Fraudulent Transfers – Know When to Sue

A debtor, faced with a creditor’s lawsuit or judgment, will sometimes transfer property to a spouse, affiliated business or other third-party, and then claim “poverty” to avoid paying the debt.
Wisconsin’s Fraudulent Transfer Act provides remedies for such defrauded creditors.
Those remedies, however, don’t last forever.
Wisconsin law bars a fraudulent transfer action that is not commenced within one year after a claimant “could reasonably have discovered” …what, exactly?
Does the clock start ticking when the creditor could reasonably discover “the transfer?”
Or when the creditor could reasonably discover that the transfer was fraudulent?
The Wisconsin Court of Appeals recently concluded that the clock does not start until the creditor reasonably could have discovered that a transfer was fraudulent, even if the creditor by then already knew of the transfer itself.
In Official Committee of UnSecured Creditors of Great Lakes Quick Lube LP v. Theisen, certain creditors of Great Lakes Quick Lube challenged as fraudulent two transfers made by the debtor when it bought its business from Great Lakes.
The sellers argued that the creditor’s claim was time-barred, claiming the limitations period began when the creditor could have reasonably discovered the transfer.
The court said “no,” holding that the limitations period began when the fraudulent nature of the transfer could reasonable have been discovered.
What does this mean for creditors? Potentially, more time.
Even if a court decides that a creditor could reasonable have learned of a challenged transfer, the limitations period will depend on when the creditor could reasonably have discovered the fraud.
If you are a creditor, you may have a little more time than you thought to bring an action under Wisconsin’s Fraudulent Transfer Act.