Subparagraphs (i), (ii), and (iii) provide clarification by excluding from the term "asset" not only generally exempt property but property to the extent it is subject to a valid encumbrance and property held in a tenancy by the entirety. This Act, like its predecessor and the Statute of 13 Elizabeth, declares rights and provides remedies for unsecured creditors against transfers that impede them in the collection of their claims. The laws protecting valid liens against impairment by levying creditors, exemption statutes, and the rules restricting levyability of interest in entireties property are limitations on the rights and remedies of unsecured creditors, and it is therefore appropriate to exclude property interests that are beyond the reach of unsecured creditors from the definition of "asset" for the purposes of this Act.
A creditor of a joint tenant or tenant in common may ordinarily collect a judgment by process against the tenant's interest, and in some states a creditor of a tenant by the entirety may likewise collect a judgment by process against the tenant's interest. See 2 American Law of Property 10, 22, 28-32 (1952); Craig, An Analysis of Estates by the Entirety in Bankruptcy, 48 Am. Bankr. L.J. 255, 258-59 (1974). In Indiana, although property held as a tenancies by the entireties is exempt, Ind. Code § 34-2-28-1(a)(5), the debtor's interest could be reached if the husband and wife waive any defenses they may have, or if both of them grant a security interest or lien in the property in favor of the creditor. In such cases, the levyable interest of such a tenant is included as an asset under this Act.
Although the definition of "assets" in the UFCA excluded property that is exempt from liability for debts, it did not exclude all property that can not be reached by a creditor through judicial proceedings to collect a debt. Thus, it included the interest of a tenant by the entirety although in nearly half the states such an interest can not be subjected to liability for a debt unless it is an obligation owned jointly by the debtor with his or her cotenant by the entirety. See 2 American Law of Property 29 (1952); Craig, An Analysis of Estates by the Entirety in Bankruptcy, 48 Am. Bankr. L.J. 255, 258 (1974). The definition in this Act requires exclusion of interests in property held by tenants by the entirety that are not subject to collection process by a creditor without a right to proceed against both tenants by the entirety as joint debtors.
The reference to "generally exempt" property in § 1(2)(ii) recognizes that all exemptions are subject to exceptions. Creditors having special rights against generally exempt property typically include claimants for alimony, taxes, wages, the purchase price of the property, and labor or materials that improve the property. See Uniform Exemptions Act § 10 and the accompanying Comment. The fact that a particular creditor may reach generally exempt property by resorting to judicial process does not warrant its inclusion as an asset in determining whether the debtor is insolvent.
Since this Act is not an exclusive law on the subject of voidable transfers and obligations (see Comment (8) to § 4 infra), it does not preclude the holder of a claim that may be collected by process against property generally exempt as to other creditors from obtaining relief from a transfer of such property that hinders, delays, or defrauds the holder of such a claim. Likewise the holder of an unsecured claim enforceable against tenants by the entirety is not precluded by this Act from pursuing a remedy against a transfer of property held by the entirety that hinders, delays, or defrauds the holder of such a claim.
Similarly, the holder of a claim secured by a valid lien is not precluded by this chapter from pursuing a remedy against a disposition of the holder's collateral that hinders, delays or defrauds such holder. There are few reported cases in any jurisdiction dealing with fraudulent transfer of property that does not constitute an "asset" as defined in this chapter, and the extent, if any, to which a common law of fraudulent transfers, derived from the principles underlying the Statute of 13 Elizabeth as historically developed, may be appropriately invoked in such circumstances is left to judicial development. Cf. Comment 2(c) to Uniform Commercial Code § 9-306 (Ind. Code § 26- 1-9-306).
Nonbankruptcy law is state or federal law that is not part of the Bankruptcy Code, Title 11 of the United States Code. The definition of an "asset" thus does not include property that would be subject to administration for the benefit of creditors under the Bankruptcy Code unless it is subject under other applicable law, state or federal, to process for the collection of a creditor's claim against a single debtor.
Property encumbered by a valid lien is excluded from the definition of "asset" only "to the extent" the property is so encumbered. For example, in the case of property encumbered by a lien securing a contingent obligation, such as a guaranty, in general it would be appropriate to value the obligation by discounting its face amount to reflect the probability that the guaranty will ever be called upon. Likewise, if an obligation is secured by a lien on several items of property and only one such item is disposed of, it may be appropriate to allocate the obligation among the items of property subject to the lien for the purpose of determining the "extent" to which the item disposed of is encumbered for purposes of this definition.
(2) The definition of "claim" is derived from § 101(5) of the Bankruptcy Code. Since the purpose of this Act is primarily to protect unsecured creditors against transfers and obligations injurious to their rights, the words "claim" and "debt" as used in this Act generally have reference to an unsecured claim and debt. As the context may indicate, however, usage of the terms is not so restricted.
(3) The definition of "creditor" in combination with the definition of "claim" has substantially the same effect as the definition of "creditor" under § 1 of the UFCA. As under that Act, the holder of an unliquidated tort claim or a contingent claim may be a creditor protected by this Act. This carries forward prior Indiana law. Bishop v. Redmond, 83 Ind. 157 (1882); Shean v. Shay, 42 Ind. 375 (1873).
