Collecting a debt from another organization can be a challenge. In some cases, business leaders choose to file for bankruptcy to avoid financial responsibility. The automatic stay provided when an organization files for bankruptcy can prevent creditors from pursuing lawsuits or engaging in other collection activities.
In special circumstances, creditors may be able to petition the courts asking for relief from the automatic stay. Other times, they may even be able to take action against assets that the company has attempted to protect previously. Transfers of resources conducted to prevent creditor claims could constitute fraudulent conveyance and may warrant litigation during a bankruptcy case.
The courts can reverse fraudulent transfers
A fraudulent transfer, also known as fraudulent conveyance, occurs when an individual or business moves assets to avoid collection activity. In fact, even in cases where the intent was not to defraud creditors but the transfer still impacts collection activities, the courts may treat the transfer as fraudulent.
It is possible to request the reversal of a transfer, which can, in turn, lead to legal action against an asset or the courts requiring the liquidation of that asset as part of the bankruptcy case. Creditors frustrated by pending bankruptcy proceedings and prior attempts to avoid collection efforts can theoretically take legal action to hold debtor organizations accountable.
Evaluating financial disclosures with a skilled legal team can help creditors determine if they are in a position to challenge a prior transfer as fraudulent. The support of an experienced bankruptcy litigation attorney can be of the utmost importance when a debtor organization files for bankruptcy to avoid paying what it owes other companies.