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What are a bankruptcy trustee’s avoidance powers?

On Behalf of | Dec 17, 2020 | Bankruptcy

Bankruptcy trustees have an important role. They act as a sort of neutral third-party who is there to balance the interests of both the debtor seeking protection and their creditors.

To that end, trustees are given “avoidance” powers that allow them to negate or nullify some of the debtor’s recent transactions.

What transactions can a bankruptcy trustee reverse?

Generally, anybody who files bankruptcy is presumed to be insolvent at least 90 days prior to filing. That means that trustees always have the right to look at financial transactions during that period. When transactions involve an “insider,” or someone close to the debtor (like a family member or business partner), the trustee can look back at the whole year prior to the time the bankruptcy petition was filed.

Through the “strong-arm” clause of the bankruptcy code and other provisions, trustees can:

  • Void any transfer of property that is found to be fraudulent, such as when a debtor tries to hide their assets by giving them away to someone else for safe-keeping
  • Void liens against the debtor’s property that were not property perfected prior to the bankruptcy petition’s filing
  • Void transfers and claw back any assets that were paid to a preferred creditor (like when someone pays back their parent for a loan just before they file bankruptcy)

While a bankruptcy trustee’s avoidance powers can, on occasion, help a debtor with their situation, they usually do not.

When you’re involved in a complicated bankruptcy situation, you need strategic advice and someone to defend you against avoidance actions. Find out more about how our firm can help by continuing to review our website or by contacting us directly.