CLAWBACK PERIODS
A trustees litigation counsel must be concerned about two things when lawsuits arise: (a) until when
can the lawsuit be filed; and, (b) how far back can the clawback@1 of the avoidance action reach? The
former question is relatively simple with statutory guidance making the deadlines effectively well known.
The latter is a disputed issue; and, a recent decision in the Southern District of Florida Bankruptcy
Court alerted practitioners. This article will review both concepts and outline the associated statutory
framework. In addition, this article will discuss the many layered analysis given by numerous courts
which deliver reasonable differences of opinion about the clawback period jurisdictionally differing.
When to File
The Bankruptcy Code addresses the avoidance actions= limitations period in 11 U.S.C. ‘ 5462 for
avoidable transfers under 11 U.S.C. ‘’ 544, 547 or 548.3 Such actions are not recovery. Recovery
is handled under 11 U.S.C. ‘ 550. Adversary proceedings, in essence, must follow two steps: (a)
avoidance actions; and (b) recovery actions. ACongress dealt separately with the concepts of
avoidance and recovery in a number of ways.@4 Among those actions are two different time frames.
Under 11 U.S.C. ‘ 546(a), an adversary proceeding may not be commenced after the earlier of two years
from the petition date or one year after the commencement or appointment of the trustee B so long as the
appointment occurs prior to the expiration of the previously referenced two-year period.5 Based upon this fact,
trustees essentially know that they have two years from the filing date (the date relief is entered for a voluntary
bankruptcy) to commence an action. If the trustee is appointed after the filing date, the two-year period
could be extended if the trustee=s appointment was before the expiration of the two-year period and more
than a year after the petition date.6 The box below shows hypothetical dates to better explain this calculation.
Box 1
Hypothetical
Petition
Trustee Appointment
546 Deadline
Regular Chapter 7
01/02/2016 N/A
01/01/20187
Converted 11 to 7
01/02/2016 12/31/2016
01/01/2018
Convert 11 to 7 (2)
01/02/2016 01/15/2017
01/14/2018
Convert 11 to 7 (3)
01/02/2016 01/03/2018
No action B time barred
What is Recovery?
Recovery is guided by 11 U.S.C. ‘ 550. Often, when filing an action under the preference or fraudulent
transfer statutes, the trustee includes a wherefore clause seeking recovery under 11 U.S.C. ‘ 550 and the
two matters are therefore heard Aat once.@ However, if the same is not included in the complaint, the
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CONSUMER BANKRUPTCY JOURNAL
Fall 2016
National Association of Consumer Bankruptcy Attorneys