validity of creditor’s claim; and,
3. Determine whether to set aside the conveyance.
4. Creditor must join the grantee to any action to set aside.