This post is the second in a series in which I will discuss fraudulent transfers. I have been told that my posts are too long. Therefore, today I’ll briefly discuss the source of a bankruptcy trustee’s fraudulent transfer avoidance powers.
B. The Trustee As Heir To Creditors’ Avoidance Power
One of the complications associated with fraudulent transfer jurisprudence in bankruptcy is found, not in 11 U.S.C. § 548 (the statutory section dealing with fraudulent transfers), but in 11 U.S.C. § 544(b)(1) (emphasis added):
Except as provided in paragraph (2), the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title or that is not allowable only under section 502 (e) of this title.
This means that the trustee can appeal to nonbankruptcy law to avoid a fraudulent transfer.