In a recent pro-creditor decision, the Brazilian Superior Court of Justice (STJ) ruled that a family property may be subject to seizure if it has been transferred in fraud against creditors.
As a general rule, Brazilian law considers the property in which the owner resides with their family as exempt from seizure. Thus, creditors often face obstacles when attempting to levy execution on the only property registered in the debtor’s name, as the debtor merely needs to prove that the property is used as their primary residence to avoid seizure.
On the other hand, fraud against creditors occurs when a debtor, aware of their insolvency or potential insolvency, disposes of an asset to shield it from being seized by creditors. To prove fraud against creditors in the gratuitous transfer of a property, for example, the creditor must demonstrate that (i) the debtor disposed of the asset knowing of their insolvency or imminent insolvency, and (ii) the creditor suffered harm as a result. If the transfer involved payment by the purchaser, the creditor must also prove that the insolvency was publicly known or that the buyer had reason to be aware of the insolvency—such as being a close friend, relative, or business associate of the debtor.
In the recent case reviewed by the STJ, the debtor had sold the property where they lived to a close friend, who subsequently allowed the debtor and their family to continue residing on the property. This transfer occurred when the debtor was already insolvent and caused harm to the creditor, as it was intended to dispose of a property previously mortgaged to the creditor.
In its decision, the STJ recognized the fraud against creditors and held that if the family property transferred already fell within one of the exceptions to the rule of unseizability – such as being offered as collateral (in this case, a mortgage) – it can be seized by the defrauded creditor, even if its residential purpose remains unchanged.
By rejecting the use of the unseizability of family property as a means to defraud creditors, the STJ’s decision represents a significant step toward ensuring the effectiveness of enforcement proceedings, contributing to the improvement of the credit recovery environment in Brazil.
