Illinois Uniform Fraudulent Transfer Act (UFTA); Land Trusts; Tenancy by the Entirety

In re Stacy, 223 BR 132 (ND Ill 1998).

Facts: While breach of contract and breach of guarantee actions were pending against a debtor, the debtor transferred her residence from a land trust, in which she owned a beneficial interest, to a tenancy by the entirety. Subsequently, the actions that had been pending at the time of the transfer resulted in a substantial judgment against the debtor. The debtor then filed for bankruptcy. The bankruptcy trustee filed an action against the debtor, seeking to avoid the transfer of the residence into the tenancy by the entirety pursuant to the Illinois Uniform Fraudulent Transfer Act (UFTA). The debtor, through a motion to dismiss, asserted that the UFTA is inapplicable for transfers of property to tenancy by the entirety and that any claim that the transfer was avoidable must be analyzed under the standard prescribed by the Illinois tenancy by the entirety statute, 735 ILCS 5/12-112. The trial court found that the conveyance was avoidable.

Holding: Reversed and remanded. The applicable standards for determining if a conveyance is avoidable under the tenancy by the entirety statute and the UFTA are substantially different. The UFTA requires only evidence that the debtor transferred the property with the actual intent to hinder, delay, or defraud any creditors. The UFTA lists indicators of intent from which the court may infer fraud. In contrast, the Illinois tenancy by the entirety statute limits execution against property to those instances where the debtor's sole intent in transferring the property was to avoid paying then existing debts when they became due. It is possible for a debtor to transfer property in violation of the UFTA while not violating the tenancy by the entirety statute. Thus, the standards prescribed by the UFTA and the tenancy by the entirety statute cannot be equated. Here, the tenancy by the entirety statute sets forth the standard to be used. Because the trustee's complaint fails to even reference the tenancy by the entirety statute and is brought entirely pursuant to the UFTA, the motion to dismiss should have been granted.

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