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Fraudulent Conveyance 101:
Creditor Avoidance vs. Creditor Evasion

Transferring assets to a third party for safe keeping can have consequences that are far more serious than the financial stress that prompted the transfer in the first place.

John McKindles

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Many individuals who confer with me about debt issues, including real property foreclosures, have already tried to contact creditors in hopes of reaching some compromise for managing debt on workable terms.

In helping financially distressed clients develop bankruptcy avoidance strategies that will allow them to keep as many of their assets as possible, I am commonly asked questions such as, “What if I just transfer my assets to (name a prudent relative)?”

Transferring assets to a third party for safe keeping (out of the reach of creditors and the bankruptcy trustee) is a tempting solution. Unfortunately, it may constitute a “fraudulent conveyance” that can lead to legal consequences – for yourself and for the person who receives your asset – that are far more serious than the financial stress that prompted the transfer in the first place.

Arizona Law

Arizona has both civil and criminal statutes which address fraudulent conveyances. The criminal statutes are found mainly at A.R.S. §§ 13-2204 to -2206 and largely address secured creditors, judgment creditors and, while in or anticipating receivership, appointment of a property administrator.

This article focuses on the civil statutes, starting at A.R.S. § 44-1001. That the lending industry had a hand in drafting these laws is fairly evident; for example, if a transfer was made or debt incurred “with actual intent to hinder, delay or defraud any creditor of the debtor” [Sec. 1004(A)(1)] or when the debtor “[i]ntended to incur, or believed or reasonably should have believed that he would incur, debts beyond his ability to pay as they became due” [Sec. 1004(A)(2)(b)], then that transfer may be “fraudulent … whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred” [Sec. 1004(A)].

Simply put, if transferring an asset or incurring a debt makes you unable to pay your debts in a timely fashion, you may be in violation of state law.

Also, Arizona’s definition of “insolvency” (A.R.S. § 44-1002) broadly includes persons whose debts exceed the value of their assets (perhaps the majority of our population). For example: “A debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation” [Sec. 1002(A)], and “A debtor who is generally not paying his debts as they become due is presumed to be insolvent” [Sec. 1002(B)].

Creditor Remedies

If a creditor believes that you have committed a fraudulent conveyance, the creditor can pursue various court-ordered remedies:

  • avoidance of the asset transfer,

  • garnishment,

  • attachment,

  • provisional remedy,

  • injunctive relief,

  • appointment of a receiver, and

  • any other relief deemed proper.

To discourage persons from helping you commit a fraudulent conveyance, Arizona law allows a creditor to seek the above remedies not only against you, but also against the person who received the asset from you.

For example, you transferred your car to your mother to keep it out of the reach of your creditors. Your mother then sold it to her sister in another state. Your creditor can go after your mother’s other assets – e.g., her travel trailer – to satisfy the debt that you owe to the creditor.

There are certain defenses available to the person who received the transferred asset. For example, if your mother accepted your car in “good faith” and for a “reasonably equivalent value,” she could have a solid defense against the creditor’s efforts to seize her travel trailer.


This overview provides a general description of only one of the factors considered in bankruptcy avoidance planning, and it is not applicable to all scenarios.

Ensuring that asset transfers are properly made is a primary focus of well-conceived pre-bankruptcy planning. If you are looking for relief from financial distress, I strongly suggest that you seek professional guidance before taking any action. The last thing you want to do is create even more stress for yourself and your loved ones.