Chapter Fifteen. Avoiding Powers-Introduction
 After reading this chapter, you will be able to:


Describe the concept and purpose of the
trustee’s avoiding powers
List the general limitations upon the trustee’s
avoiding powers
Avoiding Powers
 The abilities given a trustee to avoid certain
pre- or postfiling transactions that would
otherwise be valid under nonbankruptcy law
are known as the avoiding powers.
 Preferences, fraudulent transfers, and the
ability to set aside unauthorized postpetition
transfers are the most common avoiding
powers.
Strong Arm Clause
 Section 544 gives the trustee various powers
collectively and commonly known as the
strong arm powers, or the strong arm clause.
 The strong arm rights collectively place the
trustee in full command of all a debtor’s
assets affected by the bankruptcy
proceeding.
Limitations on Avoiding Powers
 Section 546 contains several limitations on
the exercise of the trustee’s avoiding powers.
 Actions on the avoiding powers must be
commenced within one year of the trustee’s
appointment or two years after the entry of
the order for relief, whichever is later, but any
action must be commenced before the close
or dismissal of the case.
 This provision is essentially a statute of
limitations upon the exercise of the trustee’s
avoiding powers.
Limitations on Avoiding Powers
 A second limitation on the exercise of the
trustee’s avoiding powers concerns the
limited rights of certain creditors to perfect or
to continue the perfection of a security
interest in property notwithstanding the
commencement of a bankruptcy proceeding.
Limitations on Avoiding Powers
 A third limitation on exercise of a trustee’s
avoiding powers concerns the rights of
creditors to reclaim goods under either
common law or the Uniform Commercial
Code.
Statutory Lien Avoidance
 Section 545 allows a trustee to avoid certain types of statutory
liens.
 A statutory lien is a lien created by operation of law, not by court
order or agreement.
 The first type of lien that is avoidable is a lien that purports to
become effective only upon the debtor’s insolvency, the filing of
a bankruptcy proceeding, or having a financial condition that
fails to meet a defined standard.
 Second, a statutory lien may be avoided if it cannot be enforced
against a bona fide purchaser of the debtor’s property at the
commencement of a bankruptcy proceeding, whether or not
such a purchaser exists except for a purchaser at a government
tax lien sale.