Bankruptcy Trustee Powers and Fraudulent Transfers Quiz

Bankruptcy Trustee's Powers and Preferences

• A debtor treating a creditor preferentially is considered a preference, which goes against the policy of treating creditors fairly in bankruptcy.
• The trustee can request the return of preferential payments, and if denied, an adversary proceeding can be initiated.
• Elements of a preference include benefiting a creditor, coming from an antecedent debt, debtor's insolvency at the time, and the time frame of 90 days or 1 year for insiders.
• The trustee has to show a preference, and then the recipient has to show it fits one of the exceptions.
• Preference can be voluntary or involuntary, and it is strict liability, not intent-based.
• Insolvency calculation involves adding up all assets and deducting exemptions, considering only nonexempt assets.
• The Earmark Doctrine exempts certain payments made by a third party on behalf of the debtor from being considered preferences.
• A bankruptcy trustee may void a transfer of property if specific conditions are met, including the transfer benefiting a creditor and increasing the amount the transferee would receive in a Chapter 7 case.
• The greater amount test is used to determine if the transfer enabled the creditor to receive more than they would have in a Chapter 7 liquidation.
• Strongarm power allows a bankruptcy trustee to avoid pre-petition liens that are not recorded or otherwise perfected.
• There are two types of recording statutes in Wisconsin for real estate records and security interests.
• A bankruptcy trustee can avoid certain pre-petition liens that are not recorded or otherwise perfected, and the rationale for avoidance is to protect other creditors from the lack of public notice.

Bankruptcy Trustee Powers and Fraudulent Transfers

• Section 544(a) grants the bankruptcy trustee the authority to invalidate certain transfers, including those that are subordinate under non-bankruptcy law to a creditor with a judicial lien, or voidable as to a bona fide purchaser of real property.
• The Uniform Fraudulent Transfers Act (UFTA) and the Uniform Voidable Transfer Act (UVTA) aim to prevent fraudulent transfers, with the intent to defraud typically proven through badges of fraud.
• The transfer is considered fraudulent regardless of the intent to harm creditors if reasonably equivalent value was not paid.
• Fraudulent conveyance law, under 548(a), allows the trustee to avoid transfers made with actual intent to hinder, delay, or defraud creditors, or constructively fraudulent transfers where the debtor received less than reasonably equivalent value and met specific criteria.
• Various problems, such as gifts to relatives, gifts to charity, and sales for less than reasonably equivalent value, illustrate the trustee's ability to avoid certain transactions in bankruptcy.
• Judicial sales are not avoidable by the trustee if the reasonably equivalent value was received at the time of the sale, based on state foreclosure laws.
• The casino won in a gambling and reasonably equivalent value scenario as the gambler and the casino were not dealing "at arm's length".
• Using state avoidance laws, the trustee can avoid transfers that an actual unsecured creditor might avoid under state law, with different time periods for avoidance under federal and state laws.
• Preferential transfers, avoidable under section 547, involve transferring property to a creditor to pay a prior debt, resulting in one creditor receiving more than others.
• In a preference case, it's creditors vs creditors instead of creditors vs the debtor.
• Section 544(a)(1) gives the bankruptcy trustee the rights and powers of a creditor that obtained a lien on the date of bankruptcy.
• The text covers various scenarios and laws related to the bankruptcy trustee's powers and fraudulent transfers, illustrating the complexity and implications of such transactions in bankruptcy proceedings.