Page 68 - Bankruptcy Volume 1

to fraudulent transfer claims should understand the applicable state laws concerning fraudulent transfers
as well.

Postpetition Transactions (11 USC 549)

Supplementing the various prepetition avoidance powers previously outlined, 11 USC 549 provides the
trustee with powers to avoid certain postpetition transactions as well. As with other prepetition transfer-
related avoidance powers outlined here, the power of the trustee to avoid such postpetition transfers of
property is provided to protect the creditors.

Under 11 USC 549(a)(2)(B), the trustee is entitled to avoid postpetition transfers of debtor property that
are not authorized by the Bankruptcy Code or the court. Such transfers often include, for example, unau-
thorized postpetition payments of prepetition debt obligations.

In addition, trustees are permitted by 11 USC 549(a)(2)(A) to avoid certain postpetition transfers that are
authorized by the Bankruptcy Code. In particular, trustees are granted the power to avoid transfers made
prior to an order for relief in an involuntary case by the debtor in conjunction with continued operations
(that is, transfers of property from continued use, acquisition, and disposal of property as permitted in
involuntary cases by 11 USC 303(f)). This power is subject to the limitation outlined in 11 USC 549(b)
that such transfers may not be avoided to the extent any value fn 20 was received in exchange for them.
11 USC 549(a)(2)(A) also gives the trustee the authority to avoid good faith transfers of property of the
debtor’s estate (as well as payments of debts owed to the debtor to parties other than the trustee) made
by parties who lacked notice or actual knowledge of the debtor’s filing (that is, transfers of property au-
thorized by 11 USC 542(c)).

The trustee’s authority under 11 USC 549 to avoid postpetition transactions involving real property is
limited by 11 USC 549(c), which prohibits avoidance of postpetition transfers made of interests in real
property for "present fair equivalent value" to a good faith purchaser who lacked knowledge of the debt-
or’s filing unless a copy or notice of petition was filed in the locality where the transfer of real property
would be recorded before the transfer is perfected by a bona fide purchaser. To the extent good faith
purchasers of the property paid less than "present fair equivalent value," such purchasers have a lien on
the transferred property to the extent of the value given, unless a copy or notice of petition was filed be-
fore the transfer was protected.

11 USC 549 utilizes a different statute of limitations for avoidance than those utilized for other avoid-
ance actions discussed herein. 11 USC 549(d) requires that avoidance actions under 11 USC 549 must
be commenced prior to the earlier of two years after the date of the transfer at issue and the time at
which the case is closed or dismissed.

Setoff (11 USC 553)

Setoff describes "a debtor’s right to reduce the amount of a debt by any sum the creditor owes the debtor;
the counterbalancing sum owed by the creditor." fn 21 Prepetition setoffs fn 22 of mutual obligations of the

fn 20 11 USC 549(b) explains this value may include services but excludes satisfaction or securing of a debt that arose prepetition.

fn 21 Black’s Law Dictionary, 7th ed.

66 © 2020 Association of International Certified Professional Accountants