Unsecured creditors and secured lenders may protect their assets from a debtor’s insolvency. Regardless of the nature or severity of a debtor’s financial issues, creditors may file a legal action to recover unpaid obligations.
As described by the Administrative Office of the U.S. Courts, when debtors file for Chapter 11 bankruptcy protection, creditors may form a committee and vote to approve of a debtor’s reorganization plan. When creditors believe the debtor intended the reorganization to deter a claim, they may allege voidable transfers.
Federally recognized characteristics of a voidable transfer
Transactions made within 90 days of a debtor submitting a bankruptcy petition may face scrutiny by a trustee of the court. When a debtor must undo a transfer, a creditor may reclaim the property or include it as part of the reorganization plan. Transactions made up to one year prior to a debtor’s bankruptcy filing may also raise issues.
If debtors transfer property or money to an insider, creditors may request the court to void the transaction. The Bankruptcy Code classifies an insider as a relative or a general partner of a debtor’s business. Transfers made to a director or officer of a corporation connected to a debtor may also require reversal.
Grounds to void a New Jersey transaction
As noted by Senate Bill 3171, New Jersey revised the “Uniform Fraudulent Transfer Act” and renamed it the “Uniform Voidable Transactions Act.” As of 2021, creditors may move to void transactions between a debtor’s business partners, relatives or other individuals with control over the debtor.
Voidable transfers may include any transaction a debtor engaged in to conceal or hide assets from creditors, particularly if the debtor remained in possession of the property. If a debtor transferred or sold the property without receiving a reasonably equivalent exchange of value, a creditor may request the court to void the transaction.