Trustee Blog

Trustee Strong Arm Power

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Chapter 7 bankruptcy Trustee Helen Frazer asks each debtor in front of her for the meeting of creditors if they have sold or transferred any property in the last five years. Each of our trustee asks the question of the debtor in a different format and with different years attahced. Ms. Frazer asks the question with the longest reach back period. This question is different than the question that is asked in the petition :”if the debtor has sold or transferred any real property in the last 2 years at Statement of Financial Affairs #10:

10. Other transfers

List all other property, other than property transferred in the ordinary course of the business or financial affairs of the debtor, transferred either absolutely or as security within two years immediately preceding the commencement of this case. (Married debtors filing under chapter 12 or chapter 13 must include transfers by either or both spouses whether or not a joint petition is filed, unless the spouses are separated and a joint petition is not filed.)

Trustee Frazer asks this question on the five year period as the Trustee is granted by Bankruptcy Law and State law the ability to unwind any fraudulent transfer within four years of the bankruptcy filing and under state law it might be longer than four years. These powers are found in the bankruptcy code at 11 U.S.C. 544 through 549 and are often called the Trustee’s “strong arm” provisions. The bankruptcy Trustee does not often use these powers, but any practitioner should be aware that these provisions exist.

Practice Pointer:

Ask your client if he has sold, transferred or given away any property within the last five years as the Trustee may be able to avoid such transfers in certain cases. Ask this question in order to avoid the Trustee having to use her “strong arm” powers to undue any sale or transfer.

 

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