544(b) of the Bankruptcy Code empowers a bankruptcy trustee to avoid any transfer of an interest of the debtor in property that is voidable under "applicable law" by an unsecured creditor. Under the plain language of section 544(b), before a trustee can maintain an avoidance action, the trustee must demonstrate the existence of a qualified creditor, i.e., one who: (i) has a right to avoid the transfers; and (ii) holds an "allowable" unsecured claim. Importantly, the scope of "applicable law" is undefined.

Most commonly, a trustee seeking to pursue an avoidance action will have the option of using the longer of the two-year statute of limitations found at section 546(a)(1) of the Bankruptcy Code, or the applicable state fraudulent transfer statute of limitations provision (most of which are two-to-four years from the transfer date), in which to commence the action. Transactions that closed more than four or even six years post-transfer, nonetheless may be subject to an avoidance action for recovery of a fraudulent transfer. While this may be good news for debtors’ estates looking for additional recoveries, defendants of such avoidance actions unfortunately may be reliving transactions they had long forgotten.

The Extended Statute of Limitations

The extended statute of limitations is often grounded in either the statute of limitations provision found in the Federal Debt Collection Procedures Act (FDCPA), 28 U.S.C. §§ 3001-3308 (six years), or the recovery under the Internal Revenue Code (IRC), 26 U.S.C. §§ 6501, 6502 (10 years). Whether courts will approve the use of these longer statute of limitations as authorized under the guise of "applicable law" under section 544(a) of the Bankruptcy Code does not have a uniform answer.


The FDCPA was enacted to aid in the recovery of judgment debts owed to the United States, and as part of such recovery, avoid certain transactions. The FDCPA provides the federal government with a procedure to recover on or secure debts, thereby relieving the federal government of the need to rely on the multitude of various state substantive and procedural laws. FDCPA section 3001(a) provides: "This chapter provides the exclusive civil procedures for the United States (1) to recover a judgment on a debt; or (2) to obtain, before judgment on a claim for a debt, a remedy in connection with such claim." U.S.C. § 3001(a). (Emphasis added.) The FDCPA does not contain a private right of action and is only applicable in situations where the United States (or federal agency) is attempting to collect a "debt" as defined under the FDCPA. The FDCPA also contains a six-year statute of limitations for, inter alia, pursuing fraudulent transfer claims authorized under the FDCPA. (28 U.S.C. § 3306.)

The FDCPA’s specific provisions, especially its express "exclusivity of use by the United States," are relied on by the courts finding that it is not "applicable law" under section 544 of the Bankruptcy Code. In In re Mirant Corp., 675 F.3d 530 (5th Cir. 2012), a special litigation entity on behalf of the debtor’s estate (MCAR), sued lenders, seeking to avoid the debtor’s payments on a guaranty as fraudulent transfers. The district court denied the lenders’ motion to dismiss based on plaintiff’s alleged lack of standing, but granted summary judgment for lenders, holding that Georgia law did not permit avoidance of the guaranty. Both sides appealed. MCAR asserted that the FDCPA was applicable law under section 544(b); the Court of Appeals disagreed, and held that both the statutory language and the legislative history of the FDCPA indicate it is not "applicable law" under section 544(b).

In In re Bendetti, 131 F. App’x 224 (11th Cir. 2005), the chapter 7 trustee filed proceedings in the bankruptcy court to avoid and recover alleged fraudulent transfers by the debtor and to deny the debtor’s bankruptcy discharge. The alleged fraudulent transfers concerned the debtor’s transfer of several pieces of real estate, real estate projects, and bank accounts to various individuals and corporations. The bankruptcy court, in two separate proceedings – an avoidance proceeding and a discharge proceeding – entered judgment for the debtor on all counts, finding the actions barred by the state statute of limitations. The district court affirmed. The trustee argued that he should be able to recover under the six-year statute of limitations provided by section 3306 of the FDCPA, and that the district court erred in not extending the statute of limitations to the trustee as a private party. The Court of Appeals disagreed.

In Kipperman v. Onex Corp., (No. 1:05-CV-1242, slip op. at 71-86) (N.D. Ga. Sept. 29, 2010) (Kipperman) (Dkt. No. 669); see also, In re Richard M. Kipperman, not individually but solely in his capacity as Trustee for the Magnatrax Litigation Trust, Plaintiff, v. Onex Corporation, No. 105CV01242 (D. Ga.) (Order dated Aug 13, 2009, at 35), a chapter 7 trustee sought to use the FDCPA to recover fraudulent transfers. In addressing the standing of the trustee to bring the fraudulent transfer actions under the FDCPA, the court stated that the "difficulty in the trustee’s FDCPA claim does not derive from the fact that it is the trustee – and not the federal government – pursuing the claim. But this does not end the matter. Plaintiff must still demonstrate that the claims it pursues come within the purview of the FDCPA." In Kipperman, the court noted that the "government would not be even a partial beneficiary and the government, unlike in FTC v. National Business Consultants, Inc., 376 F.3d 317 (5th Cir. 2004) rehearing denied, certiorari denied 125 S.Ct. 1590, 544 U.S. 904, 161 L.Ed.2d 277 (2005), is not the entity pursuing the claim." In accord, MC Asset Recovery, LLC. v. Commerzbank AG, 441 B.R. 791 (N.D. Tex. 2010). Taking a slightly different approach, in FDIC v. Todd & Hughes, 2006 WL 2128667 (N.D. Tex. July 27, 2006), a’ffd 509 F.3d 216 (5th Cir. 2007) (in which the assignee of an FDIC judgment was not entitled to FDCPA protection), the court held that the United States is the only party that may invoke the benefits of FDCPA, even where the debt was originally owed to the United States.