(4) The definition of "debt" is derived from § 101(12) of the Bankruptcy Code.
(5) The definition of "debtor" is new.
(6) The definition of "lien" is derived from paragraphs (36), (37), (51), and (53) of § 101 of the Bankruptcy Code, which define "judicial lien," "lien," "security interest," and "statutory lien" respectively.
(7) The definition of "person" is adapted from paragraphs (28) and (30) of § 1-201 of the Uniform Commercial Code, defining "organization" and "person" respectively.
(8) The definition of "property" is derived from § 1-201(33) of the Uniform Probate Code. Property includes both real and personal property, whether tangible or intangible, and any interest in property, whether legal or equitable.
The definition of "property" is intended to be construed broadly, to include any right or interest that contributes to the value of a person. Hence, for example, "property" in general includes licenses, permits, franchises and contracts, whether or not transferable. In particular, but without limitation, governmental licenses and permits that contribute to the value of the holder in general should be deemed "property" of the holder, whether or not transferable, regardless of whether such items are deemed "property" for other purposes (e.g., regardless of whether such an item may be the subject of execution, or whether such an item is deemed a withdrawable privilege, rather than a property right, as against the issuing authority). Note, however, that such property may have little or no value in certain circumstances (e.g., such items, if nontransferable, may have no value if the holder is not valued on a going-concern basis). See Comment (1) to Section 2 infra.
(9) The definition of "transfer" is derived principally from § 101(54) of the Bankruptcy Code. The definition of "conveyance" in § 1 of the UFCA was similarly comprehensive and the references in this Act to "payment of money, release, lease, and the creation of a lien or incumbrance" are derived from the UFCA. While the definition in the UFCA did not explicitly refer to an involuntary transfer, the decisions under that Act were generally consistent with an interpretation that covered such a transfer. See, e.g., Hearn 45 St. Corp. v. Jano, 283 N.Y. 139, 27 N.E.2d 814, 128 A.L.R. 1285 (1940) (execution and foreclosure sales); Lefkowitz v. Finkelstein Trading Corp., 14 F.Supp. 898, 899 (S.D.N.Y. 1936) (execution sale); Langan v. First Trust & Deposit Co., 277 App. Div. 1090, 101 N.Y.S.2d 36 (4th Dept. 1950), aff'd 302 N.Y. 932, 100 N.E.2d 189 (1951) (mortgage foreclosure); Catabene v. Wallner, 16 N.J. Super. 597, 602, 85 A.2d 300, 302 (1951) (mortgage foreclosure).
Although derived from the Bankruptcy Code, the proposed definition of transfer does not include language added to the Bankruptcy Code by Public Law No. 98-882, the Bankruptcy Amendments and Federal Judgeship Act of 1984. This omission is not intended to exclude the types of transfers covered by the 1984 amendments to the Code, as that was not the intent of the 1984 amendments.
The scope of "transfer" is intended to be quite broad. It includes, for example, transfer under the UFCA and similar statutes includes the garden variety change of title in real estate. It also includes the more exotic: a settlement agreement, In re Edward Harvey Co., 68 Bankr. 851, 858 (Bankr. D. Mass. 1987); a change of a beneficiary of a life insurance policy, Schaefer v. Fisher, 137 Misc. 420, 426, 242 N.Y.S. 308, 314 (1930); a transaction entered into in connection with a leveraged buyout, United States v. Tabor Court Realty Corp., 803 F.2d 1288 (3d Cir. 1896), cert. denied, 483 U.S. 1005 (1987); see generally Carlson, Leveraged Buyouts in Bankruptcy, 20 Ga. L. Rev. 73 (1985); and payments of dividends, Mancuso v. Champion (In re Dondi Fin. Corp.), 119 Bankr. 106, 109 (Bankr. N.D. Tex. 1990); Consove v. Cohen (In re Roco Corp.), 783 F.2d 978, 982 (1st Cir. 1983); Fox v. MGM Grand Hotels, 137 Cal. App. 3d 524, 187 Cal. Rptr. 141 (1984). The correlative concept of "obligations incurred" includes guaranties, Lawrence Paperboard Corp. v. Arlington Trust Co. (In re Lawrence Paperboard Corp.), 76 Bankr. 866, 874-76 (Bankr. D. Mass. 1987), as well as long term contracts for which the debtor received little benefit, FDIC v. Malin, 802 F.2d 12, 18 (2d Cir. 1986)(divorce agreement); Wilson v. Holub, 202 Iowa 549, 552, 210 N.W. 593, 595 (1926)(rescission of a profitable contract); Larrimer v. Feney, 411 Pa. 604, 607, 192 A.2d 351, 353 (1963)(payment of usurious interest).
In short, almost every economic transaction entered into by a debtor is capable of being characterized as either a transfer or an obligation incurred. The UFTA provides limitations on who can avoid these transactions, and which transactions can be avoided, in the standing areas, and in the defenses to the substantive causes of action.
(10) The definition of "valid lien" is new. A valid lien includes an equitable lien that may not be defeated by a judicial lien creditor. See, e.g., Pearlman v. Reliance Insurance Co., 371 U.S. 132, 136 (1962) (upholding a surety's equitable lien in respect to a fund owing a bankrupt contractor).
