Consumer Bankruptcy Journal Fall 2016 - Page 26

CLAWBACK PERIODS subject to the commoner=s statute of limitations. Understanding that the federal government should not be restricted by a state statute of limitations, this doctrine provides that the government may have expanded limitations. But, one court determined that a trustee is not the federal government; and, concluded that the trustee would not be similarly immune to the state=s statute of limitations.23 After reviewing the doctrine, and cases recited on the same, the court concluded that, ASection 544(b) is meant to incorporate state law not subordinate it.@24 And, under a policy standpoint, the court further concluded that if a trustee or debtor in possession could recover transfers 10 years prior to the petition, the four-year look back period of the UFTA would be eviscerated.25 Golden Creditor Courts, understanding all of the above recited reasons denying the expansion of clawback provisions, nevertheless have allowed 11 U.S.C. ‘ 544(b)=s Aavoidable under applicable law@ clause to be incorporated by panel trustees for unsecured United States creditors, even the IRS. The courts initially require the trustee to find the Agolden creditor@, which is the United States. Interestingly, finding the United States creditor often is not difficult. In most cases, the IRS makes this discovery relatively easy. The United States Treasury is extremely resourceful in filing proofs of claim for tax debt in a bankruptcy estate.26 Upon that proof of claim being filed, the trustee will have received the Agolden creditor@ and proof that a debt is owed to the United States. Once proof is provided to show that there is a debt to the United States, the trustee is permitted to file actions seeking recovery of fraudulent transfers dating back six years. The trustee is commencing a Aderivative@ action by stepping into the shoes of a creditor B the United States. In short, as long as the United States is a creditor, actions avoiding fraudulent transfers may be permitted under 11 U.S.C. 544(b)(1) by incorporating 28 U.S.C. ‘ 3306.27 The IRS isn=t the only federal creditor which may trigger the FDCPA. Alternative unsecured United States creditors may include the Small Business Administration28 or debts associated with environmental violations.29 Because of such, review of federal liabilities become important for expanding a panel trustee=s avoidance powers. The difference between the Bankruptcy Code=s clawback of two years30 or the state limitations clawback of (usually) four years31 as opposed the FDCPA six-year limitations is significant. How About Ten Years? The IRS, unlike the rest of the United States, has a 10-year statute of limitations B for assessment collection.32 In fact, that 10-year period can actually be extended if various arrangements have been made prior in time by the taxpayer with the IRS which included installments or other releases or concessions by the Internal Revenue Service.33 Trustees have found success in incorporating the IRS=s ten-year period under ‘ 544(b).34 Presently, the majority of trustees are prevailing on the issue of statute of limitations.35 And, one court advises trustees to look into this issue. AThe IRS is a creditor in a significant percentage of bankruptcy cases. The paucity of decisions on the issue may simply be because bankruptcy trustees have not generally realized that this longer reach‑back weapon is in their arsenal. If so, widespread use of ‘544(b) to avoid state statutes of limitations may occur and this would be a major change in existing practice.@36 26 CONSUMER BANKRUPTCY JOURNAL Fall 2016 National Association of Consumer Bankruptcy Attorneys