Fraudulent Transfer Claims for Unpaid Contractors: Getting Paid When the GC Drains the Company (2026)
✓ Verified against state statutes · Reviewed November 2026 · By Michael Evan — Founder · 50 states · 799 rules
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Key Takeaways
→ You can follow the money. If the GC paid its owners, a relative, or a new LLC instead of you, the person who got the money can be sued. → Two ways to win: actual intent to hinder creditors, or a transfer for less than reasonably equivalent value while the debtor was insolvent or undercapitalized. → You don’t need a judgment first. An unpaid invoice makes you a creditor. → 4 years is the usual deadline, with 1 year for insider-preference claims. California adds a 7-year cap. → It backs up your lien. It doesn’t replace it. Miss the lien deadline and you lose your lien rights entirely. A drywall sub is owed $84,000 on a medical office job. The GC says the owner is slow and asks for patience. Three months later the GC stops answering. The sub then learns from a supplier that the GC’s two owners paid themselves “loan repayments” in the spring. They also sold the company’s skid steers and trucks to a brother-in-law for a fraction of their value. And they formed a new LLC that is bidding the same work under a different name. Suing the old company gets the sub a judgment against an empty shell. The money and equipment went somewhere, though. Every state has a law that lets creditors go after transfers like these. The older name is the Uniform Fraudulent Transfer Act, and the newer version is the Uniform Voidable Transactions Act. Either way, you are asking a court to undo the transfer to the extent needed to pay your claim, or to give you a judgment against whoever received the asset. This guide is part of The Mechanics Lien Management Method. First, lock in the lien or bond claim that reaches the project itself. Then use the collection tools that reach the people behind the company. Two related tools come up in the same situations: construction trust fund statutes can make officers personally liable for diverted project funds, and a signed personal guaranty on a credit application lets suppliers sue the owner directly.
What Counts as a Fraudulent (Voidable) Transfer
“Transfer” is broad. It covers paying money, handing over equipment, assigning receivables, granting a lien, and taking on an obligation. California’s version is typical. A transfer is voidable as to a creditor, whether the creditor’s claim arose before or after the transfer, if the debtor made it in either of two ways ( Cal. Civ. Code § 3439.04(a)): 1. Actual fraud With actual intent to hinder, delay, or defraud any creditor. Nobody admits intent, so courts infer it from the circumstances, the “badges of fraud” below. 2. Constructive fraud Without receiving reasonably equivalent value, while the debtor was left with unreasonably small assets for its business, or expected debts it couldn’t pay as they came due. Intent doesn’t matter. The uniform acts also have a separate rule for existing creditors. It covers a transfer for less than reasonably equivalent value made while the debtor was insolvent or that left it insolvent. Many states also cover a transfer to an insider to pay an old debt while the debtor was insolvent, if the insider had reasonable cause to believe the debtor was insolvent. That second rule matters in construction. When a failing GC repays its owners’ “loans” ahead of its subs and suppliers, that is often the claim. States use different names and section numbers. California (Civ. Code § 3439 et seq.) and New York (Debtor & Creditor Law art. 10, effective 2020) use the Voidable Transactions Act. Texas (Bus. & Com. Code ch. 24), Florida (Fla. Stat. ch. 726) and Illinois (740 ILCS 160) still use the Fraudulent Transfer Act. The core tests are close to identical.
How Contractors Drain a Company: Six Patterns
Owner distributions while bills go unpaid. The owners take draws, bonuses, or “loan repayments” from project money while subs and suppliers on the same project wait. Equipment sold to a relative or friend cheap. Trucks, lifts, and tools go to a family member for a fraction of their value, and the GC often keeps using them. A sale for less than reasonably equivalent value, with the debtor keeping control, hits two badges at once. The “phoenix” company. The owners form a new entity with the same people, phone number, and customers, then move contracts, receivables, and equipment into it. Fraudulent transfer law reaches the assets that moved. Successor-liability and alter-ego theories may reach the new company itself. Receivables assigned to an insider. The GC assigns its right to collect from the owner to an affiliate, so the owner’s payments never reach the company that owes you. Liens granted to insiders. The owners give themselves a security interest in the company’s assets right before it fails, jumping ahead of unsecured trade creditors. Real estate deeded to a spouse. A GC or its owner deeds property into a spouse’s name or a trust after a payment dispute starts. Pattern one usually shows up in bank records you can only get in discovery. Patterns two, three and six often show up in public records first: county property records, the state’s business entity search, and UCC filings. Our property search tool is a starting point for the real estate side.
