Chapter Seventeen. Fraudulent and
Postpetition Transfers
 After reading this chapter, you will be able to:
 Understand fraudulent transfers as they exist in
the bankruptcy code
 Describe the avoidability of unauthorized
postbankruptcy filing (postpetition) transactions
 List the damages recoverable by a trustee who
successfully exercises the avoiding powers
 Describe the bankruptcy code’s treatment of a
creditor’s common law right of setoff.
Fraudulent Transfer
 A fraudulent transfer is a transfer made by a
debtor with an intent to hinder, delay, or
defraud creditors.
 A transfer without reasonable or fair
consideration made while a debtor is
insolvent or that renders a debtor insolvent
will also be fraudulent.
 Fraudulent transfers are the subject of
Bankruptcy Code Section 548.
 Fraudulent transfers are one of the trustee’s
avoiding powers.
Postpetition Transfers
 A transfer of estate property after a
bankruptcy filing that is made without court
approval or is not otherwise authorized by the
Bankruptcy Code.
 An unauthorized postpetition transaction may
be avoided by a bankruptcy trustee.
 Postpetition transactions are the subject of
Bankruptcy Code Section 549.
Liability of Transferees
 Section 550 determines the liability of a transferee of
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an avoided transfer.
Conversely, Section 550 also defines the recovery
that each party may receive.
Generally, the trustee is entitled to either a recovery
of the property or the value of the property.
A good-faith transferee will be allowed a claim for
reimbursement from the estate for an improvements
or repairs made to the asset or maintenance costs
expended in preserving the asset.
This claim will assume the status of a lien upon the
property.
Right of Subrogation
 Section 551 provides a right of subrogation to
a trustee successfully avoiding an avoidable
transfer.
 That is, the trustee takes the place of the
former transferee.
 This preserves the status of the transferred
assets in relation to the rights of all other
creditors.
Postpetition Effect of a Security
Interest
 Section 552 defines the postpetition effect of
a security interest.
 Normally, a prepetition lien will not attach to
property acquired by an estate after filing
except for floating liens.
Setoffs
 A setoff is the common law right of a creditor
to balance mutual debts with a debtor.