From time to time, the judgment enforcement process hits a brick wall because your debtor is “judgment proof,” which means that they don’t own anything: no car, no property, and no cash.
This can be a disconnect from reality, especially where the debtor lives in a big house with a fancy car parked in the driveway. How can this guy be broke?
That’s when I investigate fraudulent transfers, which are transfers out of the debtor’s name to a third party—a wife, parent, or child—to keep the assets out of the creditor’s reach. This is more common than you’d think.
Tennessee has adopted the Uniform Fraudulent Transfer Act, at Tenn. Code Ann. § 66-3-301 et seq. That Act provides for a number of “badges of fraud,” such as transfers to an “insider”, transfers that render the person insolvent, transfers where equal value is not given for an asset, or transfers with “actual intent” to hinder or defraud creditors.
“Actual intent” means what someone is “thinking,” which, you can guess, is hard to prove. As a result, the Act provides some common ways to prove intent, at Tenn. Code Ann. § 66-3-305(b). These include:
- The debtor retained possession of the asset;
- The transfer was kept a secret;
- Prior to the transfer, the debtor had been sued or threatened with suit;
- The transfer was to an insider;
- No equivalent value was provided; and
- The transfer was made prior to a substantial debt was incurred.
Under Tennessee law, a creditor can attack fraudulent transfers from up to four (4) years preceding your lawsuit.
Long story short, when enforcing a judgment in Tennessee, don’t just examine what your debtor owns, but look also to what he used to own. Then, look back at least 4 years, because, in Tennessee, fraudulent transfers can be attacked for a long time.
Transfers of the big assets (like real property) are all of public record, so your cause of action can easily be discovered, if you know to look for it.