1.1 Covered Activities

1.2 Effect of Stay

1.3 Remedies


2.1 Fraudulent Transfers

2.1.a Imposition and payment of a tax penalty is not a fraudulent transfer. While insolvent, the debtor incurred and paid tax penalties before bankruptcy. A transfer of property of the debtor while the debtor was insolvent for less than reasonably equivalent value is avoidable as a constructively fraudulent transfer. By referring to an exchange for value and defining when a transfer is made as when it takes effect between the parties, the UFTA does not contemplate involuntary obligations such as tax penalties. Therefore, the UFTA does not apply to a tax penalty. Cook v. U.S. (In re Yahweh Center, Inc.), 27 F.4th 960(4th Cir. 2022).

2.2 Preferences

2.2.a First cousins are “relatives.” The trustee sued a first cousin of the debtor’s principal to avoid as a preference a transfer made more than 90 days before the petition date. Section 547(b) permits the trustee to avoid a transfer to a “relative” made within one year before the petition date. The Bankruptcy Code defines “relative” as one within the third degree of affinity or consanguinity as determined by the common law. Courts have generally used state, not federal, law, but are divided on whether to use state common or civil law. Because of the ambiguity in the definition, the court may look to legislative history. The definition derives from the Bankruptcy Act of 1898 with no meaningful revision. The legislative history of that act shows that Congress intended reference to the common law of England, and case law supports that interpretation. Using English common law rather than state law also promotes uniformity. Under English common law, relation is defined by distance from a common ancestor. For first cousins, the common ancestor is the grandparent. The cousins are each two degrees removed from a common grandparent and so come within the third degree. Ehrenberg v. Halajyan (In re Victory Entm’t, Inc.), 634 B.R. 90 (Bankr. C.D. Cal. 2021).

2.3 Postpetition Transfers

2.4 Setoff

2.5 Statutory Liens

2.6 Strong-arm Power

2.6.a Section 544(b) permits reliance only on filed or listed claims. In its first-day motions, the debtor in possession obtained authority to pay prepetition withholding and employment taxes to the IRS. The debtor did not list the claims on its schedule of liabilities, and the IRS did not file a proof of claim. Under the Internal Revenue Code, the IRS fraudulent transfer avoiding power has a ten-year reachback. Section 544(b) permits a trustee to avoid any transfer “by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502.” Section 502 authorizes the filing of a proof of claim, and unless a party in interest objects, the claim is deemed allowed. Section 1111(a) deems allowed in a chapter 11 case any claim that is listed on the debtor’s schedules as undisputed, liquidated, and not contingent. If a claim is not listed and the creditor does not file a proof of claim, the claim cannot be allowed. Therefore, the trustee may not rely on such a claim under section 544(b). Because the IRS did not file a proof of claim, and the debtor did not list the IRS’s claim on its schedules, the trustee may not rely on the IRS as the triggering creditor under section 544(b). Miller v. Fallas (In re J & M Sales Inc.), 2022 Bankr. LEXIS 434 (Bankr. D. Del. Feb. 22, 2022.

2.7 Recovery


3.1.a Court denies ex parte motion to extend statute of limitations. The debtor refused to cooperate with the trustee’s investigation of avoidable transfers. As a result, the trustee was delayed in learning the identity of transferees and other potential defendants. With the two-year statute of limitations approaching, the trustee filed an ex parte motion to extend the statute on equitable tolling grounds. Bankruptcy Rule 9006 governs extensions of time but does not permit extension of a congressionally mandated time period, such as the statutes of limitations in section 546 or 549. Equitable tolling may excuse a late-filed complaint. A defendant may contest the late filing and challenge whether equitable tolling applies. But an unknown defendant is unable to do so in response to an ex parte motion to extend the statute on equitable grounds. And an ex parte order would not bind a future defendant who had no notice of the motion because due process requires that the defendant have notice and an opportunity to be heard. Therefore, the court denies the motion as ineffective and seeking only an advisory ruling. In re Cramer, ___ B.R. ___ (Bankr. C.D. Cal. Feb. 8, 2022).

3.1.b Failure to follow local rule requiring motion to withdraw reference waives jury trial right. The bankruptcy court’s local rules provide that a party waives the right to a jury trial unless the party files a motion to withdraw the reference at least 14 days before the initial status conference in the adversary proceeding. Although the defendant demanded a jury trial in the answer, she did not timely file a motion to withdraw the reference. The local rule implements, rather than overrides, Bankruptcy Rule 7038, because without consent, the bankruptcy court may not try a case before a jury. Only the district court may do so, which requires a motion to withdraw the reference. Therefore, by failure to follow the required procedure, the defendant waived the right to a jury trial. Welt v. Bumshteyn (in re Bumshteyn), 2022 Bankr. LEXIS 90 (Bankr. S.D. Fla. Feb. 1, 2022).

3.1.c Failure to move to apply Rule 23 to a putative class claim does not constitute excusable neglect to file late proofs of claims. The claimants began a class action against the debtor before bankruptcy, which stayed the action. The court fixed a claims bar date, confirmed a plan, and granted the class representatives stay relief to pursue the class action. The class representatives and some putative class members filed proofs of claim. After stay relief, the class action court found the class action improper and dismissed the case. The remaining claimants then sought leave to file late individual claims in the bankruptcy court, nearly three years after the bar date. A court may permit late filing upon a showing of excusable neglect, considering four factors: prejudice to the estate, length of delay, reason for the delay (including whether it was within the claimant’s reasonable control), and good faith. No factor is more important than any of the others. Prejudice requires substantive prejudice, which was not present here, not merely litigation costs and delay, especially because the debtor was aware of the pending claims. However, the nearly three-year long delay was too long, and the delay could significantly affect the resolution of the litigation and the bankruptcy. The reason for the delay—awaiting the outcome of the class action litigation—did not constitute excusable neglect. Several individual claimants filed proofs of claim before the bar date, so the delay was within the claimants’ reasonable control. Finally, the claimants’ and their counsel’s failure to move under Rule 9014 for application of Rule 7023 to the purported class proof of claim evinced a lack of diligence and a misunderstanding of the Bankruptcy Rules and showed lack of good faith. As a result, the court denies the motion to file late claims. W. Wilmington Oil Field Claimants v. Nabors Corp. Servs., Inc. (In re CJ Holding Co.), 27 F. 4th 1105 (5th Cir. 2022).

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