Converting Nonexempt Property
We have addressed nonexempt property in other parts of the website. The property code in section 42 prohibits a debtor from causing assets that were available for execution to be converted into assets that would otherwise not be available for execution. A classic example of this type of fraudulent transfer is when a debtor uses a nonexempt asset, like cash, to pay off the debt on its homestead.
A debtor gets in trouble with these types of transactions when they:
1. use nonexempt property to acquire, obtain an interest in, make improvements to, or pay indebtedness on personal property that would be exempt, and
2. do so with an intent to defraud, delay, or hinder a person from obtaining something to which the person is or may be entitled, then there is no exemption from attachment, execution, or seizure, and
3. acquire any property, interest, or improvement by discharging an encumbrance held by a third party, a person defrauded, delayed, or hindered is subject to the rights of the third party.