How debt buyers and creditors get judgments when they do not have a right to sue, and what you can do about it

Most bad consumer debt is sold off to “debt buyers” who make a good living buying bad debt for pennies on the dollar then collecting it. As a recent New York Times article points out, these creditors have been able to get judgments on debts that are too old to sue on. Worse, when the judgment debtors tried to stop this practice by a class action lawsuit, they were thrown out of court because of a clause in the original loan agreement that forced all disputes into arbitration. Courts have rejected the argument that by going to court themselves, the debt buyers waived their right to rely on this clause.  “Sued Over Old Debt, and Blocked From Suing Back” 12-22-2015

There are some important take-aways here.

  1. Read the credit agreements and understand what you are agreeing to. Some credit cards give you a limited time to “opt out”. Arbitration looks simple and less expensive, but in fact you may be giving away important rights.
  2. Keep your own records of what you have paid or charged. You may need them later.
  3. When faced with collection, demand proof and keep good records of all contacts, letters or communications. Debt collectors are required to provide proof of the debt if you ask in writing. Because they have bought the debt in large bulk purchases, they likely do not have the original documents.
  4. Watch the statute of limitations. In New Jersey, creditors have 6 years from the date of the last payment after default in which to sue. Even a $1 payment after that time has passed could start the clock running all over again.
  5. If sued, seek legal advice and seriously consider filing an Answer IN WRITING, FILED WITH THE COURT. YOUR ANSWER MUST BE IN THE HANDS OF THE CLERK BEFORE THE STATED DEADLINE EXPIRES. Calling the collection attorney does not protect your rights. A qualified attorney can advise you about the rights and defenses you have. These might include
    1. Plaintiff does not own the debt and is not qualified to sue me.
    2. Plaintiff is not entitled to use the courts to sue me. (In New Jersey out of state businesses must file certain reports in order to sue in our courts)
    3. The statute of limitations has expired. (See above and check the law in your state)
    4. If Plaintiff is owed money, the amount claimed is wrong. (This will require production of account records and possibly the loan agreement. You need to carefully assemble your records to show what you think is due)
    5. NOTE,  THESE ARE ONLY EXAMPLES: you are entitled to demand proof, but you may not have a valid claim to the above defenses or you may have other rights and defenses. Always seek legal advice and assistance, even if it is only a consultation.
  6. When dealing with debt collectors, keep careful written records of who contacted you, when and how, and what they said. You may have a counterclaim against the debt collector, but again, proof is key. Do not hesitate to record the conversations, but be sure to tell them, at the beginning of the recording, that you are recording. Not doing this can result in criminal liability in your state or the state where the caller is at.

For many people, debt collection is more likely to be a symptom of bigger problems. You should consult with a qualified attorney about how you can use Chapter 7 bankruptcy to discharge debts you cannot afford to pay, or Chapter 13 to pay what you can afford over time.

Supreme Court rules that Bankruptcy Courts can enter final judgments in Article III controversies where the parties consent by act or deed

Earlier this year, our blog noted that this would be an exciting year for important rulings from the Supreme Court on several bankruptcy related fronts. Rulings have now started coming down.

In Wellness International Network Ltd v Sharif, decided May 26, 2015, the Court resolved what could have been the most serious challenge to the entire bankruptcy system. Both bankruptcy judges and U.S. Magistrates handle a large volume of disputes, such that, as the Court noted, “it is no exaggeration to say that without the distinguished service of these judicial colleagues, the work of the federal court system would grind nearly to a halt.”

The problem is that the Constitution vests the full power of the federal judiciary only in “Article III” judges who have lifetime appointment and salary protection. These judges are confirmed by Congress. Magistrates and bankruptcy judges serve limited terms and are appointed by the District and Circuit Court judges in their district. They serve at the pleasure of those judges and are delegated handling of certain types of matters. Bankruptcy judges have authority to hear and decide all matters coming before them in or arising in a bankruptcy case. That is a lot of decisions to make, folks.

There are certain types of disputes, however, that only Article III District Court judges may issue final rulings on.  Generally, these are claims and disputes that would have had an existence even were there no bankruptcy filing. Examples include common law contract disputes, or whether a transfer of property can be undone as a “fraudulent transfer”. For these types of matters, the Bankruptcy Court can hear the case, but can only issue “proposed findings of fact and conclusions of law” which the District Court must review all over again on the record in a “plenary” manner. This gives the loser in the bankruptcy court a much better chance of getting a “second bite at the apple”.  In Wellness, a creditor sued the debtor to grab the assets of an alleged family trust which the debtor had concealed, claiming the trust was a fiction and that the assets really belonged to the debtor and should be turned over to the trustee to be sold to pay creditors.

