This page explains New York law. Claims still often called "fraudulent conveyance" claims are now, in the statute's words, claims to avoid a voidable transfer, under Article 10 of the Debtor and Creditor Law (DCL), titled the Uniform Voidable Transactions Act (sections 270 to 281). KOR Law LLP's debtor and creditor practice both prosecutes and defends these claims, including the ripeness, standing and statutory defenses that often decide them.

What makes a transfer voidable?

The statute gives a creditor four separate routes. Each has its own elements, its own group of creditors who can use it, and its own deadline.

The four voidable transfer claims in DCL Article 10
ClaimWhat the creditor must proveWhich creditorsDeadline (DCL 278)
Actual intent (DCL 273(a)(1))The debtor transferred with actual intent to hinder, delay or defraud any creditorCreditors whose claims arose before or after the transfer4 years after the transfer, or 1 year after it was or could reasonably have been discovered, if later
Constructive, business or debts test (DCL 273(a)(2))No reasonably equivalent value, and the debtor's remaining assets were unreasonably small for its business, or it expected to incur debts beyond its ability to payCreditors whose claims arose before or after the transfer4 years after the transfer
Constructive, insolvency test (DCL 274(a))No reasonably equivalent value, and the debtor was insolvent then or became insolvent as a resultCreditors whose claims arose before the transfer4 years after the transfer
Insider preference (DCL 274(b))A transfer to an insider for an existing debt, while the debtor was insolvent, and the insider had reasonable cause to believe soCreditors whose claims arose before the transfer1 year after the transfer

In each case the creditor carries the burden of proving the elements by a preponderance of the evidence (DCL 273(c), 274(c)). The deadlines are not ordinary limitations periods that can be argued around: the statute says the claim "is extinguished" unless the action is brought in time (DCL 278).

How do courts decide whether there was intent to defraud?

People rarely admit intent, so the statute lists circumstances a court may consider, often called the badges of fraud (DCL 273(b)). Among them:

  • the transfer was to an insider, such as a relative, a partner, or a company the debtor controls (insiders are defined in DCL 270(h));
  • the debtor kept possession or control of the property after the transfer;
  • the transfer was concealed rather than disclosed;
  • the debtor had been sued or threatened with suit before the transfer;
  • the transfer was of substantially all the debtor's assets, or the debtor absconded or removed or concealed assets;
  • the value received was not reasonably equivalent to what was given up;
  • the debtor was insolvent, or became insolvent shortly after;
  • the transfer happened shortly before or after a substantial debt was incurred; and
  • the essential assets of a business went to a lienor who passed them on to an insider of the debtor.

No single badge is required, and the list is not exclusive ("among other factors"). The more of them line up, the harder the transfer is to defend.

What counts as "insolvent" and "reasonably equivalent value"?

A debtor is insolvent if, at a fair valuation, its debts exceed its assets. A debtor that is generally not paying its debts as they become due, other than because of a genuine dispute, is presumed insolvent, and the presumption puts the burden on the other side to prove solvency is more likely (DCL 271(a), (b)). Property transferred in a voidable way is not counted as an asset for this test (DCL 271(c)).

"Asset" has a narrow meaning. It excludes property to the extent it is encumbered by a valid lien, property generally exempt under non-bankruptcy law, and an interest in a tenancy by the entirety to the extent a creditor of only one spouse cannot reach it (DCL 270(b)). So transferring fully mortgaged property, or exempt property, may not be a transfer of an "asset" at all. The exemptions are listed in what property a New York judgment creditor cannot take. The entireties rule is explained in whether a creditor of one spouse can force the sale of an entireties home.

Value is given when property is transferred or an existing debt is secured or satisfied in exchange (DCL 272(a)). A buyer at a regularly conducted, noncollusive foreclosure sale is treated as giving reasonably equivalent value for the constructive claims (DCL 272(b)).

How does a creditor bring the claim, step by step?

  1. Identify the claim. A creditor need not have a judgment yet. A "claim" includes a right to payment that is unliquidated, contingent, unmatured or disputed (DCL 270(c), (d)).
  2. Trace the transfer. Deeds, account statements and corporate records show what moved, when and to whom. A judgment creditor can use an information subpoena and other disclosure devices to find this out.
  3. Fix the transfer date. For real property, a transfer is made when it is so far perfected that a later good-faith purchaser from the debtor could not take priority over it (DCL 275(a)). Because an unrecorded deed is void against a later good-faith purchaser whose deed is recorded first (Real Property Law 291), recording is usually the key date. A transfer not perfected before the action starts is treated as made just before it (DCL 275(b)).
  4. Sue the debtor and the transferee. The action is brought within the DCL 278 deadline for the claim used.
  5. Seek provisional relief if needed. The creditor can ask for an attachment, an injunction against further transfers, or a receiver (DCL 276(a)(2), (3)). An attachment is available where the defendant, with intent to defraud creditors, has disposed of or hidden property or is about to (CPLR 6201(3)).
  6. Judgment. The court can avoid the transfer to the extent needed to satisfy the claim, or enter a money judgment against the first transferee for the lesser of the asset's value at the time of transfer or the amount of the claim (DCL 276(a)(1), 277(b), (c)).
  7. Collection. A creditor that already has a judgment against the debtor may, if the court orders, levy execution on the transferred asset or its proceeds (DCL 276(b)). Judgment creditors can also use a turnover proceeding against a person holding the debtor's property (CPLR 5225(b)).

In some cases a judgment creditor that wins can also have its reasonable attorney's fees fixed by the court and added to the judgment against the debtor and the transferee (DCL 276-a), subject to the conditions that section sets.

What defenses do debtors and transferees have?