Applicable Law

While the above cases find that the FDCPA is not applicable law under section 544(b), several courts conclude the opposite and permit the debtor’s estate to use the FDCPA as "applicable law." The opinions that permit the debtor’s estate to do so, discussed below, lack the rigor and exhaustive approach taken by the courts above.

In In re Pfister, 2012 WL 1144540 (Bankr. D.S.C. Apr. 4, 2012), the chapter 7 trustee sought to avoid a transfer of property made by the debtor. The trustee asserted that the transfer was fraudulent and avoidable, and that he was entitled to judgment in his favor pursuant to all or alternatively, sections 548(a)(1)(A) and (B), and sections 544(b) and 550(a) of the Bankruptcy Code, state fraudulent transfer law, and the FDCPA. The bankruptcy court held, with little discussion, "because the debtor was indebted to the IRS at the time of the transfer, the court finds that the transfer is also constructively fraudulent and avoidable pursuant to §544 and 28 U.S.C. §3304(a)(1)." Further, even though the amount of the IRS claims were, in the aggregate, less than $20,000, the court determined that the amount of the recovery sought in connection with the fraudulent transfer action was not limited to the aggregate amount of the IRS claims.

Similarly, in In re Porter, 2009 WL 902662 (Bankr. D.S.D. Mar. 13, 2009), thetrustee asked the bankruptcy court to consider whether the transfer of certain property from the debtor to his spouse was avoidable as either a fraudulent or preferential transfer under section 544(b) and the FDCPA; the debtor had scheduled the SBA as an under-secured creditor.

"The fact that the SBA did not timely file a proof of claim in this case does not appear to preclude the trustee’s reliance on the FDCPA," the court stated. "Section 544(b)(1) requires the trustee to show there is at least one unsecured creditor holding an allowable claim under section 502 who, at the time the subject transfer occurred, could have utilized the cited federal law to avoid the transfer." Id. at *21.

In finding that the SBA’s claim met both requirements, the court concluded that the trustee could therefore step into the SBA’s shoes under section 544(b)(1).

In In re Walter, 462 B.R. 698, 703-04 (Bankr. N.D. Iowa 2011), the court did not require that a debt be owed to the United States at the time of the alleged fraudulent transfer in finding the FDCPA to be "applicable law." The defendant agreed that the trustee represented an existing unsecured creditor with an allowable unsecured claim under section 544(b), but did not otherwise challenge the trustee’s standing to assert a claim under the FDCPA. Instead, the defendant challenged the factual merits of the claim, asserting that the trustee was not entitled to rely on the FDCPA solely because the trustee pled no facts to satisfy the part of section 3304(a)(1) that requires the debt to be owing at the time of the allegedly fraudulent transfers.

Further, the defendant argued that even if the trustee could successfully avoid the alleged transfers, the trustee could not recover the full amount of the transfers, and that recovery must be limited to the value of the claim owed to the United States – based upon its interpretation that under the FDCPA, the United States may onlyobtain "avoidance of the transfer or obligation to the extent necessary to satisfy the debt to the United States. 28 U.S.C. §§ 3306(a) (1), 3307(b)." In denying the motion to dismiss, the court found sufficient support for the trustee’s argument that the full amount of the transfer was voidable and recoverable as property of the debtor’s estate, and not limited by the amount of the debt owed to the United States.

There appears to be more uniformity in permitting the 10-year reach-back period found in the IRC as long as the IRS was a creditor at the time the bankruptcy petition was filed. In

In re Polichuk, 2010 WL 4878789 (Bankr. E.D. Pa. Nov. 23, 2010) leave to appeal denied, 2011 WL 2274176 (E.D. Pa. June 8, 2011), the trustee’s complaint sought to avoid a fraudulent transfer under the Pennsylvania Fraudulent Transfer Statute, which had a four-year statute of limitations. The trustee alleged that the United States – specifically the IRS – was an actual creditor of the debtor at the time the transfers at issue occurred. The court held that, under section 544(b), the trustee may use the statute of limitations available to any actual creditor of the debtor as of the commencement of the case. "Finding that the IRS has at least a ten-year lookback period, and because the Trustee may step into the shoes of the IRS, she may seek to avoid transfers that occurred as far back as January 31, 1998." In re Polichuk, footnote 9. In accord, In re Republic Windows & Doors, LLC, 2011 WL 5975256 (Bankr. N.D. Ill. Oct. 17, 2011); In re Greater Se. Cmty. Hosp. Corp. I, 365 B.R. 293, 297-315 (Bankr. D.D.C. 2006), and In re Greater Se. Cmty. Hosp. Corp. I, 2007 WL 80812 (Bankr. D.D.C. Jan. 2, 2007).


Parties may not be "assured" by the mere passage of two, four or even six years post-transfer, that an avoidance action for recovery of a fraudulent transfer is forever barred.