Instead, various federal statutes or regulations specify the statute of limitations for enforcement actions. The federal government is generally not bound by state statutes of limitations, including those set forth in state fraudulent transfer laws. Longer Look-Back Period for Certain Governmental Entities Notably, New York adopted the UVTA effective as of December 2019, reducing its look-back period to four years, from six under longstanding prior law. States that have adopted the UFTA or UVTA most commonly provide that avoidance actions are time-barred unless brought within four years of the time the transfer was made or the obligation was incurred. The fraudulent transfer statutes of almost every state are versions of the Uniform Fraudulent Transfer Act ("UFTA"), which was recently amended and renamed the "Uniform Voidable Transactions Act" ("UVTA"). Thus, a trustee (or DIP pursuant to section 1107(a)) may seek to avoid transfers or obligations that are "voidable under applicable law," which is generally interpreted to mean state law. He 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.ġ1 U.S.C. Section 544(b)(1) of the Bankruptcy Code provides in relevant part as follows: 3, 2020), the court, adopting the majority approach, held that a chapter 7 trustee could effectively circumvent North Carolina's four-year statute of limitations for fraudulent transfer actions by stepping into the shoes of the IRS, which is bound not by North Carolina law but by the 10-year statute of limitations for collecting taxes specified in the Internal Revenue Code ("IRC").ĭerivative Avoidance Powers Under Section 544(b) of the Bankruptcy Code Zagaroli (In re Zagaroli), 2020 WL 6495156 (Bankr. Bankruptcy Court for the Western District of North Carolina, the look-back period in avoidance actions under section 544(b) may be much longer-10 years-in bankruptcy cases where the Internal Revenue Service ("IRS") or another governmental entity is the triggering creditor. Indeed, under a ruling recently handed down by the U.S. The longer look-back periods governing avoidance actions under various state laws significantly expand the universe of transactions that may be subject to fraudulent transfer avoidance. One limitation on this avoidance power is the statutory "look-back" period during which an allegedly fraudulent transfer can be avoided-two years for fraudulent transfer avoidance actions under section 548 of the Bankruptcy Code and, as generally understood, three to six years if the trustee or DIP seeks to avoid a fraudulent transfer under section 544(b) and state law by stepping into the shoes of a "triggering" creditor plaintiff. The ability of a bankruptcy trustee or chapter 11 debtor-in-possession ("DIP") to avoid fraudulent transfers is an important tool promoting the bankruptcy policies of equality of distribution among creditors and maximizing the property included in the estate.
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