Legal Definitions - UFCA

UFCA stands for the Uniform Fraudulent Conveyances Act.

The UFCA is a legal framework designed to protect creditors from debtors who try to avoid paying their debts by transferring assets away. It allows creditors to challenge certain transfers of property made by a debtor if those transfers were intended to defraud creditors or if they left the debtor with insufficient assets to pay their debts, especially when the debtor received less than fair market value for the transferred asset.

Essentially, the UFCA provides a mechanism for creditors to "undo" or set aside these types of transfers, bringing the assets back into the debtor's estate so they can be used to satisfy legitimate debts.

• Example 1: Intent to Defraud

  Imagine Sarah, a small business owner, knows her company is on the verge of bankruptcy and a bank is about to seize her assets to cover an unpaid loan. To prevent the bank from getting her personal luxury car, she quickly "sells" it to her brother for a mere $100, even though the car is worth $50,000. Under the UFCA, the bank could challenge this transfer. The Act would allow the bank to argue that Sarah made the transfer with the specific intent to hinder or defraud her creditor (the bank) by moving a valuable asset out of reach for a grossly inadequate price.

• Example 2: Transfer While Insolvent for Inadequate Value

  Consider Mark, who has accumulated significant credit card debt and is facing a large personal lawsuit. While already deeply insolvent (meaning his debts far exceed his assets), he sells a rental property he owns to a distant cousin for $100,000, even though its market value is $300,000. Mark then uses the $100,000 to pay back a personal loan to a friend, rather than his other creditors. Even if Mark didn't explicitly *intend* to defraud, his credit card companies and the plaintiff in the lawsuit could use the UFCA to challenge this transfer. The Act allows for such challenges when a debtor, already insolvent, transfers an asset for less than "reasonably equivalent value," effectively diminishing the pool of assets available to other creditors.

• Example 3: Avoiding Future Creditors

  Suppose Dr. Emily, a successful surgeon, learns she is likely to be sued for medical malpractice, a case that could result in a substantial financial judgment against her. Before the lawsuit is even formally filed, she transfers ownership of her valuable medical equipment and her entire personal investment portfolio into an irrevocable trust for her children. If the patient later wins the malpractice lawsuit and becomes a judgment creditor, they could invoke the UFCA to challenge these transfers. The Act can apply to transfers made with the intent to defraud *future* creditors, especially when the debtor knew or should have known about the impending debt or liability and acted to shield assets from it.