The Supreme Court held that the Bankruptcy Court had the authority to make a final ruling on this issue because Sharif had knowingly and voluntarily consented to its doing so. Here, it was argued, Sharif did not expressly consent by statements to the court below even though he had not objected and in fact had applied to the Bankruptcy Court for a ruling in his favor. But the Court ruled that consent may be implied, and pointed to a long history of that being allowed.

The decision was split, with 5 justices ruling with the majority, one justice agreeing in the result but not in the ruling on implied consent, and the remaining 3 dissenting.

Wellness makes clear that gamesmanship on this issue will not be allowed. If a party objects to the Bankruptcy Court making a final ruling in disputes that could have been litigated without any bankruptcy filing, it must say so and take affirmative action, or the objection is waived.

The opinion is well-reasoned and provides much needed guidance to the Bankruptcy Courts and those who practice there.

Supreme Court now decides to answer the questions it ducked in Arkison-what can a bankruptcy court decide, when and how?

A short time ago we reported on Executive Benefits v Arkison, where some critical questions about the powers of bankruptcy courts were left hanging.  In Wellness International Network, Limited v. Sharif,  the Supreme Court has now decided to take up a case where those issues are clearly presented. On July 1, 2014 it granted Certiorari to review a decision of the Seventh Circuit Court of Appeals in that case.

The issues presented in the case turn on the extent of the Bankruptcy Court’s power to render final decisions and in what types of matters. You will recall that Bankruptcy Courts are Article I courts, appointed without the lifetime tenure granted to federal district court judges and other Article III judges.

Generally, Article I jurisdiction is centered on “bankruptcy specific” issues, that would not exist as controversies outside of bankruptcy. What property is included in a bankruptcy estate would seem clearly to fall within this area, yet  in Sharif, the Court is being asked to decide whether the presence of a subsidiary state property law issue necessary to decide this question takes the controversy outside Article I territory, so that a bankruptcy court does not have the constitutional authority to enter a final order deciding that matter.

The second issue in Sharif concerns whether,  under Article III of the Constitution, litigants by either express or implied consent can empower bankruptcy courts to enter final decisions in matters that are beyond Article I. The Seventh Circuit said no.

Decision on these matters is expected next term. If the Court decides against bankruptcy court powers on either question, the result will be to upend bankruptcy practice, causing many or all routine bankruptcy matters to grind to a halt as much or all of the bankruptcy court docket is shifted to already-overburdened federal district court judges.

The Court has already upheld the power of another class of Article I judges to render final decisions by consent, and a different ruling here could have drastic effects across the Federal Court system. In Roell v. Withrow, 538 U.S. 580 (2003), the Court held that U.S. Magistrate Judges could proceed by implied consent of the parties based on their lack of objection and other conduct, even though the Federal Magistrate Act of 1979 required written consent. Magistrates work as an arm of the District Courts. The Magistrate Act specifically provides that “upon the consent of the parties, a full-time United States magistrate judge . . . may conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case, when specially designated to exercise such jurisdiction by the district court.” 28 U.S.C. § 636(c)(1) [28 USCS § 636(c)(1)]. Unlike  nonconsensual referrals of pretrial but case-dispositive matters under § 636(b)(1), which leave the district court free to do as it sees fit with the magistrate judge’s recommendations, a § 636(c)(1) referral gives the magistrate judge full authority over dispositive motions, conduct of trial, and entry of final judgment, all without district court review.  A judgment entered by “a magistrate judge designated to exercise civil jurisdiction under [§ 636(c)(1)]” is to be treated as a final judgment of the district court, appealable “in the same manner as an appeal from any other judgment of a district court.” § 636(c)(3).”  Roell v Withrow, 538 U.S., at 585.

Bankruptcy Courts are given jurisdiction by another Congressional enactment, embodied in 28 USC 157,  which gives them power to act as “a unit of the district court.” The statute provides that “with the consent of all the parties” the District Courts may refer Article III matters to the bankruptcy courts for final decision. In New Jersey and throughout the country, the District Courts have entered Standing Orders of Reference. 28 USC 157(c) also provides a mechanism for the parties to opt out and by a “withdrawal of the reference” insist on the district court making the rulings in the first instance.

