A fraudulent transfer occurs when a debtor sells or gives away assets for
less than fair value in an attempt to defraud a creditor. Given certain
circumstances, courts can invalidate and revoke these transfers to allow
a creditor to collect.
In most states, a fraudulent transfer lawsuit must be filed within four
years from the date of the transfer or one year after the transfer could
have been reasonably discovered by the creditor.
In these instances, a fraudulently transferred asset is never completely
safe from recovery because a creditor can argue they only recently discovered
a transfer which may have happened years earlier. The creditor would then
have one additional year to set aside the transfer.
Other states impose a strict five-year statute of limitations and disallow
later claims regardless of when the creditor discovered the transfer.
For a fraudulent transfer claim to be successful, the creditor must convince
the court that the transfer was a last-ditch effort by the debtor to defraud them.