LIABILITY UNDER THE TEXAS FRAUDULENT TRANSFERS ACT

Debtors.jpgIf you owe someone a debt and you attempt to avoid paying that debt by transferring your assets to a family member or another entity you control to try to keep it out of the reach of your creditors you may be violating the Texas Uniform Fraudulent Transfers Act (UFTA). UFTA is found in Chapter 24 of the Texas Business and Commerce Code.

Sec. 24.005 of UFTA covers transfers that are fraudulent as to present and future creditors. This section provides that a transfer made or obligation incurred by a debtor is fraudulent as to a creditor, regardless of whether the creditor’s claim arose before or within a reasonable time after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:
(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
(A) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (B) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.

In determining actual intent under this section, consideration may be given, among other factors, to whether:
(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 concealed;
(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) the transfer was of substantially all the debtor’s assets;
(6) the debtor absconded;
(7) the debtor removed or concealed assets;
(8) the value of the 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 shortly after a substantial debt was incurred; and
(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

A creditor is defined as any person who has a claim. A claim means a right to payment or property, regardless of whether it has been reduced to judgment, is disputed or is unsecured. An “insider” includes, but is not limited to, a relative or business entity owned by the debtor, officers and directors of corporate debtors or other partners in a partnership.

Sec. 24.006 of UFTA covers transfers that are only fraudulent as to present creditors. This section provides that a transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred (i) if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation or (ii) the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.

In an action for relief against a transfer or obligation under UFTA, a creditor may obtain: avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim; an attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the applicable Texas Rules of Civil Procedure and the Texas Civil Practice and Remedies Code relating to ancillary proceedings; an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property or the appointment of a receiver to take charge of the asset transferred or of other property of the transferee. If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds. In addition to the forgoing, a creditor may recover court costs and attorneys fees for a violation of the UFTA.

Information in this article is proved for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. This firm does not represent any person unless and until it is retained and agrees to provide such representation in writing.