We would hope that the Court would see this as putting bankruptcy courts in the same posture and status as US Magistrates. If not, the Court will have to confront whether Roell is still good law, and if not, how the federal courts can handle the enormous caseload now routinely disposed of by bankruptcy court as well as US Magistrates.

It is going to be an interesting year in bankruptcy practice. We can expect litigants interested in hindering or delaying decisions by the bankruptcy courts to raise these issues. Clarification has been delayed, and is overdue.

Mediation now required in New Jersey Bankruptcy Court- but you have more choices than first appears

Anyone who has experienced the rigors and the expense of litigation knows its costs both personal and financial. Any attorney who does a fair amount of litigation knows that ultimately, most cases settle. Unfortunately, this often happens after the parties have bloodied each other.

Mediation is a process where a neutral third party meets with the parties and their attorneys to explore settlement. The Mediator cannot impose a settlement. A good one can, however, help the parties get past the posturing to what really is at issue and to help them find better alternatives that litigating. Done well, the process can be quite valuable. Even where a settlement is not reached during the mediation, in my experience, the process gets the parties talking and thinking about settlement as an alternative. Both as a mediator and as a litigant, I have found many times that the mediation produced a settlement after the mediation was over.

The New Jersey Bankruptcy Court has just imposed a requirement that every “adversary proceeding” (a bankruptcy term for a lawsuit in the bankruptcy court) filed after May 1, 2014 must go to mediation, unless the parties can convince the court to opt out.

The court has selected a panel of mediators. All are good, and some are superb. But the selection of the right mediator is an important decision. The mediator must be someone who commands or will command the trust and respect of the parties and their attorneys.

In selecting a mediator for your case, do keep in mind that you are not limited to the mediators on the panel. The parties can designate and select anyone who is otherwise qualified. DNJ LBR 9019-2(b)(2).

Both Steven Neuner and Joanne Ventura are experienced mediators. Mr. Neuner has served for over 6 years on the New Jersey Superior Court mediation panel, and has served as a bankruptcy mediator in several cases. His background and experience as a trustee and a respected bankruptcy practitioner brings a unique perspective to bear. Joanne Ventura is a divorce mediator with years of experience and extensive training, as well as a familiarity with the bankruptcy process.

If you are facing a mediation in bankruptcy court, please feel free to consider selecting one of us to help.

Protecting Yourself and Your Company in the Face of Business Litigation

Taking the Right Steps When You Become Involved in Business Litigation

It’s generally an unavoidable aspect of running a business — at some point, you will have a dispute with a customer, vendor or competitor that cannot be settled. When litigation is the only means to settle your differences, there are measures you should take to protect yourself.

Never ignore legal papers, and if you have been served with a Complaint, you MUST file an Answer WITH THE COURT.

Incredibly, we have seen business people whose response to a lawsuit is to call the plaintiff or their attorney, and expect that everything will all work out! They are then surprised when a judgment is entered. Calls or letters to the attorney for the other side do nothing. Whatever you do, you must file something with the court. Even if a matter is “settled” you need to file something to let the court know.

Hire Competent Legal Counsel

Regardless of how insignificant the dispute may be, you are always well served to seek advice from an experienced and competent attorney. You may be totally unaware of filing restrictions, and can risk the loss of your rights by trying to handle matters on your own.

Contact Your Insurance Carrier

It is always a good idea to review your comprehensive general liability policy or other policies to see if any provide coverage for the costs of business litigation or possible liability. Your insurer may have a duty to defend you under the policy. Even if your carrier denies coverage, you may want to seek a legal opinion regarding coverage. It costs you nothing in most cases to make a claim with the insurance carrier, but do it in writing. And do it right away.

Protect All Relevant Records

The most important step in protecting your rights is to nail down and safeguard all relevant records. If the records are hard copies or physical evidence, they should be separated and stored in a safe and secure place. This includes all electronic records or files. For these, you need to institute a litigation hold. Some of the key components of a litigation hold include:

  • Saving all electronic records and communications to a protected server or backup media, where nothing can be modified or changed
  • Creation of a secure backup with all metadata intact

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with potential business litigation. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

U.S. Court of Appeals Reverses Ruling in Bankruptcy Case Involving Inherited IRA Funds

U.S. Court of Appeals Reverses Ruling in Bankruptcy Case Involving Inherited IRA Funds
On April 23, 2013, the U.S. Court of Appeals for the 7th Circuit reversed a District Court ruling and reinstated a determination by a bankruptcy court that inherited IRA funds were no longer “retirement funds” and thereby exempt or protected from creditors in a bankruptcy proceeding.

