Consumer Bankruptcy Journal Fall 2016 - Page 24

CLAWBACK PERIODS Nonbankruptcy Concept Unfortunately, applicable nonbankruptcy law does exist in the Bankruptcy Code and alters the clawback periods. The Bankruptcy Code provides that A . . . the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is avoidable under applicable law by a creditor holding an unsecured claim . . .@10 Often, this provision was used for fraudulent transfer actions under state law11 because many states incorporate the Uniform Fraudulent Transfer Act=s (UFTA@) four-year clawback which is significantly greater than the two-year clawback provided by the Bankruptcy Code.12 And, with the state=s clawback period being a greater time period, the recovery should increase with the possible inclusion of more transfers B making it even more worthwhile to the trustee and the estate In years past, the creditors may have lifted their phones and called their attorney and asked how far back a trustee may sue on behalf of the estate against avoidable transferees, and the simplest answer would have been essentially two years under the federal law and as many as four (or more)13 years under state law if there was a fraudulent transfer. But, even four years was not enough. Now, the time frame for a clawback has been extended to six or even 10 years. Expanded Clawback Provisions Trustees have filed numerous lawsuits and expanded the same. Some of those expansions are listed in Box 3 below. These are the statutes to which disputes arise. Box 3 Avoidance Action Clawback Period Time for Filing Action/ Fraudulent Transfer UFTA if State is creditor 10 years, but states may vary 546(a)(1)/ 544 Fraudulent Transfer if USA is creditor 6 years 546(a)(1)/ 544 Fair Debt Collections Practices Act (AFDCPA@) 28 USC ' 3306(b)(2) 28 USC ' 3304(a)(1) Fraudulent Transfer if USA is creditor 6 years 546(a)(1)/ 544 Fair Debt Collections Practices Act (AFDCPA@) 28 USC ' 3306(b)(2) 28 USC ' 3304(b)(1)(B) Right to File Insolvent and no equivalent value Became insolvent or could not pay debts after transfer 24 CONSUMER BANKRUPTCY JOURNAL Fall 2016 National Association of Consumer Bankruptcy Attorneys