  • Good faith and reasonably equivalent value. An actual-intent claim fails against a person who took in good faith and for reasonably equivalent value, and against later transferees from that person (DCL 277(a)).
  • Credit for value given. Even where a transfer is voidable, a good-faith transferee keeps a lien or a reduction to the extent of the value it gave the debtor (DCL 277(d)).
  • Protected transactions. The constructive claims do not reach a lease termination on the debtor's default, or a secured party's enforcement in compliance with UCC Article 9, other than taking the collateral in satisfaction of the debt (DCL 277(e)).
  • Insider preference defenses. New value given afterwards, the ordinary course of business, or a good-faith effort to rehabilitate the debtor (DCL 277(f)).
  • Time. A claim brought after the DCL 278 period is extinguished. The deadlines for the underlying debt itself are in how long a lender has to sue on a note or guaranty.
  • Not an "asset." Fully encumbered, exempt or protected entireties property falls outside the definition (DCL 270(b)).
  • Which state's law. The claim is governed by the law of the place where the debtor was located when the transfer was made: an individual's principal residence, or a company's place of business or chief executive office (DCL 279).

What changes the answer?

  • When the creditor's claim arose. Creditors whose claims arose after the transfer can use only the DCL 273 claims, not DCL 274 (DCL 273(a), 274).
  • Who received the property. A transfer to an insider is a badge of fraud and the basis of the one-year insider preference claim (DCL 273(b)(1), 274(b)).
  • What was received in exchange. Reasonably equivalent value defeats the constructive claims and supports the good-faith defense (DCL 273(a)(2), 274(a), 277(a)).
  • The debtor's finances at the time. Insolvency, or being left with unreasonably small assets, is an element of the constructive claims (DCL 271, 273(a)(2), 274(a)).
  • The transfer date. Recording or perfection fixes it, and it starts the clock (DCL 275, 278).
  • The nature of the property. Exempt, encumbered or entireties property may not be an "asset" (DCL 270(b)). For a home, see also whether the homestead exemption protects a co-op apartment.

For example: a deed to a spouse after a lender's demand

For example, imagine a business owner who receives a lender's demand on his personal guaranty in March 2024 and, in May 2024, deeds his solely owned investment condominium to his wife for $10, recording the deed the same week. He keeps collecting the rent. (This is a made-up illustration, not a real client or result.) The lender gets a judgment on the guaranty in 2026 and sues to avoid the deed in early 2027.

The action is within four years of the May 2024 recording (DCL 275(a), 278). Several badges are present: a transfer to an insider, retained control, a threatened suit, and nominal value (DCL 273(b)). The wife cannot use the good-faith defense for value she did not give (DCL 277(a), (d)). The owner's best ground may be the facts the statute measures: whether the condominium was fully mortgaged, so that little "asset" was transferred (DCL 270(b)), and whether he remained solvent with ample other assets, which bears on the constructive claims and on intent.

Common mistakes

  • Moving property after trouble starts. A transfer after being sued or threatened with suit is one of the listed badges of fraud (DCL 273(b)(4)); guarantors facing a demand should read what defenses a personal guarantor has before doing anything with property.
  • Assuming a nominal price is "value." A $1 or $10 deed is not reasonably equivalent value for a valuable property.
  • Creditors waiting too long. The insider preference claim expires one year after the transfer, and the others after four years, subject only to the discovery rule for intent claims (DCL 278).
  • Ignoring the transferee's position. A good-faith buyer who paid value keeps its protection (DCL 277(a), (d)).
  • Forgetting provisional remedies. Without an attachment or injunction, the property may move again before judgment (DCL 276(a)(2), (3); CPLR 6201(3)).
  • Overlooking what is not an asset. Exempt and fully encumbered property are outside the statute's definition (DCL 270(b)).

What to do this week

  1. List every transfer in question with its date, recording date, recipient and what was paid.
  2. Pull the deeds, closing statements and bank records for each one.
  3. Note when the creditor's claim arose compared with each transfer date.
  4. Work out the debtor's assets and debts as of each transfer date.
  5. Count four years, and one year for insider preferences, from each transfer date (DCL 278).
  6. If you are the transferee, gather proof of the value you gave and of your good faith, and speak with a lawyer before any further transfer.

Frequently asked questions

Does the creditor need a judgment before suing to undo a transfer?

No. A creditor is anyone with a claim, and a claim includes rights that are unliquidated, contingent, unmatured or disputed (DCL 270(c), (d)). A creditor with a judgment has an added remedy: if the court orders, it can levy execution on the transferred asset or its proceeds (DCL 276(b)).

Can the person who received the property be sued?

Yes. A money judgment can be entered against the first transferee, or the person for whose benefit the transfer was made, and against later transferees other than good-faith transferees for value (DCL 277(b)).

Is a foreclosure sale a voidable transfer?

For the constructive claims, a buyer at a regularly conducted, noncollusive foreclosure sale gives reasonably equivalent value (DCL 272(b)). What happens to the borrower's remaining debt after a sale is covered in whether a lender can get a deficiency judgment after a New York foreclosure sale.

Which state's law applies if the debtor lives elsewhere?

The law of the place where the debtor was located when the transfer was made: an individual's principal residence, or an organization's place of business or chief executive office (DCL 279).

Can a court appoint a receiver over transferred property?

Yes. The remedies include appointment of a receiver to take charge of the transferred asset or other property of the transferee (DCL 276(a)(3)(ii)). Receivers in judgment enforcement are covered in when a New York court can appoint a receiver to collect a judgment.

Do older fraud principles still apply?

Yes, to the extent the article does not displace them: principles of law and equity, including estoppel, laches, fraud and insolvency, supplement its provisions (DCL 280).