Generally, IRA’s are either exempt from claims of creditors in bankruptcy, or in New Jersey, are completely disregarded as “property of the bankruptcy estate”. This decision shows that inherited IRA’s (called IRA-BDA accounts) are a different animal. How they are treated and whether they can be seized by a bankruptcy trustee to pay creditors can be a critical issue.

The Facts

Heidi Heffron-Clark’s mother, Ruth Heffron, owned, at the time of her death, an individual retirement account worth approximately $300,000. Her IRA went Heffron-Clark. According to tax laws, the IRA remains a tax-sheltered investment, but with limitations. There can be no new contributions to the IRA and it cannot be rolled over into any other account. In addition, federal law requires that “minimum required distributions” take place from the IRA starting no later than one year after the death of the original owner (Ruth Heffron).

After receiving the inherited IRA, Heffron-Clark and her husband filed for bankruptcy protection. In that petition, they claimed that the IRA funds were exempt from the reach of the bankruptcy courts as “retirement funds.” The bankruptcy court judge disagreed, concluding that the funds were never held as “retirement funds” by Heffron-Clark and by law must be distributed. Heffron-Clark appealed to the District Court, which reversed the bankruptcy court ruling, citing a prior opinion that held that “retirement funds” in a decedent’s hands must also be treated as “retirement funds in the hands of a beneficiary.”

The Court of Appeals overturned the District Court ruling, stating that upon the death of an IRA’s owner, those funds are no longer anyone’s “retirement funds.” To hold otherwise, the court concluded, would be to allow a debtor free access to a substantial pot of money never intended for their retirement. The court held that inherited funds in the form of an IRA are still inherited funds and are not a form of retirement funds under bankruptcy law.

This issue is one likely to end up before the Supreme Court if Congress does not address it. Right now there is a disagreement between the Circuit Courts of Appeal that have addressed this issue. Stay tuned.

Bankruptcy & Law Suits

Contact Neuner & Ventura, LLP

Let us help you take back control of your life! We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every new potential bankruptcy client. (We do, however, reserve the right to charge a fee to review any work done by another attorney). For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.

Representing Clients across South Jersey

Federal Trade Commission reveals the truth about debt buyers- debtors be savvy and demand proof

A large portion of past due debts are bought by professional “debt buyers” who then attempt to collect the bad debt. The Federal Trade Commission just issued a 162 page report after studying this practice for over 3 years. The report is eye-opening.

The FTC notes that it “receives more consumer complaints about debt collectors, including debt buyers, than about any other single industry. Many of these complaints appear to have their origins in the quantity and quality of information that collectors have about debts.”

The FTC found that debt buyers pay an average of 4 percent of face value, and for older debts, the cost is “significantly lower”. The debt is still fully due, but the buyer’s have a large profit percentage. This reflects, we believe, the inherent riskiness of what is being purchased.

Debt buyers will commonly buy these debts in bulk on an “AS IS” basis. Buyers typically received the basic information required for notices required under federal law, such as the amount of the debt. They also commonly had other information which has to be requested by the debtor by disputing the debt in writing.  This information, the FTC found ” included the name of the original creditor, the original creditor’s account number, the debtor’s social security number, the date of last payment, and the date of charge-off.”

What is revealing is what Debt Buyers did not receive upon buying the debt. This includes the history of previous disputes on the account  or information that would allow them to break down the outstanding balance into principal, interest, and fees.  Most of the time, the FTC found, Debt Buyers received “few underlying documents about debts” such as account statements, loan agreements or other documents showing the terms and conditions of credit. Yet these are the very kinds of proof that a court of law is likely to require if suit is filed.

The FTC found that some debt that was purchased was beyond the statute of limitations, meaning that a suit on the claim could be readily dismissed as time barred, IF the defendant asked.

These findings square with our experience. It usually pays if there is a basis for question to demand the underlying documents and proof of the debt. The results may not be immediate. We have found the same disputed debt being passed from collection agency to collection agency. But many times, the original signed agreements or purchase or charge records simply do not exist.

