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A fraudulent conversion is a variant of a fraudulent transfer and consists of a debtor taking a non-exempt asset that would otherwise be available to creditors, and then converting the asset into an exempt asset that is not available to creditors. For example, a debtor has $100,000 in a bank account and uses that money to pay down his mortgage ahead of time, thus creating an additional $100,000 in equity that is protected by local homestead law (assuming the equity is within the homestead limits). That transaction would be a fraudulent conversion.

Fraudulent conversions also frequently arise where a debtor takes property that is available to creditors and converts it to property held in Tenancy By The Entireties (TBE) that is no longer available to creditors.

Note that not all conversions of non-exempt to exempt property will ipso facto be fraudulent transfers. For example, homestead protections found in the Florida and Texas state constitutions have been held to essentially trump the UVTA, see, e.g., Lapides.




FRAUDULENT CONVERSION ARTICLES


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