The Badges of Fraud
Since debtors don’t announce their intent, the statutes list circumstances a court may weigh. California’s list, in Civil Code § 3439.04(b), tracks the uniform act. Courts may consider whether: # Badge What it looks like on a construction job 1 Transfer to an insider Payments to owners, officers, relatives, or affiliated companies 2 Debtor kept possession or control The “sold” excavator is still on the GC’s jobs 3 Transfer disclosed or concealed No bill of sale, no title change, or a sale kept quiet 4 Debtor sued or threatened with suit first Transfers that follow your demand letter or lien filing 5 Substantially all assets transferred The whole fleet and the contracts move to a new LLC 6 Debtor absconded The office is empty and the phones are off 7 Assets removed or concealed Equipment moved out of state; accounts closed 8 No reasonably equivalent value A $90,000 truck sold for $5,000 9 Insolvent at the time or soon after Unpaid subs across several jobs at once 10 Shortly before or after a big debt Transfers right after a large material order on credit 11 Business assets passed through a lienor to an insider A friendly lender forecloses and hands the assets back to the owners No single badge proves fraud, and the list isn’t exclusive. Several together, especially insider transfers, retained control, and pending claims, can carry the case. Keep a dated log of what you learn and where you learned it.
Who You Can Sue and What You Can Get
The claim runs against the debtor and against the people who got the property. In a typical case, that means the first transferee, such as the brother-in-law who bought the trucks, and the person the transfer was meant to benefit. California’s remedies section is a good example of the menu ( Cal. Civ. Code § 3439.07): Avoidance of the transfer, to the extent needed to satisfy your claim. Attachment or another provisional remedy against the transferred asset or the transferee’s other property. An injunction against moving the asset again. A receiver to take charge of the asset. Levy of execution on the asset or its proceeds, once you have a judgment against the debtor. When the asset is gone, courts generally enter a money judgment against the transferee for the value of what it received, capped at the amount of your claim. The main defense belongs to a transferee who took in good faith and paid reasonably equivalent value. A buyer who paid fair market price at arm’s length is usually protected. A relative who paid a fraction of value usually isn’t. You don’t need a judgment to file. Under the uniform acts a “creditor” includes anyone with a claim, even an unliquidated or disputed one. The common approach is one lawsuit with a breach-of-contract count against the debtor and a fraudulent transfer count against the transferees. If you already have a judgment, see How to Collect a Judgment by State for the post-judgment tools that work alongside this claim.
Deadlines: How Long You Have
Fraudulent transfer deadlines usually work as statutes of repose. When the period runs, the claim is extinguished, not just barred. The uniform pattern is 4 years from the transfer. For actual-intent claims there is a 1-year discovery extension if that runs later, and insider-preference claims get 1 year. The verified examples: 4 yrs From the transfer, in most states 1 yr Insider preference claims; or from discovery for actual intent 2 yrs Bankruptcy trustee look-back (11 U.S.C. § 548) Jurisdiction Act Citation Deadline California: Uniform Voidable Transactions Act, Cal. Civ. Code § 3439.09 — 4 yrs, or 1 yr from discovery for actual intent; 7-yr outside limit. Texas: Uniform Fraudulent Transfer Act, Tex. Bus. & Com. Code § 24.010 — 4 yrs, or 1 yr from discovery for actual intent; insider preference 1 yr. Florida: Uniform Fraudulent Transfer Act, Fla. Stat. § 726.110 — 4 yrs, or 1 yr from discovery for actual intent; insider preference 1 yr. Illinois: Uniform Fraudulent Transfer Act, 740 ILCS 160/10 — 4 yrs, or 1 yr from discovery for actual intent; insider preference 1 yr. New York: Uniform Voidable Transactions Act (2020), N.Y. Debt. & Cred. Law § 278 — 4 yrs, or 1 yr from discovery for actual intent; insider preference 1 yr. Federal bankruptcy: Bankruptcy Code, 11 U.S.C. § 548 — Transfers within 2 yrs before the petition; trustee brings the claim. A few states vary the periods, so confirm yours before relying on the 4-year rule. None of these periods helps your lien. A mechanics lien deadline is usually counted in days or months from last furnishing. Calculate it with the Mechanics Lien Management State System, and see Breach of Contract Statute of Limitations by State for the underlying collection suit.
When the Contractor Files Bankruptcy
A bankruptcy filing changes who controls the claim. The trustee, or the debtor in possession in Chapter 11, generally takes over avoidance claims for the benefit of all creditors. The trustee can use the Bankruptcy Code’s own fraudulent transfer section. It reaches transfers made within 2 years before the petition on the same actual-intent and constructive-fraud tests ( 11 U.S.C. § 548(a)(1)). The trustee can also use state law through § 544(b), which can reach further back. Insider transfers can also be attacked as preferences. For you, that means recovered money goes into the pot and is shared with other unsecured creditors. A perfected mechanics lien or a timely bond claim usually gives you a much better position than an unsecured fraudulent transfer claim. The automatic stay generally stops collection against the debtor, though lien perfection deadlines may still run. See Mechanics Liens and the Bankruptcy Automatic Stay.