Of course, no one should ignore collection efforts. It just pays to be savvy and demand proof when appropriate.


NJ Court rules that failure to properly list a judgment holder in bankruptcy prevents later removal of lien from real estate

We have always told our bankruptcy clients how important it is to  accurately listing every possible creditor. The New Jersey Courts have reminded us again why that is so.

First, a common misconception. People think that if they have gotten a bankruptcy discharge, all judgments or liens against their home are removed. This is not so. Mortgages and judgments, and certain other liens cannot be collected post-discharge against the debtor personally, but they stay attached to real estate. This usually comes up when the debtor in bankruptcy wants to sell or refinance a home. The judgments are still there, clouding title to the home. They can be removed, but extra steps are involved, either a motion during the bankruptcy case, or a motion in the New Jersey courts under its “cancellation of judgments” statute,  filed a year or more after the bankruptcy discharge. This is usually pretty straightforward, assuming the attorney filing the motion knows what they are doing and the proper steps were taken in the bankruptcy case.

In Gaskill v Citi Mortgage Inc., (Appellate Division Sept. 28, 2012) however, the Gaskills could not get that relief to remove a judgment Citi had  against them. The reason? In their bankruptcy they had never listed Citi as a creditor but instead had listed as the “creditor” only the collection law firm that had represented Citi in obtaining the judgment. Because of this, the Appellate Division held tht Citi itself never got information sufficient in time to protect its rights in the bankruptcy;  its first notice of the bankruptcy, according to the opinion, came after the discharge was entered.  As a result, the New Jersey Appellate Division held that the Gaskills were not entitled to the benefit of cancellation of the judgment as a lien on their home. (BUT See Note Below)

The take-away here is that those who need bankruptcy relief need to pay attention to the details. We routinely pull a judgment search as well as a full credit report for our clients. As the Gaskill case reminds us, not everyone does this. And those who intend to keep their home, or possibly buy another, need to be careful as well. As always, having the right attorney and sweating the details pays off.

NOTE: The Third Circuit Court of Appeals has held that in the typical “no asset” bankruptcy were the trustee has no money to pay claims of creditors, a bankruptcy discharge applies to everyone who was owed money,whether or not listed. Here, however, that was not the case, since the trustee arranged for creditors to get notice to file claims. Oddly, Citi actually filed a claim in the bankruptcy and even filed and lost a motion in the bankruptcy court seeking a declaration that its lien was not to be discharged. One has to question the logic or validity of the Appellate Division’s ruling, since Citi clearly knew about the bankruptcy in time to protects its rights. Further, Citi lost on nearly the same issue that the Appellate Division ruled the other way. For now, this ruling signals that those who rely on New Jersey statutes to clear their home of judgments has better turn square corners.

For help with debt or related problems, please feel free to contact us.

Bankruptcy & Law Suits

The continuing obligation to accurately list all claims and property in bankruptcy: what you do not list can cost you plenty.

In a bankruptcy, I often tell clients they are entering a “fishbowl” in which they have to list and disclose all property. Not doing so can get debtors in plenty of trouble. When what is not listed happens to be a valuable lawsuit, non disclosure can also cost them and the unfortunate attorneys who handle such claims plenty. This is the message from two recent Circuit Court cases, Guay v Burack, 677 F.3d 10 (1st Cir. 2012), and Love v. Tyson Foods, Inc.  677 F.3d 258 (5th Cir,2012). In both cases, a failure to list pending lawsuits in a timely fashion caused the courts to dismiss those suits, under the doctrine of judicial estoppel. In both cases, the debtors in bankruptcy did disclose the lawsuits, but in both cases, the courts held that “too little, too late” was not enough to save the day.

In Guay v Burack, the debtors initially filed under Chapter 11. While they were in Chapter 11,  police executed search warrants and caused alleged damage to their property. Their case was converted to Chapter 7, and 3 days later, Mr. Guay filed a pro-se civil rights suit in federal court. His wife followed with a similar suit. The Guays did not list these claims in their original bankrutpcy filing because the incidents had not occurred. However, they were required to amend to list them, and were later ordered to do so. Instead, they refused, and in fact filed affidavits stating that there was no need to do so as their original papers were accurate. Even though the Chapter 7 trustee learned about the suit and later abandoned the claim as not being of sufficient value, the courts held that judicial estoppel required that their complaints be dismissed, as they had taken inconsistent positions in the bankruptcy and district court, playing “fast and loose” with the system. Interestingly, the suits were not a secret for very long. At the First Meeting of Creditors, the debtors disclosed the existence of the suits to the Chapter 7 trustee, but only after being questioned by counsel appearing for the State of New Hampshire. The Trustee later gave up the claims by filing an abandonment.

