Can a Judgment Debtor Legally Transfer Property to Avoid Paying?

Judgment debtors have been known to go to great lengths to avoid paying their debts. Utah’s Judgment Collectors cites the example of a debtor transferring a piece of property into a relative’s name to avoid a writ of execution against it. But are such transfers legal? Can a judgment debtor legally transfer property to avoid paying?

Judgment Collectors say the details vary by state. But as a general rule, such transfers aren’t allowed. And in states where they might be, they can always be contested by a judgment creditor.

Money Judgments and Property Seizures

If none of this is familiar to you, the most important thing to know is the context of this discussion: money judgments. A money judgment is a decision rendered in civil court, a decision that involves a monetary award.

Let’s say a small local business files a suit against a customer who has not paid his bill. The court finds in favor of the business, awarding it the original debt plus attorney’s fees, court costs, and interest. The total sum of money constitutes a monetary award.

Judgment debtors may try to transfer property so that it cannot be seized and sold to pay a monetary award. The thinking is that transferring property into someone else’s name takes that property off the table. It may or may not depending on state law.

3 Legal Considerations

Given that states treat property transfers differently, there are a number of legal considerations in play. A judgment creditor would have to consider each based on the circumstances of his case. Here they are:

1. Fraudulent Transfers – In some states, it is expressly illegal to transfer property with the intent to hinder, delay, or avoid payment. Doing so is considered fraud. State law would allow a court to set aside such a transfer so that the property in question could be leveraged for payment.

1. Judgment Liens – Judgment creditors can file liens against property to prevent transfer after the fact. An attached property cannot be sold or transferred to another property free and clear. The lien stays attached to the property until the debt is satisfied.

1. Due Process – Any property that can be legally transferred is subject to due process. In other words, the creditor must be notified of the pending transfer in advance. He may have a legal right to contest the transfer.

Unfortunately, a lack of consistency regarding property transfers can make debt collection difficult. But there is even more to consider in terms of practical implications.

2 Practical Considerations

What the law allows and what creditors put into practice can differ quite a bit. The two most common practical considerations relating to property transfers are:

1. Enforcement – Creditors have a variety of means to enforce a judgment by way of a debtor’s property. But practically speaking, creditors need to be on the ball. They need to understand their enforcement rights and be ready and willing to exercise them.

1. Consequences – There are consequences awaiting debtors who attempt to avoid payment by concealing or transferring property. A debtor could be slapped with a contempt charge, for example. Debtors should think long and hard before concealing or transferring property.

A general rule says that debtors cannot legally transfer property into someone else’s name in order to avoid paying a money judgment. Does it happen? Undoubtedly. Judgment collection agencies and attorneys are not perfect; they don’t catch everything.

On the other hand, if a debtor is found transferring property to avoid payment, he only compounds his problems. It is better to simply find a way to pay without potentially committing fraud.