Building the Case: What to Gather
Your claim: the contract or purchase orders, invoices, delivery tickets, and the payment history. Public records: deeds and mortgages at the county recorder, vehicle and equipment title changes, UCC financing statements, and secretary of state filings for new entities with the same officers or address. Project records: pay applications and lien waivers showing the owner paid the GC for your work. Owner payment plus nonpayment to you is the starting point for a diversion story. Witnesses: other unpaid subs and suppliers, former employees, and anyone who bought equipment. A timeline: when you demanded payment, when you filed notice or a lien, and when each transfer happened. Badge 4 depends on that order. Bank records and internal books usually come only through discovery or post-judgment examination. Your lawyer can subpoena the bank once a case is filed.
Common Mistakes
1. Chasing the transfer and missing the lien Miss the deadline and you lose your lien rights entirely. The lien reaches the property no matter where the GC moved its money. Protect it first with preliminary notice and a timely filing. 2. Waiting for a judgment before acting Assets keep moving while a collection case runs. An early fraudulent transfer count can support an injunction or attachment before the property disappears. 3. Alleging “fraud” without facts Courts often require actual-intent claims to be pleaded with specifics: what moved, when, to whom, and for what. Tie each badge to a document. 4. Signing a full release in a partial settlement A release of the company drafted too broadly can release the insiders and transferees too. Read the release language before you sign, and see our lien waiver guides. Before suing, send a written demand that names the transfers you know about; see our construction payment demand letter template and Contractor Won’t Pay Me? 9 Steps to Get Paid.
Frequently Asked Questions
What is a fraudulent transfer in construction?
A fraudulent transfer, now called a voidable transaction in states that adopted the Uniform Voidable Transactions Act, is a transfer of money or property that a debtor makes to put assets out of creditors' reach. In construction, it usually means a general contractor or subcontractor that owes you money moves cash, equipment, or receivables to its owners, relatives, or a new company instead of paying its bills. A creditor can ask a court to undo the transfer to the extent needed to pay its claim.
Can I sue the person who received the GC's money or equipment?
Usually, yes. Fraudulent transfer laws let a creditor recover from the first transferee, and in many cases from the person the transfer was meant to benefit. Remedies can include undoing the transfer, an injunction against moving the asset again, attachment, a receiver, and, after you have a judgment, levying on the transferred asset or its proceeds (see Cal. Civ. Code section 3439.07). A transferee that took in good faith and paid reasonably equivalent value generally has a defense.
Do I need a judgment against the contractor before I file a fraudulent transfer claim?
Generally no. Under the uniform acts you only need to be a creditor, and a creditor includes someone whose claim is not yet reduced to judgment. Many contractors sue the debtor on the unpaid invoice and add a fraudulent transfer count against the transferee in the same case. Some remedies, such as levying execution on the transferred asset, do require a judgment against the debtor first.
How long do I have to bring a fraudulent transfer claim?
In most states, 4 years after the transfer. For transfers made with actual intent to hinder, delay, or defraud creditors, most states also allow 1 year after the transfer was or could reasonably have been discovered, if that is later. Claims about a transfer to an insider to pay an old debt usually have only 1 year. California adds an outside limit of 7 years (Cal. Civ. Code section 3439.09). Texas (Bus. & Com. Code section 24.010), Florida (Fla. Stat. section 726.110), Illinois (740 ILCS 160/10) and New York (Debtor and Creditor Law section 278) follow the 4-year and 1-year pattern.
What are the badges of fraud?
Badges of fraud are circumstantial signs that a debtor intended to cheat creditors. The statutes list factors such as a transfer to an insider, the debtor keeping control of the property after the transfer, concealment, a transfer made after the debtor was sued or threatened with suit, a transfer of substantially all assets, the debtor absconding, removing or hiding assets, receiving less than reasonably equivalent value, and becoming insolvent shortly after the transfer. California lists eleven of them in Civil Code section 3439.04(b). No single badge is required, but several together are strong evidence.
What happens to my fraudulent transfer claim if the contractor files bankruptcy?
The bankruptcy trustee generally takes control of avoidance claims for the benefit of all creditors. The trustee can use the Bankruptcy Code's own fraudulent transfer section, which reaches transfers made within 2 years before the petition (11 U.S.C. section 548), and can also use state law through section 544(b). The automatic stay generally stops you from pursuing the debtor directly. Your mechanics lien or bond claim is usually a better position in bankruptcy than an unsecured fraudulent transfer claim.
Is a fraudulent transfer claim better than a mechanics lien?
No. They do different jobs. A mechanics lien is a claim against the improved property, it has priority rules, and it works even if the contractor that owes you is broke. A fraudulent transfer claim is a lawsuit to chase assets the debtor moved, and it is slower, more expensive, and depends on proving the transfer. Protect your lien or bond claim on deadline first, and use a fraudulent transfer claim to reach money that left the company.