Dealing With Debtors’ Fraudulent Transfers In Illinois

 Posted on December 24, 2024 in Debt Collection

One way that debtors may attempt to avoid paying their debts is by transferring assets to a third party such as a friend or relative. This type of fraudulent transfer is illegal, and Illinois offers remedies to creditors for dealing with fraudulent transfers. A Chicago, IL creditor’s rights attorney can help creditors recover debts from debtors hiding behind fraudulent transfers. 

What is a Fraudulent Transfer?

A fraudulent transfer occurs when a debtor transfers assets that could be used to pay back the debt to another for the purpose of keeping those assets out of the creditor’s hands. This way, the debtor keeps control of the assets and the money as well. Fraudulent transfers occur in many different types of situations where a debtor seeks to avoid paying a debt, including business, bankruptcy, and divorce. 

Take this example. A retail company, XYZ Outfitters, sees its financial troubles mounting and anticipates filing for bankruptcy. Just before filing, XYZ Outfitters transfers its most valuable inventory (designer clothing) to a new company owned by the CEO’s spouse at a fraction of its actual value.

The intent behind this transfer is to shield the assets from being liquidated during bankruptcy proceedings, ensuring that the CEO's family retains control over the valuable goods, even though XYZ Outfitters' creditors are left with fewer resources to satisfy their claims.

What Can a Creditor Do in Illinois About a Fraudulent Transfer?

In Illinois, the Illinois Uniform Fraudulent Transfers Act (IUFT) provides powerful protections for creditors against debtors who made fraudulent transfers, such as:

• Creditors may sue to void those transfers which are considered fraudulent under the law. 

• Creditors can ask the court for a court order to seize the debtor’s fraudulently transferred assets in order to pay the debt.

• Creditors can receive an order called an injunction preventing a debtor from fraudulently transferring or selling the property.  

What About Bankruptcy Protection From Fraudulent Transfers?

There are also provisions for voiding fraudulent transfers when a debtor has filed bankruptcy, but the IUFT may be a better option for unsecured creditors because creditors can recover assets directly under the IUFT, whereas in bankruptcy any asset recovery will be used to pay all unsecured creditors together. 

Contact a Chicago, IL Debt Collection Lawyer

If you have debtors that you suspect have transferred assets fraudulently, the Chicago, IL creditor’s rights attorneys are here to advise you on this complex area of law. At Dimand Walinski Law Offices, P.C., we are committed to helping creditors recover debt. Contact our offices at 312-704-0771 for a consultation today.