Defrauding Creditors Can Lead To A Summary Judgment

Recently, a court in Connecticut held that in cases where a person has apparent intent to defraud creditors the court can avoid a hearing and enter a summary judgment. This ruling was based on a married couple's actions. In 2008, the husband, who owned a LLC, borrowed $3 million dollars from a bank and provided a personal guarantee on the loan. Three years later, the husband quit making payments. Shortly after the payments stopped, he began to transfer all of his assets to his wife. Following these transfers, the bank took the married couple to court.

The bank brought a fraudulent transfer lawsuit under Connecticut's Uniform Fraudulent Transfers Act. The court stated that heightened scrutiny should apply when there is a transfer to an insider. In this case, the wife was considered the insider. The court ruled in favor of the bank and awarded the bank a $3 million dollar judgment. Additionally, the bank succeeded in bringing a per se fraudulent transfer claim against the husband because it met both elements of the crime. According to Forbes, the elements for per se fraud are "‘(1) The Debtor was insolvent at the time the transfer was made; and (2) The Debtor did not receive reasonably equivalent value for the transfer.'" The court reasoned that the husband was left bankrupt because of his personal guarantee on the loan. Moreover, the wife provided no consideration for the property transferred. These facts lead the court to hold the married couple accountable for per se fraud.

See Jay Adkisson, Interspousal Transfers Without Value To Avoid Personal Guarantee Voided As Fraudulent Transfers In Lilly, Forbes, January 1, 2013.

Special thanks to Jim Hillhouse(Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.