Page 59 - Bankruptcy Volume 1

that is voidable under applicable law by a creditor holding an unsecured claim" pursuant to the allow-
ances and restrictions on claims or interests in 11 USC 502. This avoidance power allows the trustee to
avoid on behalf of the estate any transfer of interest or obligation incurred that a creditor with an allowed
unsecured claim could avoid under non-bankruptcy law. Notably, preferential transfers and fraudulent
conveyances are commonly pursued under alternative state law from those outlined in 11 USC 547 and
11 USC 548 on the basis of 11 USC 544(b).

Statutory Liens (11 USC 545)

11 USC 545 permits the trustee to set aside statutory liens fn 10 arising under non-bankruptcy law. A trus-
tee may avoid the fixing of a statutory lien on debtor property if any of the following describes the lien:

 The lien became effective when a debtor petitioned for bankruptcy.

 The lien became effective when an insolvency proceeding not under the Bankruptcy Code was
commenced.

 The lien became effective when a custodian (for example, an appointed receiver, trustee, assign-
ee under an assignment for the benefit of creditors) is appointed, authorized to, or takes posses-
sion of the debtor’s property.

 The lien became effective upon the debtor’s insolvency.

 The lien became effective upon a failure of the debtor’s financial condition to meet a specified
standard (for example, violation of a financial benchmark).

 The lien became effective at the time of a judgment execution triggered by a party other than the
holder of the statutory lien.

 The lien is not perfected or enforceable against a bona fide purchaser as of the petition date.

 The lien is for rent.

 The lien is a lien of distress for rent.

Preferences (11 USC 547)

11 USC 547 grants the trustee authority to avoid prepetition transfers of the debtor’s property made to
pay antecedent or preexisting debts that are preferential to or favor one creditor over other, similarly sit-
uated, creditors. For instance, consider the plight of TriangleCo, who along with DiamondCo and
SquareCo had provided an unsecured $10,000 loan to troubled CircleCo in the past. One week prior to
filing its petition, at a time when CircleCo was insolvent, it made two transfers of property that were ad-
vantageous to DiamondCo and SquareCo but disadvantaged TriangleCo in the event of a bankruptcy.
First, CircleCo fully repaid the $10,000 loan from DiamondCo. Second, CircleCo granted SquareCo a

fn 10 11 USC 101(53) defines a statutory lien to be a "lien arising solely by force of a statute on specified circumstances or conditions,
or lien of distress for rent, whether or not statutory," and explicitly excludes both security interests and judicial liens that may be pro-
vided by, dependent on, or made effective by statute.

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