In Love v Tyson Foods, Mr. Love filed a federal suit alleging violations of his civil rights and employment discrimination, while he was a debtor in a pending Chapter 13 case. Love did not disclose his claims against Tyson and affirmatively stated “NONE” on Schedule B, item 21, which required the identification of “[o]ther contingent and unliquidated claims of every nature.” On September 22, 2008, the bankruptcy court confirmed Love’s Chapter 13 plan, which did not mention the then-pending EEOC matter and provided that Love’s unsecured creditors would receive no payment. Only after Tyson moved to dismiss the lawsuits did Love file amendments listing these assets. By that time, his Plan had been confirmed. He never moved to amend it to make any money from the lawsuit available for his creditors. The District Court and later the Circuit Court agreed that this was “too little too late”, and that under the circumstances, judicial estoppel should result in the suits being dismissed.

Debtors in bankruptcy have a continuing duty to disclose assets and claims such as these, in the Schedules they file with the bankruptcy court. Disclosure should include assets acquired or claims that arose while a debtor is in Chapter 11 or Chapter 13. Not doing so, these courts emphasize, is playing with fire.

Judicial Estoppel is a doctrine that punishes those who say one thing in one court, and say something materially inconsistent in a later proceeding, in bad faith. Where once a court has accepted the position asserted and acts on that position, a litigant cannot “play fast and loose” by then taking a different position in another court to gain some advantage or with a motive to do so.

Attorneys who handle these types of suits for debtors in bankruptcy have to be careful as well. The risk of judicial estoppel dismissal is only one of the risks or issues presented. Early consultation with experienced bankruptcy counsel is essential.

Bankruptcy & Law Suits

Estate Planning property transfers and gifts-the hidden trap of fraudulent transfer liability

Lately I have read two articles in bar journals discussing aspects of “estate planning” involving transferring property to relatives or into self-settled “special needs” trusts. Neither article mentions much less discusses the New Jersey Uniform Fraudulent Transfer Act. Yet the prospect of a transfer being unwound by a creditor or creditor representative (such as a bankruptcy trustee) is a real concern. Both those engaged in such planning activites and their lawyers need to keep this in mind.

Under both state and federal law (11 USC 548), a transfer can be “avoided” and the transferred property or its value recovered by creditors where the transfer was either with intent to “hinder delay or defraud” creditors, OR the transfer was made for less than “reasonably equivalent value” in exchange, at a time the person making the transfer was insolvent, rendered insolvent, or put into a position of not being able to meet current or reasonably anticipated future debts.

Stated in simpler terms, you cannot give away your property that creditors could seize to pay your debts, unless you get money or value in exchange that is roughly equivalent to what it is worth. Of course, if you pay off all your debts and stay debt free for a reasonable period of time afterwards, this may not be a problem.

Claiming that you intended to do estate planning rather than depriving your creditors is a defense that any good attorney can defeat, especially if the transfer was made to close family members, or creditors were starting to hound you. Intent to defraud can (and usually is) proven by looking to various “badges of fraud”. Not getting fair value in exchange is one of them.

Transferring your assets into a trust for your own benefit does not protect them from the claims of creditors. These “self-settled” trusts cannot, under New Jersey statutes, be used to insulate the property from creditors.

Most importantly, the creditors who can pursue fraudulent transfer claims include “future” creditors, not just those who were owed money when the transfer was made. While a 4 year statute of limitations applies to many such  state law claims, even after the 4 years is up, a creditor can sue up to a year after he or she learns of the transfer. And federal agencies, such as the IRS (or a bankrutpcy trustee in a bankruptcy case where taxes are owed) has up to 6 years.

We often say that those who want to engage in “asset protection” need to do it at a time when they do not need it. Usually, the impetus to these efforts is some impending problem, legal, medical or otherwise. Like so much else, timely counselling by someone who knows this area and has both pursued and defended these types of claims is invaluable. With proper guidance and planning, the problems I have outlined here can be minimized or avoided.

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